Services and Contingent Labor Procurement: Understanding the Current Drivers

In the past month or two, I've had the chance to catch up with a number of providers and customers of services procurement solutions -- almost entirely contingent labor. These discussions have ranged from the philosophical (e.g., will services procurement ever mean more in people's minds than contingent spend) to the pragmatic (e.g., given the state of the economy, can we expect contingent labor spending to ramp ahead of the overall recovery, as it often has in the past). Some of these discussions have been in person, others from a distance. I'm fortunate to be based in Chicago, which is also home to one of the top providers in the VMS (vendor management system) sector, Fieldglass. Having Fieldglass nearby has made it easy to trade thoughts on a regular basis with some of their key thought leaders, including Sean Chou, CTO and Arun Srinivasan, VP of Marketing (formerly of Click).

In late September, I got together with Sean and Arun and posed a few questions to them about the state of the market. Given how much I got out of that conversation, I thought it would be useful to share some of their collective thoughts, which I asked them to pull together after we spoke (I've kept it verbatim, except for editing out some marketing-speak in some of the answers). I first asked Sean and Arun about the higher-level topic of what the major drivers of investments in services procurement are given that contingent spending, in general, is down with the economy. In other words, why should companies prioritize platform investments in this area now?

Here's what Sean and Arun had to say: "The primary factor driving investments in the current market is the high ROI delivered by programs managing Contingent Workers and other project-based services. Client focused, low TCO SaaS solutions are in a strong position to quickly deliver value in the current market. The increased focus on compliance measures (such as co-employment) is another factor that has spurred HR & Procurement to collaborate to address this market segment. The ability to deliver measurable impact on the bottom-line has led to a continued focus amongst our clients on programs managing Contingent Workers and SOW based services. Moreover, the current economy has lowered some of the internal barriers to capture the savings opportunities in services procurement. Buyers are deploying new programs in this economy to not only improve bottom-line profitability but to also lay the foundation for sourcing & procurement initiatives that will provide competitive advantages as the economy recovers." To support this point, I've now spoken to a handful of procurement executives in the past few weeks who said that they -- yes they, not IT or HR -- were prioritizing services procurement initiatives because of the importance of contingent staffing to the business during a recovery before new hires pick up.

I next posed the questions: Who is the customer in most of these new relationships? Is procurement less/more involved? To this, they responded: "We see a mix of procurement, IT, and HR involved in establishing these new relationships. Procurement teams tend to be more involved in cost-savings focused initiatives while HR tends to take a more prominent role with compliance related initiatives." In my own recent experience, I'd say procurement is becoming a more active participant in services procurement discussions in general (and is thirsty to drink up as much knowledge about the space as possible). However, they're usually not the only decision maker, and it's still sometimes the case that functional spend owners (e.g., IT) are driving decisions along with HR support and involvement.

The final question I asked Sean and Arun to document for Spend Matters was their market expectations for 2010. In other words, do they expect a contingent spending recovery, or will it be another down year? This is what they had to say: "While macro economic trends are anybody's guess at this point of time, we continue to see demand for Contingent Labor & Services Procurement solutions that deliver sustained value to corporations. We expect cost savings, cost avoidance, and compliance to continue to be key business drivers in 2010. This economy has helped differentiate Fieldglass as a client-centric solution provider focused on delivering business value. As Warren Buffett says, 'Only when the tide goes out do you discover who's been swimming naked'." To this point I would add that I agree 100% that Fieldglass is thriving despite the down market. But it's also important to note that IQNavigator also seems to be gaining significant traction in the space from a deal flow perspective despite the overall economics of the environment (and why Emptoris, Beeline, ProcureStaff Technologies and Ariba also have strong ambitions in the space, not to mention many others).

Jason Busch

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