Driven by the effects of new digital technologies and other factors (talent availability, generational change, etc.), contingent workforce procurement — and the contingent workforce supply chain — will be noticeably evolving over the next 10 years.
The last impetus to change in the supply chain and procurement was the advent of VMS over 15 years ago, a set of developments that is well known by now. Given how much the world of commerce has changed since that time, we probably should not be surprised that another round of change has now begun. This time, given the range of forces — technical, economic and social — that are converging, we should also not be surprised if the new round of change spawns new forms of intermediaries and technology-based innovation across the existing contingent workforce supply chain (staffing suppliers, VMS, MSP and others).
This brief is the first in a series to help contingent workforce and services procurement professionals form a broad, strategic perspective on how technology, specifically, may bring about changes to the contingent workforce supply chain and how that may unfold. However, as we will discuss later in this series, this is not just the “long game,” because opportunities and threats will arise and demand responses along the longer path forward.
Why Evolution and not Revolution?
We see the technology-driven change ahead to be evolutionary, not revolutionary, and this is why:
We know that, generally speaking, new technologies can bring significant, pervasive changes to consumer behaviors and even entire industries. While the concept of disruption gets a lot of play these days, the reality is that, in most cases, the adoption, application and pervasive effects of technology can be measured in fairly long periods, as the technology matures and applications get better aligned to demand.
Some examples: Mobile technology goes back to the 1970s. The first digital camera prototype was built (at Kodak!) in 1975. The combination of the two took no less than 20 years.
More often than not, the pattern is more one of diffusion than disruption. Moreover, this diffusion does not always become 100% pervasive in an industry. E-commerce has not displaced most traditional retail, except for certain categories like books and other media like music; online advertising has not displaced other forms of advertising, though it did have disruptive secondary impacts on newspapers and magazines. Interestingly, what we are also often seeing is melding of old and new. (Retail is an excellent example.)
Eventually, technology will drive change and effects along different timelines, but the reality--in most cases--is that change takes time (perhaps more than a decade or even two), and--as noted--the effects of technology-driven change are perhaps most often not 100% pervasive. Correspondingly, in the existing contingent workforce supply chain, we anticipate that technology-driven change will come gradually (be evolutionary) and will transform portions of the supply chain (as opposed to totally displacing it). That said, we think these changes will become progressively more apparent and impactful from year to year going forward. However, we must be mindful that the current round of emerging solutions based on new technologies has been underway for at least a decade.
Where We’ve Been
The existing contingent workforce supply chain is depicted below. Since it is quite well-known to our readers and since we are most focused on its evolution, we will not cover this in any detail, but rather just emphasize a few key points.
- Business processes and cost structures are based on technology architectures that date back 15-25 years. This is not to say that technology architectures and applications supporting business processes and cost structures are not being up-graded toward state-of-the art — this has been happening, particularly over the past five+ years. But despite that, in the overall supply chain, little has changed. For the most part, the sourcing and fulfillment channels and intermediaries, including their processes and cost structures, have long become “institutional.”
- The state of sourcing and fulfillment channels and intermediaries, processes and cost structures, being “institutional,” is partly due to what the technology has enabled. This includes delivery models, business models, cost structures, compliance and payments solutions, as well as what workers can be engaged, how and why (e.g., temp workers).
- While some industries may self-innovate, this is uncommon. (Innovation has certainly not been the hallmark of the overall staffing industry and contingent workforce supply chain.) In general, innovation typically comes from advanced competitors (e.g., the Japanese automobile industry in the 70’s and 80’s with better processes, factory automation) or from start-up or established players outside industry boundaries (Amazon, with better processes, platform-based marketplace). Within contingent workforce supply chain, over the past years, it has so far been hard to identify any players that have initiated any impactful industry, technology-based innovation.
The existing contingent workforce supply chain has been in an institutional state (as defined above) for quite a number of years, and now pressures are becoming more intense. Business want to have more contingent, variable work/services, but the current supply chain is limited as to accessible workforce. There are also increasing skill gaps and talent shortages, though the current supply chain, constrained by technology and processes, is only marginally able to tap into alternative workforce populations. Cost structures in the supply chain are relatively fixed, while procurement organizations are beginning to hit bottom in getting savings by extracting lower prices. Business users’ expectations about access to talent, cycle-time and quality are also increasing. At this point, these pressures have driven little if any innovation to address the problems.
Along the top of the diagram above, the horizontal grey bar is meant to represent the existing supply chain’s limitations on developing new innovative intermediation models that would open up more business access to workforce, talent and labor-based services. However, supply and demand will reach a new equilibrium. We believe this will happen principally through technology-based innovation that has been arising outside of the existing supply chain. In fact, this has already started to happen.
Spend Matters has been researching and analyzing the emergence of innovative, technology-based intermediation platforms and ecosystems that will open up more business access to workforce, talent and labor-based services. In the diagram below, this is referred to as “emerging, next-generation digital platform and ecosystem intermediation,” which is graphically represented as happening outside of the existing contingent workforce supply chain, as has actually been the case.
Over the past 10 years, a growing number of technology-based platform businesses, such as Elance and oDesk (now merged as Upwork) have taken the field. At this point, there are hundreds of these businesses world-wide. Most are small new businesses that are pursuing a broad range of different intermediation models (“let a thousand flowers grow”).
The P word: Platforms
In the past year or so, it has become mainstream knowledge that--across many sectors of the economy--technology-based platform business models are the basis of a range of intrinsically innovative, highly successful businesses, including Amazon, Uber and Airbnb. Such models have a number of defining characteristics, including:
- They assemble various types of state-of-the art technologies (service-oriented architecture, cloud stack, mobile, big data, analytics and algorithms, etc.) into a business platform that enables different populations of users (e.g., businesses, consumers, suppliers, seekers of personal relations, etc.) to come together and accomplish mutually beneficial exchanges (typically, exchanges of money for services and goods, as in marketplaces) as well as different forms of value co-creation (like dating match-ups).
- The underlying technology capabilities of the platform can support an extremely broad range of different intermediation processes, most of which produce value-creation outcomes based only on technology functionality (including algorithmic) and user self-service. These intermediation processes are frequently novel.
- Platform models can be challenging to execute. The different populations using the platform must grow to critical mass to reach decreasing marginal costs, achieve network effects and make the platform investment profitable for the platform owner/business.
- At the same time, if these challenges are overcome, there are unique benefits to platform models. Platforms can serve user populations across vast geographies, if users have Internet access and the platform is designed to address different languages, laws and regulations, and business processes (such as payment methods). Well conceived, designed and positioned platforms are known to reach some tipping point where network effects kick-in and the platform business scales rapidly. Scaling can also be amplified by the inherent ability of platform architectures to support the extension and development of new lines of business. Finally, as platforms scale, they also become reservoirs of big data with many valuable uses.
- Finally, most successful platforms become “keystones” and develop ecosystems of complementors. For example, Airbnb has developed an ecosystem of purveyors of relevant services and products. Keystone platforms and complementors form mutually-beneficial, economic relationships that augment the value of network effects, thus increasing the value received by many of the platform users and, of course, the platform owner.
Given these attributes, it becomes more evident why platform models are becoming extraordinary business powerhouses in many areas of the economy.
Work Intermediation Platforms (WIPs)
While the well-known examples mentioned above (Amazon, Uber, Airbnb) have arisen in the retail, transportation and hospitality areas, technology-enabled platform businesses, functioning as new intermediaries between demand for and supply of work/services, have been proliferating. Spend Matters refers to these platforms as "work intermediation platforms" (WIPs).
These platforms have been able to engage workforce populations that have not been previously accessible (e.g., talent in other countries). They have created new efficient ways of executing (a) work arrangements (direct sourcing to electronic payment) and (b) performance and fulfillment of work/services (e.g., online end-to-end), and (c) new models of engaging workers (e.g., crowdsourcing, et al).
After 10 years, WIPs are still at a very early stage of development. There are many likely reasons why WIPs have not achieved the adoption and scale of platforms like the ones mentioned above. Those other platforms deal with “commodity” products and services, whereas WIPs deal with complex, human-based services that are difficult to standardize. Given those realities, WIPs are in the process developing technologies and solutions to address the non-standarized nature of most labor and other unique challenges (for example, using analytics, AI/cognitive processing, and algorithmics to develop new multi-dimensional category taxonomies) as well as tune their models to maximize adoption on both the supply and demand sides of the platform.
WIPs have already been emerging over a 10 year period. However, such a gradual rate of emergence and adoption — as discussed above in the previous section — is not atypical for technology-driven innovation. In our view, many WIPs around today will evolve to be successful, and new WIPs will emerge with successful formulas/models right out of the gate. Eventually, there will be a viable population of WIPs that will play important and valuable roles in the overall contingent workforce intermediation space; and they will function and perform much differently from traditional intermediaries.
Secondary Effects: Digital Evolution of the Contingent Workforce Supply Chain
While the separate emergence of WIPs, and their establishment as unique, valuable work intermediaries, is important in its own right, we are already observing secondary effects among some players in different parts of the existing supply chain, as represented below.
As we mentioned above, WIPs and (in some cases) their emerging ecosystems have been developing since about 2005, though the vast majority of contingent workforce professionals have, until recently, had little knowledge of or interest in them. This began to change around 3 years ago, as the level of awareness within the professional community began to rise and some of the players began to think about responses to these developments and engage with various WIPs.
Accordingly, over the past two years, we have already seen these developments (secondary effects) within the existing staffing supply chain:
- There have been several investments by top staffing businesses in and one acquisition of WIPs (investments in twago, Gigwalk, Gengo, 99designs; acquisition of OnForce).
- Some VMS solution providers have begun to execute strategies, product development and partnerships in response to the emergence of work intermediation platforms and ecosystems (MSPs, to a lesser extent, have also taken an interest in WIPs)
- Some traditional staffing suppliers and IC compliance firms have become students of WIPs and have come to the conclusion that they require a suitable adaptive response. Their responses have focused on where there might be shortcomings in WIPs e.g., compliance), where there might be parts of the WIP concept that they could adopt (usually taking the form of managed talent pools/clouds) and how they might complement with their own capabilities to bring innovative solutions to their clients.
These are just some of the observations we have made. And it is clear to us that digital work intermediation platforms and ecosystems have begun to have a secondary effect of kindling digital transformation and innovation within the existing contingent workforce supply chain, and it will continue. One could say that, to some extent, some players in the supply chain are making use of the hotbed of innovation outside of the existing supply chain, kind of looking into the window of a functioning laboratory and observing all the experiments and outcomes and learning how they should respond to them.
By 2025, it is plausible that we will see a contingent workforce intermediation space that consists of 3 segments: (1) viable WIPs and ecosystems with integration points in different areas of the existing supply chain (such as VMS), (2) viable traditional supply chain players that have innovated and produced new useful service offerings for their clients (some actually becoming some form of work intermediation platform), and (3) existing supply chain players that have not adapted and innovated and will attrit from the space.
The take-away here is that the emergence of WIPs and ecosystems will gradually bring about a digital transformation of part of the existing supply chain, versus widespread disruption. We believe this is what to expect.
In part one of this series, we have offered and explained our theory and outlook on the evolution of the contingent workforce supply chain in coming years. WIPs will become more established and viable as unique platform intermediaries that play specific roles related to certain workforce populations and business needs; they will also complement and integrate with some range of players in the existing supply chain--such as VMS, staffing suppliers, IC compliance firms--which may also adopt platform strategies themselves. The supply chain will become more of a network (a foundational, cloud-stack platform) which will support different recombinant, "as-a-service" platform and ecosystem components (i.e., technology and service providers).
For procurement, this evolving contingent workforce intermediation space will present challenges and opportunities; opportunities will be exploited by having an understanding of how the future state will be different from the current state and what different management requirements will arise.
In the second part of this series, we will unpack and dissect WIPs to give practitioners a higher resolution, accurate understanding of what WIPs are and, particularly, what different forms they have been taking. In the third part of this series, we will attempt to bring it all together and analyze what it means for contingent workforce and services procurement in coming years and suggest some approaches to consider.