Although differing markedly across regions, managed service programs are a big part of the global future.
By Debbie Bolla
Not many sectors of the market have seen growth in the last few years, but contingent labor is one of them. According to Aberdeen research, three to four years ago contingent workers made up 14 percent of the total workforce. At the end of 2010, data showed that the percentage had increased to 20. Analysts are forecasting another 5 percent growth this year. What factors are driving this?
“A lot of companies are moving toward project-based work, especially if they only need someone to complete a task in a short period of time,” notes Chris Dwyer, research analyst in global supply management for Aberdeen Group. “Contingent labor has exploded so much due to the economic downturn. When companies start their recovery period, they may be able to hire some people on, but more often than not, it’s a lot easier to hire someone on a temporary basis.”
Organizations have seen the advantage that temporary workers provide, given the soft economic climate; unemployed professionals who might have overlooked a contract job in the past now jump at the chance for any type of paid work. Workforce dynamics are also playing a role. Kip Wright, vice president and general manager of TAPFIN, a Manpower company, explains that the aging workforce, coupled with a new pool of workers, drive the appeal of contingent work.
“There is pressure on both generations,” Wright says. “Workers reaching an older age who can’t retire or don’t want to retire look to contingent labor in order to continue to enjoy their lifestyle. Younger workers have learned another way to engage. They are more familiar with activity-driven work, and seek new, varied challenges, which makes project-based work more appealing.”
Jason Cummings, vice president of enterprise performance for Guidant Group, sees both the economy and the changing needs of Generation X playing a role in the ever-increasing use of contingent labor by organizations.
“The X generation, placing their values of free time, energy and, health—over long hours at the office—is also resulting in an increase in contract and contingent employment. The contingent labor option embraces their propensity to take their knowledge and skills to greener pastures and diversify their careers,” he says. “Concurrently, from the corporate perspective, the recent increase in the economy does not seem to be enough to justify hiring full-time employees, ergo, companies are looking to the staffing industry to assist in staffing the ebb and flow of the recovery.”
Contingent labor’s continued growth seems to be in the cards. Dwyer says that organizations are now looking at how to build it into their business plan. “In the past, contingent labor was something that companies would deal with when necessary, but now they are being very proactive about it. It speaks to the fact that contingent workers are very much a valued part of the modern organization.” In fact, Aberdeen research reported that 55 percent of companies view contingent labor as a high-value strategy for 2010 and beyond.
Part of this new strategy and approach is taking contingent labor to a global level. Companies have looked to managed service programs (MSP) to oversee their temporary labor. Using an outsource provider to deliver all aspects of contingent labor—from day-to-day operations to off-boarding—has proven successful. According to Aberdeen’s research report, Contingent Labor Management, users of MSP have achieved a 20 percent higher contingent worker quality ranking than organizations without an MSP in place.
Success in the United States often breeds interest and growth in other countries. However the maturity level of MSP and contingent labor varies across the United Kingdom (U.K), Europe, the Middle East and Africa (EMEA), and Asia Pacific (APAC). Acceptance and usage in the U.K. is most similar to the U.S., but still much less at around 11 percent, notes Wright. European rates are even lower, in the 3-to-4 percent range. But continued growth in the U.S. signals a potential uptick across the globe.
One international firm that is leveraging the benefits of MSP is U.K.-based financial services provider Nationwide Building Society. Nationwide is the world’s largest building society and the U.K.’s third largest mortgage lender and savings provider. The society has approximately 700 branches and nearly 16,000 employees. The company was looking for a provider to manage all aspects of the contingent labor division, including candidate screening, vetting, on-boarding, systems accesses, and off-boarding.
Frank Arthur, senior procurement manager, along with members of Nationwide’s stakeholder team, vetted 10 potential suppliers via a request for information. The 10 were narrowed to four, and after supplier presentations Nationwide selected Advantage xPO as its provider in March 2009.
“Nationwide has implemented an on-site, fully managed, vendor-neutral service, which is a hybrid of MSP and master vendor solutions,” explains Arthur. “AdvantagexPO manages all aspects of the service, which include, but are not limited to, candidate screening, vetting and checking, on-boarding, systems accesses, hardware, and off-boarding. AdvantagexPO also provides the technology to support online timesheets, a supplier portal, supplier management and supplier payment.”
Moving to this hybrid solution has provided the building society with myriad benefits:
• A decrease of approximately 25,000 invoices per year (now an automated system);
• Cost savings via reduced supplier margins and effective rate management;
• A significant internal resource decrease in procurement, HR, resource management, finance, and accounts payable;
• A reduction in the number of agencies used from more than 100 to 11; and
• Transparency in accurate management of information.
The shift to outsourcing, however, was not without its challenges. Hiring managers were initially hesitant to break their relationships with preferred suppliers, notes Arthur. The automated system also had a few kinks in the beginning, but in general, the firm only experienced initial teething problems before the solution became well-accepted and part of company culture.
HOW TO GO GLOBAL
Since maturity levels vary by region, providers are reporting that a slow rollout trumps a big bang implementation. As Wright explains, a bevy of factors support this approach.
“Every country’s labor laws are different, every market maturity is different, cost structure varies, and pricing models vary, so you can’t take a one-size fits all approach when putting in place a contingent labor program,” he says. “You have to look at each country differently by their variables and adjust your model for each country to support each unique need.”
Joan Davison, COO of Staff Management, sees a similar approach that breeds success. “Clients go global for many reasons, but traditionally we’ve seen global expansion to achieve greater understanding and to gain visibility of their contingent labor worldwide. They want to know how many locations are using contingent labor, and want to understand their risk and their opportunity for efficiency gains. They go global to standardize processes. We try to educate our clients to let them know what may work here in the U.S. may be a good broad template, but not every aspect may be able to work globally. This can be a big adjustment. But we find it’s best to take the overarching strategy and go region by region to determine the best case scenario, where they should start the expansion and how the overall goal can be achieved through global components.
The U.S. model might be a good starting point, but Terrie Weinand, executive vice president and COO of PrO Unlimited, advises that commonalities among programs—where they can exist—is most important. “We have found that one model will not work everywhere. Typically, multinational clients start with a fairly innocuous step to define a policy with a common lexicon across AMEA, APAC, and the Americas,” she notes. “So regardless if they have multiple systems, they have a common language, so they can pull reports, which enables them to pull data and do cross-comparisons and identify trends.”
While the models and programs are a work in progress, the benefits of contingent labor are pretty clear across the board. Aberdeen reports some impressive metrics in from managing a contingent workforce efficiently. Companies using temporary staffing and independent contractors have experienced 76-percent higher cost savings, achieved a 45-percent higher rate of labor policy compliance, and rated contingent worker quality 21 percent higher than their peers.
While cost reduction is typically the most touted benefit of outsourcing, visibility in the contingent workforce and risk mitigation tend to trump it in the case of global deals.
“I would rank visibility as the first driver since it drives everything else,” notes Weinand. “Then, compliance is next in line, with cost savings following quickly after. Companies want to first see what they are spending, and then they want to reduce costs. That’s as true in U.S. as it is outside of it.”
Becoming more transparent in managing contingent labor provides companies an outlet for efficiency.
“For some of the clients that we’ve worked with, their local facilities did not have contracts with their staffing vendors, so there was no paper documentation of what they were providing. People were just showing up and getting paid,” recalls Davison. “So clients are looking for efficiency through the MSP. How can they make contingent staffing more efficient and fact based?”
Risk mitigation is another crucial factor because of the variances in labor laws. Says Davison, “You can’t underscore enough the changing nature of legislation, contingent labor and how contingent labor is viewed in some of these countries. It’s really important for the company to understand what risks they have and how it varies country by country.”
Aberdeen Group has recently reported findings that support MSP growth on a global scale. In collaborative research with Randstad (Best-in-Class Contingent Workforce Management Strategies), it found that 33 percent of companies have a program that includes multiple regions, and 19 percent have plans to expand the program over the next two years.
Davison agrees, “I think global expansion is going to continue to increase as the client sees the value and benefit, and learns about the flexibility they have within their workforce. In the future, once they better understand their labor markets, I think you will see more product decisions made based on the labor market and the flexibility of contingent labor in that market.”
TAPFIN’s Wright foresees an evolution of contingent labor in the coming years. “I think the market in 2020 will be dramatically different from what it is today. Clearly, one of the things we see from a client perspective is that the whole workforce is being driven by demographics and the impact of a younger generation. There is also a rise in sophistication of customers who have a better handle on price and value. Price is less important and value is more important.”
Guidant Group’s Cummings offers a different view of MSP’s future, in terms of consolidation due to the influence of global programs. “In the next 10 years, I believe MSP will be redefined, having gained a strong understanding of the determinants of international expansion,” he says. “Smaller, specialized service providers, unable to provide the massive multinational requirements, may likely spawn a systemic merging of mid-market service providers resulting in a handful of large MSPs, similar to what we have seen in the staffing space.”
Sidebar: Global MSP: Striking a Balance Between Standardization and Localization
Source: Staff Management
Expanding an MSP program globally begins with the understanding that going global is not as simple as duplicating what works in the U.S. and making that the standard around the world. Cultural, legal, and economic differences must be considered. Beyond the U.S., MSP practices are less common and not as easily accepted. Following closely behind the U.S. is the U.K., and then the Netherlands. Both are mature staffing markets, are experienced with MSP arrangements, have limited restrictions on such arrangements and reasonable program adoption rates. Beyond those fairly well established markets, there is a wide spectrum of flexibility to implement U.S. style programs.
Given this variation, a good communication and marketing plan for local client stakeholders and key regional suppliers (to educate them about MSP programs and the associated value proposition) is crucial. Excluding key local and regional suppliers from the process can create challenges, particularly in markets such as Brazil, where client-supplier relationships are extremely important culturally, and local suppliers are dominant. It can also lead to missing valuable insights about sometimes rapidly-changing local issues—particularly in emerging markets.
Internal and external experts, including in-country legal advisors, must be engaged on various local issues: employment law, tax law, privacy, and confidentiality—all of which vary considerably from country-to-country. Countries should be mapped from flexible to restrictive. Market maturity, experience with the MSP model, and staffing volume should also be considered. Restrictive markets such as Thailand and Vietnam should be studied carefully and might make sense for a later implementation slot and a substantially modified delivery model. A market such as China, with significant labor mobility restrictions, or an unregulated market such as Bulgaria might not be good fits for an MSP model. Some relatively flexible and mature staffing markets, such as the Czech Republic and Poland, might warrant close examination of the business case for change, because mandated temporary worker benefits can erode the cost benefit of an MSP model.
Complicating factors—as in the German market, where an existing temporary workforce cannot be transitioned from an incumbent supplier to a new supplier—must be taken into account when deciding on roll-out strategy.
Global companies are increasingly interested in achieving a global staffing platform with an understanding that the program will vary significantly region-to-region. With a flexible approach and an adaptable program framework, global MSP programs are possible.