Why the Staffing and Contingent Marketplace is Failing Procurement

In our prior analysis of the services procurement market, we looked at the evidence showing how the staffing marketplace is failing procurement organizations. Today, we turn our attention to the “why” and the factors holding organizations back from gaining more value from their services procurement spend. This value includes greater savings, of course, but also reduced risk, increased compliance, improved talent management and recovered time to focus on innovation, continuous improvement and business outcomes.

We are not purporting any grand conspiracy of sorts here. Rather, the fundamental challenge with services procurement and the staffing industry centers on a supplier-led industry dynamic that has been able to break free from the bounds of how procurement manages all other spend areas, directing the buy-side rather than having to adjust its own sell-side driven business to maturing procurement expectations and requirements.

In this Spend Matters Plus analysis, a refresh of our 2014 series, we consider the “why” of the problem and go beyond the standard “fox watching the henhouse” issues with the traditional MSP/staffing market. Finally, to conclude this series, we will offer a prescription for changing the market from the inside out with procurement-led initiatives.

Stepping Back to Look at the Problem

Based on our vantage point in the market, we can point our finger at a number of reasons contributing to the status quo in the services procurement and contingent market. Some of these contributing factors are more apparent than others:

• There are often perceived conflicts of interest in the managed services provider (MSP) market, especially given the “parent/child” relationships of many of the larger MSPs that also have staffing affiliates (or strategic relationships with other staffing firms). While many of them may claim to be fully “vendor neutral,” the ownership structure, value chain integration and incumbent relationships within the supplier-side of the market present a unique case that can put procurement at a fundamental disadvantage
• Many of the larger MSPs have greater familiarity with a traditional input-based commercial model rather than alternative approaches that can reduce markups and potentially even lead to better talent and deliverable outcomes. Aside from the potential for conflicts of interest (see above), this element is perhaps even more disturbing from the standpoint of having an advisor provide a market-driven view into how a client may achieve a certain type of outcome that falls outside the established norms (i.e., the proverbial hammer will only see nails as a solution). The same dynamics exist in other industries such as insurance and corporate benefits consulting, where ideal outcomes for clients may fall off of both the price sheet — and understanding — of the parent company
• Technologies, including vendor management system (VMS) tools, are often seen as a small component of solving the overall contingent/services procurement challenge rather than enabling new capabilities and overall outcomes on their own. This stands in sharp contrast to purchase-to-pay (P2P) tools, including e-procurement and e-invoicing, as well as advanced sourcing optimization capability in other procurement technology areas where it is the technology capability itself challenging both the organization and the outsourcing partners it works with to change and adapt to new models built on technology innovation and capability. We are big proponents in choosing technology providers that have “on-ramps” (applications) that can be loosely coupled to the supply markets rather than being “sticky” and hard to switch. Procurement organizations need to demand that their own team and MSPs take advantage of the deeper VMS capability, including rate benchmarking and pricing guidance, supplier/vendor performance management, SOW templates/decision support and overall analytics guidance that will manage this spend rigorously regardless of the many diverse sources of contingent labor
• Management consultants and BPO providers have tiptoed around the contingent labor area. They also too often focus on either the sourcing aspect of contingent workforce (including SOW-based spend like professional) or the just the downstream services procurement aspect (often using e-procurement or ERP tools, without much luck). Because these parties have avoided focusing on the full lifecycle and total cost management of this category, there is now limited competition in the MSP area for the existing ecosystem, which has also helped to reinforce the supplier-led view that contingent labor (and related SOW- and project-based engagements) are somehow different than other categories of spend, even other services categories
• The staffing and contingent media and research ecosystem fails to inspire beyond the status quo in terms of covering and highlighting new models and innovation. Staffing models remain front and center in the coverage and analysis of services procurement rather than newer, innovative concepts or the intersection of contingent and services procurement with broader supply management and buying activities. Note that this stands in sharp contrast to media and analyst providers in the supply chain, BPO and general procurement areas, which are often leading innovation and the exchange of new ideas in the market
• Misaligned incentives (internally) and a lack of process ownership and understanding between internal stakeholders and MSP partners. As a respondent observed in one of our prior studies on the topic of how services supply chains are managed relative to indirect and direct ones, the “biggest gap [is] the organization’s unwillingness to take control of this huge expense and better manage it from all perspectives, cost, risk, worker classification, on/off boarding, etc. [There is] opportunity for all of the above areas as well, and true human capital workforce planning and recommendations to our BU of best-in-class practices”
• MSPs and procurement organizations are not working together to compare forward-looking requirements against existing “supply” capability and constraints. As we note in the above-referenced analysis, “This includes the services equivalent of a traditional make vs. buy analysis. Some organizations have the right resources in house to conduct these types of analyses — and if so, these resources should be inventoried. Yet our findings suggest only a few firms practice strategic workforce planning. Procurement involvement in planning/budgeting is similarly low. Procurement and HR working together to do both is even more of a rarity. Procurement has its own issues (e.g., an overt focus on cost vs. stakeholder outcomes). Also, category management often comes up short in services efforts as well. It is important to realize that contingent labor categories and classifications are also an ‘overlay,’ which are modeled across the spend taxonomy and are often fungible (e.g., substituting a job requisition for a project-based initiative)”
• Customers do not have the right set of expectations for MSPs and contingent advisors in the right set of areas. They are, in many cases, relatively passive consumers. As we note in another Spend Matters Plus analysis, “Challenge firms where they are likely to be weakest rather than focusing on their logical strengths or extensions. For example, if you’re evaluating broader services procurement partners, don’t have an MSP create a business case based on a simple extension of a current contingent program. As we’ve noted before, in far too many cases, contingent labor MSPs will try to use the same methodology on contingent and [services] categories. In reality, the 2 are so uniquely different that this approach causes mismanagement of one or the other. As the more recent focus area, SOW/services procurement often gets the short-end of the customized services spend stick. Consider how the priorities for each spend area can vary. Contingent labor is primarily about filling positions. Because of this, it is easy to orient MSP SLAs and contract structures around two metrics: speed and quality (we can assume price reduction is a given). In contrast, effectively managing SOW spend requires a thinner slice of overall requirements, taking into consideration such areas as the quality of the resource, managing project timelines and resource transition throughout the project lifecycle to maximize output and resolution. Given these subtle (and not so subtle) differences between contingent and SOW processes, it is important to make sure that any MSP that you plan to consider for both areas brings a different approach to each”

The above list, of course, is just a start; we could devote an entire series (or book) to the ways in which the staffing and contingent market (and procurement itself) is cheating organizations of developing better services procurement approaches to drive savings and value from labor-based spend. As we conclude our analysis in the final installment in this series, we will provide a prescription that, we hope, will begin to address many of these challenges.