Organizations require an integrated approach to their workforce to meet strategic talent needs.
By Russ Banham
Today’s workforce could not be imagined just a generation ago. So many different categories define “workers” at present, and so many different configurations of these categories help define organizations, that they would have defied comprehension even 20 years ago.
With that context, some of the top providers of managed services programs (MSP) and related advisors recently shared their views on trends in workforce solutions. All the respondents agreed that MSP is at an inflection point, one in which experimentation is giving way to more standardized practices. Primary among these is growing interest in an integrated approach to meeting an organization’s talent needs to drive its strategic objectives.
“To be successful and fully leverage the large talent pool today, organizations must have a more comprehensive understanding of the availability and competition for talent within given sectors, including inside and outside their own companies,” says Teresa Carroll, senior vice president of centers of excellence at Kelly Outsourcing & Consulting Group in Troy, Michigan. “They are looking for solutions that deliver the right talent in the right approach, whether full-time, contingent, project consultants, and so on.”
This evolution pressures MSP providers to understand gaps between a client’s projected needs and its current supply of talent. Says Carroll, “Companies that clearly understand the talent available in-house, and can gauge the talent available outside the organization, will be better positioned to access and obtain the workforce needed for success.”
Asked what they considered to be the major trend in MSP, providers and advisors both cited an increase in clients seeking a total workforce management solution. Les Duncan, managing director of Hays Corporate Accounts in London, put it most succinctly: “Due to recent economic uncertainty, the contingent resourcing cycle has been elongated.” This has resulted in a higher percentage of temporary workers and contractors in the workplace. “There is a reliance on contingent staff to not only perform as well as their permanent colleagues, but also in many respects surpass them in terms of expertise,” Duncan adds. “This drive for contingent talent has led to managed service programs being seen as a strategic element within the resourcing process and crucial to a company’s success.”
Sharing this view is Frederick Winstead, vice president of Allegis Group Services. “Clients today are requiring a total workforce solution to manage all talent associated with their organizations, including their contingent workforce, independent contractors, and permanent hires,” Winstead says. “Combining all labor services into one program offers better visibility into usage and increased reporting and workforce planning capabilities.”
Hays is increasingly hearing from clients who want technology not only to manage their contingent workers, but also to provide statement of work (SOW) and applicant tracking system (ATS) functionality. Anne Osty, vice president of sales and marketing
Staff Management | SMX , cites the same requests. “Ultimately, our clients want to include all nonemployee worker types in their programs—contingent and SOW consultants as well as outsourced services, which include diverse functions from call center operations and IT help desks to food and lawn care services,” she says. Other clients are integrating deliverable-based services that wouldn’t traditionally fall under an MSP, “but because the supplier management process is similar, such as learning and development, they can obtain the benefits of MSP management,” she adds.
Duncan agrees. “This suggests that the ‘one supplier, one solution’ is the way things are set to go,” he says.
Teresa Creech, president of managed service programs Randstad Sourceright, also comments on greater functionality as a major trend. “We’ve seen the addition of new work categories, such as SOW, light industrial, and clinical, and the expansion to multinational and global program architectures. We’re also seeing a trend toward the blending of MSP and RPO.” These trends, she adds, are driven in large part by the desire to achieve more value over time. “Many MSPs are second and third generation; therefore, the value from traditional temporary labor categories has often already been optimized,” Creech explains. “By addressing the edges of these categories, both clients and providers have an opportunity to produce significant increases in measureable results.”
Others, such as Allegis’s Winstead and Zain Wadee, managing director at RPO provider hyphen in London, also cite growing requirements from clients for their organizations to provide SOW offerings. “We’ve definitely seen increased interest for companies to rely on their MSP providers to manage their services procurement SOW global spend,” Winstead says. “MSP providers with a solid services procurement offering are able to reduce the risk of misclassification and perform detailed assessments of work being performed to determine proper allocation of resources, which then offers visibility and control around a client’s various indirect spend categories.”
Wadee says that buyers increasingly expect MSPs to ensure that selected deliverables are met, citing as an example contingent workers hitting project timescales. “This moves MSP into a new space that traditionally was the preserve of consultancies, signifying an area of growth,” he explains. “With a continued commitment by organizations to reduce costs, this trend is likely to continue over the next three years, and it is likely that a proportion of fees paid to MSPs will be aligned with these key deliverables.” As this trend increases, MSPs “are set to become much more involved in total workforce management for contingent workers,” he adds.
Another trend, cited by Moray Brown, practice director at London-based Reed Consulting, is a continuing focus on reducing costs and improving control and compliance. “In the last two years, we’ve noted a growing number of private sector businesses wanting a more robust, direct sourcing model included within the capability of their MSP provider,” Brown says. “While we can and do operate as a hybrid MSP provider, the ability to drive these efficiencies through the MSP supply chain has a limited reach, and rightly so, as we need an engaged and motivated supply chain moving forward.” Consequently, the firm is moving toward a greater proportion of direct sourcing, giving it more control over driving greater efficiencies into its MSP programs, in addition to working with customers to achieve cost reductions. “We believe this offers the greatest benefits in efficiencies versus risk,” he says.
Total spend under management by MSP providers was up more than 20 percent from 2009 to 2010, according to the Staffing Industry Analysts (SIA), and the temporary penetration rate continues to climb back to prerecession levels. Although SIA’s 2011 Contingent Buyer Survey indicated a decrease in the MSP penetration rate among buyers, SIA is projecting greater penetration in 2012. Additionally, McKinsey reports that 58 percent of employers plan to hire more contingent workers in the years ahead.
Many observers agree with these major growth projections for MSP, as more organizations turn toward total workforce solutions. Not that impediments don’t exist.
Says Winstead, “A key challenge of any integrated solution is configuring the implemented technology systems to manage all labor categories, including full-time, contract, and outsourced project services work.” Organizations need such tools implemented properly to accurately provide the required data to successfully manage the on-board/off-board processes, and to extract the relevant metrics to help plan for future needs, he explains.
As companies continue to increase their reliance on contingent staffing, Osty believes that MSP growth will continue. “That said, we do recognize a shift taking place in the marketplace. Many of the largest users of contingent staffing have implemented an MSP program, so new client acquisition in the largest program segment may be leveling off,” she says.
Osty projects a “tremendous opportunity” to drive continued growth by focusing on “bringing MSP services to clients with smaller contingent labor expenditures,” she says. “MSP providers have generally not invested in an effective solution to meet the needs of the smaller market ($10 million or less of primarily domestic spend). While we manage some of the largest and most complex MSP programs in the industry, we also continue to focus on smaller and mid-size clients, and believe that those users will yield further opportunity for growth and expansion.”
Reed Consulting’s Brown says the growth of MSP across domestic, regional, and global markets “is set to continue and with pace. The challenge for some suppliers will be demonstrating experience in embedding themselves as a key part of the business’s hiring authority and delivering an agile contingent workforce solution.” He adds that Reed Consulting has noticed an increasing number of businesses reviewing their MSP contracts partway through the contracted terms with the current provider. “We believe this is linked to a wider market shift that is seeing businesses increasingly move away from seeking a multisupplier managed MSP platform to a MSP platform that delivers more direct sourcing agility,” he explains.
While cost efficiencies are undeniably a key driver in the MSP decision, hyphen’s Wadee cites other factors driving MSP growth. “The level of service through MSPs is high, and the cost is less than traditional agency models, which has encouraged many organizations to explore this option,” he says. “MSPs also allow organizations to deal with large recruitment volumes, while ensuring the consistency of hires. Managing all contingent recruitment under one roof ensures this consistency, while enabling organizations to measure performance more effectively.”
While Randstad Sourceright’s Creech agrees with the contentions about further growth, she cites a potential challenge—variable and fixed talent often failing to be combined as a single strategy for buyers. Wadee shares this view: “This still isn’t an exact science. There continues to be a disconnect between planning for permanent hiring and the use of contingent workers across many organizations.” He adds that flexible workforces are often hired to complement established workforces, whereas contingent workers are not factored into overall recruitment plans. “This results in a lack of planning, with several organizations taking on contingent workers as a ‘distressed purchase,’ ” he says.
Creech believes that as talent preferences shift and the global economy remains uncertain, companies increasingly will look for ways to take a holistic approach to talent acquisition and engagement. “Our role as a strategic talent advisor is to help clients . . . build a cohesive plan to enhance the quality, utilization, and cost effectiveness of both variable and fixed talent,” she says.
Osty expands on this idea. “Our clients look to us to do more than manage their contingent workforce,” she says. “They also look to us to keep them abreast of market trends and how their program compares to others.”
Multiyear and Then Some
Multiyear MSP contracts are largely the norm among buyers, with expectations of further growth in this regard. Creech comments that the more MSP providers become an integrated part of the talent strategy, the more difficult it becomes to separate a client from the provider. “Together, we become mutually accountable for mission critical workforce planning and execution,” she explains. “This is the most important reason to carefully engage in the appropriate due diligence to secure a successful partnership.” Kelly OCG’s Carroll also predicts contracts of longer duration. “The level of time, resources, and necessary change management to implement an MSP implies that companies do not want to continue to implement new programs,” she says.
Osty concurs that MSP programs are long-term partnerships demanding a strategic plan. “Without a multi-year contract, it is harder to realize the strategic vision for the program,” she says, adding that buyers recognize that there “is more to an MSP program than the low hanging fruit of vendor consolidation and have come to expect a strategic approach to driving ongoing return on investment.”
Multiyear contracts further allow for true program governance, thought leadership, and ownership of all program elements with an alignment between local, regional, national, and global leadership, she adds.
While Brown agrees that businesses are in favor of multiyear contracts, given that their longer durations enable buyers to negotiate more cost-efficient contracts, he says the deciding factor will always be how compelling an MSP provider’s solutions are—and what is being promised in terms of operational and commercial value over the agreed term. Regarding this duration, Wadee anticipates that contracts will remain around three years’ length. Why? “This amount of time allows for a sufficient tenure to secure a decent level of return on investment, while also allowing the flexibility for organizations to ensure they have the best overall solution for their requirements,” he says.
Some other trends affecting MSP include what Carroll cites as various industries seeking to emphasize employee safety and how MSP partners can help them manage their talent programs to ensure safety objectives are achieved. Osty, on the other hand, cites a wider interest among buyers in the inclusion of light industrial staffing, as well as heavier industrial positions, in their MSP programs. “There has been a feeling in the marketplace that light industrial wasn’t the right fit for MSP . . . because of their complexity, lower margins, and higher risks,” she says. “Now, buyers are more and more interested in getting a better handle on all aspects of their labor supply chain.”
Reed Consulting’s Brown notes the move by many businesses toward using MSP to manage their relationships with third-party consultants, such as system integrators, management consultancies, and professional services companies, alongside their temporary/contingent workforce suppliers. He chalks up this emerging trend, in part, to businesses moving to “put a ‘service wrap’ around the way they approach the management, governance, payment, and risk associated with this spend area. It brings lots of benefits,” he says, “but the most significant is that it allows providers like ourselves to becoming more involved in strategic workforce management, meaning that we can bring added value by helping businesses to come to more intelligent resourcing decisions.”