Domain experts from the hottest area in HR services explore its promises and pitfalls.
By Drew Dix
Today’s leading providers of managed service programs (MSP) face an array of new challenges as their profession evolves. An increasing number of firms are using many types of human capital outside fulltime workforces that presently include temp labor and outsourced project workers. The five primary sponsors of the 2011 MSP Summit recently shared their insights about how an MSP can become much more strategic in delivering efficiencies and savings.
Providers largely agree on the chief benefits offered by MSP: cost savings, compliance, and analytics.
MSP can often provide a reduction in operational costs of 15 to 20 percent through economies of scale, according to Scott Fraleigh, vice president of managed services at SourceRight Solutions. “Substantial savings can be achieved through increased program visibility, the elimination of rogue spend, and an optimized supply chain,” he said.
Guidant Group’s vice president of client solutions, Andrew Zarkadas, stressed that some firms lack the in-house ability to uncover risk and needless expense. “We want to provide not just tool sets, but guidance as well,” he said. “We help clients answer the basic questions about transparency: What are we spending? Who are we spending it with?”
Compliance is another key advantage with an MSP. Staff Management’s global vice president of vendor management solutions, Christine Abbeduto, estimates that the federal government lost more than $7 billion in tax revenue due to 1099 non compliance alone during the 2009 tax year. “This has become a serious issue—quite a laundry list of lost revenue for the government. It’s the result of a perfect storm: the government looking to collect what’s owed, and an economic crisis that’s propelling them to more scrutiny as well,” she said.
The combination of reporting and analytics was likewise emphasized by all. “It’s critical nowadays to really have a holistic view of your employee population,” said Abbeduto. “Twenty-five years ago, companies just didn’t have adequate systems of measurement.”
Added Bruce Morton, chief marketing officer at Allegis Group: “MDS [minimum data set] technology is fine for capturing data, but turning it into an actionable format is key—reporting needs to lead to strong decision making from the data.”
Beyond the three main benefits of an MSP program, sponsors also cited the leveraging of multiple program models (vendor neutral, master vendor, or hybrid) to spur gains in service and capability.
“It’s critical to have a team of experts specifically focused on contingent workforce management and managed through agreed upon service level agreements [SLAs],” Fraleigh stated. “A strong MSP provides expanded access to preferred supplier networks, competitive rates, and workforce management automation. Organizations are looking to partner with providers who will manage and measure milestones on a performance basis, and provide the ability to manage contingent workforce programs globally,” he said.
In addition, Allegis’s Morton emphasized the improvement in workforce quality and efficiency. “There has to be absolute transparency with every facet of a firm’s contingent workforce, and an effective MSP program provides this platform.”
MAKE OR BUY?
Part of the challenge of MSP adoption is the decision of when—or if—to outsource. “We see clients try to maintain control, especially with supplier contracts, trying to mitigate risk,” said Zarkadas. “But it’s really not best practice. Ideally, the client needs to give the MSP leverage and negotiating power to establish best in class rates and drive improvement. Firms should outsource as much as possible—hold us accountable and drive maximum ROI.”
“There’s no doubt that customers want to make the right decisions, not just educated guesses, but they often lack the insight,” added David Barthel, Allegis’s executive director of capital solutions. “Customers want to avoid legacy costs” he said. Barthel also noted that today’s average job assignment is just 18 months, which is what most workers want. “They want to be leading edge with lots of different environments to work in, and look at all opportunities that may be available,” he said.
SourceRight deploys an analytics-based decision-tree to guide clients in constructing the best solution based on multiple factors. It involves making the right outsourcing decisions based on job and skill classification needs, budget, and geography, and whether the client has the right skills and internal resources.
Some firms might see value in outsourcing certain job functions on a project-by-project basis, rather than completely outsourcing.
Barthel agreed: “IT, CRA, specialized legal, medical examiners, forensic examiner are all
examples of functions that are fully outsourced.”
SourceRight’s Fraleigh concurred, stating that outsourcing should encompass those functions “not core to an organization’s business. However, processes that can be project-based are those that have well-defined start and end dates and require a partner with specific expertise that can be deployed quickly,” he added.
STATES OF THE ART
As it is with any burgeoning field, the need for innovation and thought leadership is critical to the continued evolution of the MSP.
Technology and reporting factor in heavily. The reporting modules that develop visibility and transparency configured specifically to a client’s internal needs have come a long way. “Yes, the ‘super users’ want the big picture,” said Zarkadas, “but the firm’s average end user may only be using one to three reports key to their division or responsibility.
Also, leaders in this industry will figure out centralized talent management as well, delivering all employee services with a single platform and single technology. Providers that can get this right will be most successful.”
Barthel made note of recent innovations in services procurement. “Really capturing and managing services procurement spend has improved, along with market analysis overall. The ability to turn data into an actionable format wasn’t here a couple of years ago. VMS [vendor management software] is good at reporting, but making data actionable is critical.”
Companies are increasingly taking a closer look at their total labor management pool, and looking at MSP solutions to help.
“More people are accessing MSPs to help utilize the information that they have, and then analyze the next set of cost savings: How many people should they be payrolling? How many should be set up through traditional staff augmentation and when?” said Abbeduto. “Once you have visibility in each of those sectors with an MSP, you can understand, pull out the data, and begin to plan.”
She noted another interesting wrinkle: “Another new trend is the desire to work in Europe because of the national health care advantages. We could see that advantage develop here under the present administration” she said.
Fraleigh offered another set of innovations: “We see new workforce and spend analytics that merge data with insight that help companies uncover supplier opportunities, market trends into jobs and rates, and visibility into opportunities for improving quality and productivity. Mobile innovations like texting opportunities to contingent workers, time applications, and on-the-go approval processing are taking hold as well,” he said.
HOW SOON IS NOW?
All observers agreed that the near term is highly promising.
“The bar is getting lower for adoption,” said Abbeduto. “There’s a huge influx of companies with less than $20 milllion in revenue taking a cue from the Fortune 500. . . . Smaller firms are also using programs that have MSP sitting on top of VMS technology, providing consultative analytics that can help make strategic business decisions they found difficult to make 25 years ago.”
She also noted the reduced hiring cycle in today’s hiring climate. “Companies are no longer willing to wait 10 to 15 days to find the right person. In today’s global economy, they want them in the door tomorrow.”
SourceRight’s Fraleigh sees growth in the IT and financial services verticals. “More professionals are opting to be part of the contingent workforce movement, so that’s another trend that we expect to continue in 2011. This talent pool offers great value to companies but also comes with risk, but we expect this trend to increase the demand for independent contractor services and statement-of-work [SOW] solutions.” he said.
Guidant Group’s Zarkadas predicts more industry consolidation, calling it a “major factor” in the space. “Right now we’re really seeing five to seven major players, with three to five really leading, with more consolidation to come.
Fred Winstead, vice president of capital solutions at Allegis, also cites a “move to service procurement—companies asking for SLA/SOW support within the programs they have now.” That’s especially true in global markets, he added. “The AsiaPac region is growing quite a lot.”
THE STRATEGY BONUS
Beyond systems and management tools, MSP providers also deliver the strategic advice and counsel needed to develop the most effective program.
“Some providers go wrong by viewing workforce management as an administrative-only solution,” said Zarkadas. “As a leader in the field, we excel in high level executive communication—letting clients know what we see and letting that inform strategies to keep them ahead of the game and on top of the market trends.”
”We help firms approach the increasing amount of contingent workforce by advising them on how best to refine talent—that is, how best to get things done, with what percentage of contingent labor,” noted Barthel.
Staff Management’s Abbeduto points to its brand of consultative approach to find out what the pain points are. “We’re going to create a strong business case and drive what that can be for end users, sites, and regions so programs become embraced. It’s important to work with clients to create three- to five-year blueprints, reworking when necessary based on new corporate requirements and initiatives. Then be prepared to reevaluate and restart it after five years!” She also stressed the need to carefully balance cultural requirements for each global location.
SourceRight’s strategic advice solutions are also scaled to manage large-scale contingent workforce programs. “Ours is a consultative approach to effectively maximize a client’s ROI,” said Fraleigh. “We emphasize rate management and a keen ability to analyze market trends and wage patterns against current market conditions.”
“With every client, the biggest challenge is transformation management,” said Zarkadas. “Many firms are resistant at first, but soon it clearly becomes a risk mitigation exercise, and the advantages become apparent.”
Besides a positive effect on the bottom line, reduction in day-to-day administrative burdens is the first realized benefit, but often that comes after overcoming initial obstacles.
“We’ve found that implementation of our programs follows the ‘80-20’ rule: 80 percent of our programs are consistent for all clients, and 20 percent are carefully configured. And that’s what we’re constantly refining- providing most streamlined processes for each client,” added Zarkadas.
Winstead echoed the importance of dispatching conerns upfront. “The Fortune 1000 is ready and willing and have the desire for MSP but don’t have expertise and capability,” he said. “We need to quickly demonstrate that we don’t want to get in the way, but rather get people involved in solution design.”
Fraleigh likewise reiterated the issue of change management as an early issue: “An MSP solution needs to be a collaborative strategy that incorporates a dual voice between you and the provider to your internal users and your suppliers. You should not implement an MSP when you like the ‘idea,’ but you have not fully evaluated the implications of the long-term solution and partnership requirements.”
All of the 2011 MSP Summit sponsors agree that the rate of MSP adoption is approaching a sharp growth curve. “Since first gaining traction in the late 1990’s, MSP adoption has really taken off in last three to five years. The Fortune 500 now has a 35 to 40 percent penetration rate, with a level of 70 percent estimated in the next three years,” said Zarkadas. “2011 is on a pace to be a monumental year in the industry.” Zarkadas also estimates that nearly 40 percent of the average Fortune 500 workforce is now flex.
Staff Management’s Abbeduto agreed: “We’ll have more adoption by smaller companies. Firms now coming to the table for RFPs are already including requests to bid on SOW and 1099 work, not just staff augmentation. You wouldn’t see that two years ago, and it’s largely driven by increased government scrutiny.”
Abbeduto, added that companies are also migrating programs globally much more quickly. Zarkadas summarized MSP demand by stating simply that “people want to work on their terms. Gone are the days of working 40 years for the same company and retiring.”
Providers are keen, of course, to offer proof of their programs’ effectiveness in the marketplace.
“We launched a domestic MSP program for one of our clients last year that had both a strong corporate mandate and good executive sponsorship,” said Abbeduto, “and based on this, and their aggressive savings goals, we agreed to a big-bang implementation strategy. As we got close to go live, the client did contemplate abandoning the big-bang strategy. However, based on the strength of our implementation plan and their need to generate immediate savings, they stayed the course. As a result, the program generated savings from day one and has achieved program adoption rates in the high 90’s.”
Barthel of Allegis offered similar success: “Allegis partnered with a leading technology company in 2008 to provide MSP services. They were skeptical that we could meet targeted savings and diversity metrics, largely due to the fact that they had very aggressive rates and a core group of suppliers. But by revising our customer’s rate card, managing and negotiating conversion fees, and instituting a preferred payrolling program, we provided cost savings of over 10 percent from the previous year, while maintaining quality objectives. By implementing lead time rules, the preferred payrolling program, and mentoring diverse suppliers, we increased diversity spend from 11 percent to 29 percent in less than one year.”
FROM THE FIELD
Patty LaValle-Jones, director of procurement for marketing and HR services at Sara Lee Corporation, provided strong endorsement for a comprehensive MSP solution. In 2007, she lead the cross-functional team that sourced and implemented Sara Lee’s MSP program. Since then, Sara Lee has continued to expand its MSP program across a growing global footprint with Staff Management.
“One of the most significant benefits of our MSP program is the flexibility we have gained,” she said. “When we have policy changes that affect the temporary workforce, we can work centrally with our MSP to get those changes out to the workforce efficiently. When our business needs change, we can adjust our supplier mix to achieve savings. For instance, we are in the process of reconfiguring our supplier network as a result of a recent supplier sourcing initiative that we ran with Staff Management. We are now achieving both a significant cost savings and improvement in our diversity supplier spend percentage. We anticipate quadrupling the amount we spend with diverse suppliers as a result.”
LaValle-Jones also emphasized the ability to drive standardization throughout the organization, citing a successful 1099 review process through the MSP program. (All independent contractors are validated jointly by Sara Lee and Staff Management.) “Using our standard MSP contract template drives compliance, ensures consistency in terms, and provides the highest level of risk mitigation for Sara Lee,” she concluded.
Doug Cutrell, as director of professional services for Siemens, is responsible for all domestic procurement activity related to temporary labor, consulting, and technical services. Siemens has experienced expansion across all categories of talent, but anticipates the most growth in the professional talent category.
“We see a growing trend toward workforce measurement and analytics to drive better forecasting of talent scope, demand, and retention,” he said. “Through SourceRight Solutions, we centralized our managed service program to improve our ability to manage our contingent workforce. In 2011, we will focus on optimizing this investment by monitoring talent spend by category and extending the program to other types of non-employee services. As we continue to see rising costs due to national unemployment, and a predicted tightening of the labor market, there is an increasing interest in new ways to contain costs. As the employment model becomes more blended, employers are likely to focus on attracting qualified talent, regardless of their job classification. This will present new compliance challenges related to co-employment regulations, contractor compliance, and overall fair employment practices.”
Sara Lee’s LaValle-Jones summed up the need for effective MSP engagement. “I cannot emphasize enough the importance of cross-functionality involvement in MSP program sourcing and design. The importance of getting buy-in from your key stakeholders early and often cannot be underestimated, particularly when expanding globally. Also, selecting an MSP partner that truly is willing to understand your culture and business needs and modify or customize the program where appropriate will define your overall program success.”
MSP has already arrived—and in a big way. But its biggest days might still lie ahead.