The State of the MSP Industry (Part 1): The Moment of Truth Has Arrived

The MSP industry was born in the early 1990s. Enterprises were using more and more temporary labor, sourced without much control of cost and risk from a fragmented and opaque staffing industry. The very idea of an enterprise contingent workforce management program was a glimmer in the eye of CFOs. However, what had been a small problem was becoming a big one.

To help businesses take control of their growing temporary labor use, MSPs, along with VMS technologies, stepped up to offer a solution to this problem, mainly by:

• Instituting a formal contingent workforce management program
• Managing a base of temporary staffing suppliers
• Facilitating and tracking temporary worker engagements
• Managing/regulating spend (with select suppliers, rate cards, etc.)
• Enforcing compliance

Since the 1990s, MSPs have served enterprises in these ways, delivering value primarily in the form of spend visibility, cost avoidance and reduction, and compliance enforcement (which is effectively cost avoidance).

Now fast-forward to today. While MSPs have evolved in limited ways (e.g., expanding internationally, managing independent contractor compliance), little has changed for most MSPs and their clients. Their core services, value proposition and orientation have remained largely tactical and execution-focused, with the emphasis on rationalizing the supply base and managing spend through proven, standardized processes.

This was all well and good, until the world of work and enterprise priorities began to change. To be sure, cost avoidance and reduction remain baseline requirements. But changes in enterprise business markets and competition, internal demand patterns and supply-side dynamics are giving rise to additional requirements that must be addressed by MSPs. To stay in the game, enterprises are now:

• Sourcing and manage SOW/services, not just staffing
• Focusing on skills/talent acquisition and new supply sources
• Gaining more analytical insight into spend and sourcing
• Achieving greater source-to-pay agility and speed
• Staying abreast of and benefitting from “gig economy” innovations
• Pursuing a more holistic approach to leveraging skills/talent
• Adopting a more strategic, predictive orientation
• Achieving all of the above while ensuring legal and corporate policy compliance

Effectively, there is a widening gap between what MSPs are and what they need to become to address emerging enterprise needs. Adding to this deficit is the fact that finding additional cost savings from margin compression in the supply base is unlikely, and many MSPs are only beginning to invest significantly in new technology or organizational and solution innovation.

There is no question that traditional MSPs will need to evolve — rapidly and significantly. Their success, and ultimately their survival, depends on their ability to add value by addressing emerging enterprise client requirements, including those mentioned above.

There is a middle ground, however, between doing too little (and becoming uncompetitive) and doing too much (and becoming diluted and ineffective). MSPs must evolve, but they must understand the market and become focused on addressing top enterprise client priorities. Importantly, they must be able to find a workable balance among many factors including new technology, human know-how, domain experience, contextual understanding, ingenuity, relationships, and service. Ultimately, they must be able to not only deliver continuous incremental improvements but also maintain a strategic perspective, adapting, innovating and evolving — all while leading clients into the future.

So, how can MSPs do that? In Part 2 of this series, we identify priority enterprise requirements successfully evolving MSPs are addressing to add value for clients. Then in Part 3, we will provide a snapshot of one provider successfully taking on these challenges.

This article was written on behalf of Geometric Results Inc. (GRI) by the Spend Matters Brand Studio team and not by the Spend Matters editorial or analyst teams.