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The Digital Evolution of the Contingent Workforce Supply Chain: What Does It Mean? (Part 1)

05/11/2018 By

Driven by digital technologies and other factors (labor/talent scarcity, workforce demographics, sourcing channel inadequacies, etc.), new developments in the contingent workforce supply chain have become increasingly visible over the past several years. This process will continue well into the future, with changes becoming increasingly significant and fundamental.

The last impetus to really significant change in the contingent workforce supply chain was the arrival of VMS over 20 years ago.  VMS has made possible significant increases in supply chain efficiency and governance; however, it has not substantially changed the established supply chain model.  But 20 years is a long time. Given how much technology-driven transformation has occurred in other industries (retail, local transportation, lodging, etc), we really need to be thinking about what lies ahead for the contingent workforce supply chain.  Already we are seeing enterprises looking more carefully at new technology-based intermediaries. At the same time, some number of traditional intermediaries (e.g, staffing suppliers), services providers (e.g, MSPs) and some VMS solutions have begun to leverage new digital sourcing and intermediation models.  What we are now witnessing is what we are calling the digital evolution of the contingent workforce supply chain.

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, for executives and practitioners, this is not just the “long game.” On the longer path forward (5 years, 10 years…), enterprises will need to allocate time and resources to keep up with new developments and not fall behind other organizations that will be much better positioned to take advantage of new, digital sourcing,  engagement and management models.

Evolution, 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 pervasive effects of technology can often be measured in decades, 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 in in a single device took no less than 25 years.  And that was some years before the appearance of the smartphone.

With some exceptions, 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 traditional retail, except for certain categories like books and other media like music (though digitization of the goods purchasing, distribution and supply chain continue to change the shape of traditional retail businesses. Thus far, overall, we have been seeing a melding of old and new.

Eventually, technology will drive change and effects on businesses in an industry along different timelines. Correspondingly, in the existing contingent workforce supply chain, we anticipate that technology-driven change will mostly continue gradually disruption (be evolutionary), as its has in the past 8 years; and it will transform portions of the supply chain (as opposed to totally displace it). That said, we think these change will become progressively more apparent and impactful from year to year going forward. At this point, there is evolution, but that evolution appears to be accelerating.

Where We’ve Been

The existing contingent workforce supply chain is depicted below. Most readers will recognize the elements as well as  the complexity.

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  • Business processes and cost structures are rooted in technology architectures that date back 15 or more years. This is not to say that technology architectures and applications supporting business processes and cost structures are not being upgraded and evolving toward state-of-the art — this has been happening, particularly over the past several years. However, 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 become “institutional” (standardized, widely adopted and accepted as “the way it is done).
  • Institutional sourcing and fulfillment channels and intermediaries, processes and cost structures, is in no small part connected to what technology does (or does not) enable. 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. Most observers of the industry would agree that innovation has certainly not been the hallmark of the overall staffing industry and contingent workforce supply chain. That said, innovation typically comes from from players outside industry boundaries (Amazon, with better processes, platform-based marketplace) or sometimes from competitors outside of a market (e.g., the Japanese automobile industry in the 70’s and 80’s with better processes, factory automation). Over many years, it has been hard to identify any traditional industry players that have introduced technology-based innovation that has had significant impacts on the industry and how business is done. But some of that may be not too far off.

The existing contingent workforce supply chain has been in an institutional state (as defined above) for quite a number of years, and now pressures (coming from client expectations, labor/talent skill gaps and new technology) are becoming more intense. Business users’ expectations about access to talent, with lower transaction costs, faster cycle-times and higher quality, are also increasing. Businesses want to have access to more contingent, variable work/services, but the current supply chain has its limits. 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 extracting lower margins from suppliers. 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.

What’s Changing?

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 originating outside of the existing contingent workforce supply chain, as has actually been the case.

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Over the past 8 years, a growing number of technology-based platform businesses–such as Upwork, Catalant, WorkMarket, to name a few–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 (i.e. online freelancer marketplaces, crowdsourcing platforms, service delivery platforms, etc. within different skill and business segments).

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

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” (work intermediation platforms).

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).

After 10 years, work intermediation platforms are still at a very early stage of development. There are many likely reasons why work intermediation platforms have not achieved the adoption and scale of platforms like the ones mentioned above. Those other platforms deal with “commodity” products and services, whereas work intermediation platforms deal with complex, human-based services that are difficult to standardize. Given those realities, work intermediation platforms also seem to be developing technologies and solutions to circumvent the conundrum standardization 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.

Work intermediation platforms have been gradually emerging over a 10-year period. However, such a rate of maturation and acceptance — as discussed above in the previous section — is not atypical for technology-driven innovation. We can expect some attrition and consolidation over time. But, in our view, many work intermediation platforms around today will evolve to be successful, and new work intermediation platforms will emerge with successful formulas/models right out of the gate. Eventually, there will be a viable population of work intermediation platforms that will play important and valuable roles in the overall contingent workforce intermediation space; however, they will be very different from traditional intermediaries, but may be assimilated by the latter.

Secondary Effects: Digital Evolution of the Contingent Workforce Supply Chain

While the separate emergence of work intermediation platforms, and their establishment as unique, valuable work intermediaries, is important in its own right, we are already observing secondareffects among some players in different parts of the existing supply chain, as represented below.

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As we mentioned above, work intermediation platforms and (in some cases) their emerging ecosystems have been developing for some years now–though the vast majority of contingent workforce professionals had little knowledge of or even interest in them. This began to change around several years ago, as the level of awareness within the professional community began to rise and some of the players began respond to these developments a(in thought or with actions).

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 and some acquisitions by top staffing and other large businesses. Randstad has invested in Gigwalk and Hackerank and has acquired twago. Recruit Co has invested in Gengo and 99designs. work intermediation platformsro has acquired Topcoder, and Google has acquired Kaggle. Most recently, ADP has acquired WorkMarket.
  • Some VMS solution providers have begun to execute strategies, product development and partnerships in response to the emergence of work intermediation platforms and ecosystems (Beeline has introduced its Self Sourcing solution and SAP Fieldglass has recently introduced its Digital Network)
  • Some MSPs have taken an interest in external platforms and are beginning to form partnerships (for example, Geometric Results has partnered with Genesys Talent).
  • Some established IC compliance firms have come to the conclusion that they require a suitable adaptive response. MBO Partners has developed MBOConnect, an enterprise solution to–among other things–manage independent worker compliance, support private talent pools and enable direct sourcing from external online work platforms.

It is clear 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 some established players in the supply chain have begun importing innovation outside of the existing supply chain. At the very least, they have had a window into a functioning laboratory external to the established supply chain and the opportunity to observe experiments and outcomes, learn and form their strategic responses.

By 2025, it is plausible that we will see a contingent workforce intermediation space that consists of 3 segments: (1) viable work intermediation platforms 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 have begun to attrit from the space. The takeaway here is that the emergence of work intermediation platforms and ecosystems will gradually bring about a digital transformation of part of the existing supply chain, versus widespread disruption.

Final Comments

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. Work intermediation platforms and ecosystems 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 work intermediation platforms to give practitioners a higher resolution, accurate understanding of what work intermediation platforms 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.