The right provider can transcend contingent worker oversight to provide workforce strategy.
By Debbie Bolla
Contingent workers have clear advantages over some permanent staff: They are project driven, provide skilled expertise, and offer the ability to scale up or down. The U.S. Bureau of Labor Statistics recently reported that this sector will grow: By 2010 nearly 25 percent of the U.S. workforce will be contingent or part-time. Growth is already occurring.
“Looking at our data, there is a 5 to 6 percent uptick in usage,” says Chris Dwyer, Aberdeen Group. “A typical company’s workforce is 12 percent contingent, and last year it was up to 17 percent. So it’s starting to grow.”
But often organizations that could benefit from part-time, temporary employees find the process to be cost prohibitive. Dealing with multiple, high-touch, third-party vendors can be complicated and time consuming. For organizations that operate with a steady flux of contingent workers, a managed service provider (MSP) program can help alleviate both cost and headaches.
Randy Ammons, HR executive for marketing services company Dex One, has seen both sides of the coin. Dex One hires anywhere between 100 and 200 part-time workers in a variety of positions for its IT and creative development departments. Before engaging with his provider Advantage, his firm was handling its contingent workers on their own through various managers and third-party vendors. It was expensive and high-risk from a legal compliance standpoint.
“In 2007, we had dozens of managers using dozens of staffing companies bringing in hundreds of temporary employees,” says Ammons. “We saw that it was an issue. There were many instances of above-market mark-ups, and a lot of the staffing vendors that were being used really didn’t care about legal compliance like proper worker classification.”
Ammons explains that the managers couldn’t be accountable for sky-high and inconsistent rates and understanding compliance issues since it wasn’t really their job. The HR executive saw the need for the firm to leverage external expertise in order to correctly manage this sector of the company’s workforce through an MSP program. The provider would handle legal compliance needs and deliver on-demand visibility to show the details of start and end dates of temporary workers, plus pay rates.
“It was important for us to locate a true strategic business partner,” says Ammons. “We wanted someone who would take an active role in helping to make business decisions, like considering bringing on full-time employee when necessary.”
And Ammons found that through Advantage. While Advantage helps with all of Dex One’s contingent workforce needs through sourcing, staffing, and compliance, they also provide visibility of the sector through a web-based tool. The outsourced provider also helps Dex One make business decision for workforce planning.
Change management was a bit of a challenge for Ammons. Business managers were accustomed to hiring whomever they wanted, whenever they wanted, often without approval. Advantage stepped up by providing a manager of client services to explain new procedures and handle the grievances of managers while keeping the strategic goals of the company and program in mind. There was also a booklet published to explain the goals of the contingent program as well as training for managers to understand how the technology works and what the benefits will be.
And the benefits were varied and abundant. First up was cost.
Ammons admits that it was a bit difficult to identify overall spend for 2006, but in 2007 pre-Advantage, it was more than $11 million. Post-Advantage, it dropped dramatically—to between $4.5 and $5 million due to reduction in mark-ups. Dex One is also experiencing a 100 percent fulfillment rate, with a 92 percent satisfaction rate among placements.
Ammons experienced a 180-degree change through the institution of the MSP program. Cost savings and decrease in time-to-fill rates are common, especially in the first year. In the recent report “Driving Contingent Labor Performance Through Manager Service Providers” from Aberdeen Group, enterprises using MSPs for their contingent workforce see 9 percent year-over-year cost savings on contingent labor spend and an average of nine days time-to-fill compared to 12.5 days for a non-MSP user. Other MSP capabilities include classifying employee types, standardizing contract labor management processes, centralizing management of contingent labor, providing performance reports on staffing vendors, and the ability to track project services spend.
Unlike outsourcing other functions, having a MSP program is not a commodity or a product, but rather a relationship. Several of our experts commented that as the industry matures, expectations will grow and so will the need for value-added services and a more strategic partnership between providers and practitioners.
“The thing about contingent labor is that it’s not a classic procurement or HR relationship—you’re dealing with people,” says Dwyer. “There’s a certain quality level that needs to be met. You can’t just have a solution manage it. MSP has to be a strategic partner since there is a human factor and a quality factor.”
So after the initial cost reduction, organizations tend to ask their MSPs—what next? Providers are answering the call.
“We see the industry going into the value stream,” says Joan Davison, chief operating officer for Staff Management. “There are only so many rates you can reduce before there aren’t any margins to see efficiencies. For us, it’s about getting into clients value stream. How do we support the overall business model? How do we evolve the MSP model to be able to support pricing models, risk and reward gain sharing models? It’s evolving away from just the rates and markups. It’s going beyond that.”
MSP will add strategic value by helping their clients reengineer processes to take out costs. They will analyze business models and provide suggestions for a more flexible labor environment. Being strategic means revisiting the way in which companies handle their processes.
“Companies need to look to their MSP as an extension of themselves,” says Stacie Habegger, chief sales officer for Agile 1. “It’s easy to bring value when you make an initial change. MSP need to stay ahead of their clients’ needs. That could be employing a labor economist who scours the market in specific skill classifications. Or identifying what engages different generations and creating solutions around those key issues and bringing them back to clients. MSPs need to continue to provide value through the lifecycle of the relationship.”
As MSP programs evolve, they will also take a role in total workforce planning. “Industries are moving toward more of a blended workforce,” says Kay Colson, consultant for CDI. “Where can you do a temporary to permanent conversion? It can be a smart move. Then you don’t have to recruit that person and they are already trained. How can you leverage that appropriately? The concept is valuable.”
Industry experts are identifying a few factors that will drive MSP growth. As with other markets, globalization is a significant trend. As organizations become more and more global in nature, the need for contingent workers in the international space will only increase. MSP will have to be able to provide the same level of legal compliance domestic and abroad.
Independent contractors are getting a lot of discussion in the industry, as well as statement of work (SOW). The Obama administration estimates that misclassification of employees as independent contractors could cost the U.S. Treasury Department more than $7 billion in lost payroll tax revenue over the next 10 years. This means increased audits and tighter laws that govern employee classification. It has also brought the management of independent contractors to the top of the priority list for many staffing buyers.
“I have seen a sharp move toward including these alternative labor types as part of the contingent labor umbrella, which already includes the “classic” temporary labor model,” says Dwyer. “MSPs need to shift their thinking to include all of these types of labor if they want to prove their viability into 2010 and beyond.”
Davison agrees: “Over the last 12 to 18 months we’ve seen staffing buyer interest in incorporating services spend into MSP programs increase. This interest is being driven by the need to drive escalating cost savings from contingent workforce programs. Like independent contractor management, SOW spend management is a key objective for staffing buyers in 2010 and something that we’ve built our MSP delivery model to accommodate.”
Diversity is also going to be a consideration. “Companies are now looking to MSPs to commit to diversity goals in terms of tier two supplier management,” notes Habegger. We are being asked to track diversity spend in all the categories. Companies look for MSP to create some very strong diversity inclusion strategies that are wrapped around their solutions.”
It seems as though two things will grow in 2010—the need for contingent workers and the offerings of MSPs