The complexities of contingent labor make outsourcing its management more compelling then ever. For most.
By Caroline Storey-Sabetti
During the past decade, spend under management by managed service program (MSP) providers has increased significantly. MSPs have also changed the way in which companies manage contingent labor and other complex services. In 2012 the Staffing Industry Analysts (SIA) reported that spend under management by MSP providers grew significantly, up 29 percent from 2010 to 2011. Somewhat surprisingly, SIA’s 2012 Buyer’s Survey found that, despite the ongoing increase in spend under management, MSP usage rates were down slightly across all spend categories. These declines were negligible, ranging from one-to-three percentage points, for all categories except for the largest buyers of contingent labor—those that spend more than $500 million annually.
It is too soon to determine the long-term significance of the 2012 MSP usage rates or whether they correlate in any way to an increased interest in in-house management by buyers. On the other hand, the question of why to outsource the management of your contingent workforce to an MSP, versus managing the program internally, is worth considering.
The Aberdeen Group suggests, in its 2012 report The Next-Generation Guidebook to Managing the Modern Contingent Workforce Umbrella, that, “contingent workforce management has become more complex over the past half-decade—and may have exceeded the control of the organizations that use temporary labor to achieve corporate goals and objectives.” Using its best-in-class maturity framework, Aberdeen found that 86 percent of firms enjoying best-in-class performance use an MSP solution, versus laggard firms where the percent of MSP usage was just 30 percent. Why is this?
MSP providers have valuable experience implementing multiple MSP programs that an organization implementing an in-house program for the first time does not. As a result, forgoing an MSP and managing your program in-house can create a significant learning curve. Even if you have internal resources with staffing industry experience, the relevancy of that experience has a shelf-life. You run the risk of reinventing the wheel to solve common problems. You also might have access to fewer insights and innovations. MSP providers have a unique perspective over multiple years, varied geographies, multiple clients, and a wide supplier network. MSPs have the ability to benchmark broad market rate data, savings percentages, and other measures of ROI and performance in real time across their marketplace. Without this knowledge, cost savings and performance improvement opportunities can be missed.
MSP providers also have access to cutting edge trends and best practices. Such access ensures that the program is effectively rolled-out, continues to yield value, and does not stagnate. A self-managed program can lack these insights and fail to realize optimized processes and continuous improvement. Also, an MSP is not restricted by internal politics and is contractually obligated—by virtue of weighted service level agreements (SLAs) and fees at risk—to achieve savings, program adoption, and performance goals.
Managing a contingent labor program and staffing vendors is not a core competency for most companies. By outsourcing program management to an MSP, you can minimize the number of fulltime employees required to manage your contingent workforce over the long-term. An MSP provides a single point-of-contact for program management, access to a team of subject matter experts, and a scalable solution. An MSP will have the ability to deploy experienced staff quickly in response to increased demand and will offer a wide range of sourcing and management options with broad geographic reach.
Becoming a staffing industry expert is not practical or desirable for all companies that use contingent labor. While good third-party research is available to help keep in-house teams aware of changing legislation and trends, this can be time-consuming and impractical. Also, access to market intelligence and reading about industry best practices is not the same as having actual market experience. Lack of market experience can lead to missed opportunities, compliance exposure, and inefficiencies. MSP providers bring a wealth of experience managing complex implementation and regulatory compliance issues. This know-how ensures that contingent worker risk exposure is managed and that the program leverages leading strategies. Moreover, if an MSP fails to perform well on audits, does not deliver continuous improvements, or neglects to deploy emerging best practices for their clients, it will be replaced.
In the event that you choose to hire in-house program management resources, those individuals become valuable subject matter experts with unique skill sets. Initially, you might benefit from built-in cultural alignment and less risk of change. However, if those individuals leave the company, that valuable expertise is lost. Contrast this to an MSP provider who has a staff of seasoned program managers and a centralized services center to support you in the event of turnover.
Of course, if outsourcing is not part of your overarching company strategy, then outsourcing to an MSP will likely not align culturally. When contemplating self-management, ask yourself whether you have the expertise, time, and budget to manage the program internally. Do you have the appetite to stay on top of new insights and best practices to keep the program current? Ultimately, make an active, informed decision as to whether or not it is desirable and/or practical to develop contingent workforce program management as an in-house core competency.
Not All or Nothing
The decision to outsource is becoming less of an all or nothing proposition. Today, few complex programs are purely outsourced or insourced. As the contingent workforce management space has evolved, more varied program options have become available.
Outsourcing can be applied selectively to maintain control where desired and to outsource functions that are more effectively managed by an MSP. Additionally, the amount of support required by a company is not static throughout the life of a program. Therefore, the level of support provided by an MSP can be adjusted up or down based on program maturity.
Compelling reasons support consideration of the holistic approach that an MSP provider brings to bear. In its 2012 Buyers Survey, SIA reported that buyers who use an MSP rated their primary staffing suppliers more highly than buyers that do not use an MSP. Additionally, MSP users were more satisfied with worker quality and the breadth of services enjoyed, and were less likely to experience problems with ghost bookings.
In its 2012 study, Aberdeen includes use of an MSP in its recommendations for achieving best-in-class performance. Aberdeen reports that companies using an outsourced MSP solution achieve a 44 percent higher frequency rate of contract and temporary workers meeting or exceeding pre-defined and communicated goals and objectives than companies without an MSP. They also report that MSP users attain a rate of cost savings on contingent workforce spending that is 36 percent higher than companies without an MSP.
Aberdeen found that an MSP’s consultative approach helps make contingent workforce management more efficient. MSPs “offer expertise in handling the nuances of the contingent workforce umbrella, including mitigation of risks associated with contractors, consistent tracking of milestones / delivery dates against agreements for SOW-based projects and services, and process improvements to improve the productivity of contingent labor.”
As the sophistication of program configuration options continues to increase, buyers will enjoy more choices on when to outsource and when to do it themselves. The answer as to whether your organization chooses to outsource to an MSP will depend on a number of factors, including the size and complexity of your program and the diversity of your labor requirements and geographic footprint. Ultimately the most important deciding factor will be whether you have a company culture that tends to outsource services. If you decide that outsourcing to an MSP provider is right for your company, you can be confident that it is a smart strategy to drive improved performance, cost savings, regulatory compliance, and leading innovations.
Caroline Storey-Sabetti is the executive director of marketing and business solutions for Staff Management | SMX.