Borrowing a quote from Benjamin Graham, Warren Buffet once said, “Price is what you pay, value is what you get.” The first part is straightforward – price is direct. We see the price and know immediately how much we will pay. But if we dive a little deeper into the pool of economic philosophy, we find value is far more complicated – requiring tangible evidence to prove its worth.
As businesses strive to work more efficiently, they must find ways to deliver more value. There is a need to look without prejudice to business financials and models. Organizations must evaluate all possible solutions for how to best operate as a globally effective organization.
While a valuable asset, the most costly expense of any company is its workforce. According to the Human Capital Management Institute, human capital costs for most organizations, from start-ups to large Fortune 500 organizations, represent nearly 70% of operating expenses.
Seventy percent of expenses is a cost worth evaluating! But where should we begin? Let’s start with the most manageable costs – contingent labor and its operational model.
Simply put – how can a company get the most of its contingent labor?
Manage it effectively.
First, we need to understand how much of a company’s workforce is contingent labor. According to Accenture, as much as 33% of the U.S. workforce is already contingent and many believe that contingent labor will outnumber full-time equivalents (FTEs) in the near future. A study conducted by Oxford Economics supports this theory, stating that 83% of executives indicate a continuously increasing use of contingent workers. And in a recent review of four global clients, trendsetters in their respective industries, we found their reliance on contingent labor represents 40 to 55% of their total workforce.
The Aberdeen Group explored the top pressures of contingent workforce management – including visibility, efficiencies and total talent management. They reported that most companies “focus more on their full-time employees and neglect their contingent labor.”
Time to turn the light on contingent labor.
As we focus on contingent labor, let’s consider the value of an MSP.
A Managed Service Provider (MSP) becomes an extension of an organization providing the oversight and optimal delivery of contingent labor.
So what’s the value?
With an experienced MSP, a company could achieve significant cost savings and revenue improvement, broadened access to talent, increased worker quality, workforce insight and greater regulatory compliance.
Many companies are turning to MSPs to manage their contingent labor for those very benefits. Here’s a brief synopsis of MSP global spend under management, as per Staffing Industry Analyst (SIA – Supplier’s Surveys) from 2007 to 2013.
With robust growth over the past six years, the total global MSP spend under management has grown by 775%.
The value and growth of this industry has also welcomed key shifts over the years as well as a vital foreshadowing of what is to come:
- Focus is shifting from managing low-skilled/blue-collar temporary workers toward total talent management – including statement of work (SOW), independent contractors and freelancers, resource pools and permanent employees.
- Composition of job families in an MSP is changing to include more broadened skill sets.
- Shifting from a single country focus, MSP deals are increasingly multi-country in scope.
- Buyers/Clients are approaching MSPs for innovation and deeper subject matter expertise, consulting, growth impact, location and revenue improvement.
Now that we understand the value, let’s take a look at the companies with an MSP.
MSP usage is on the rise once again. More and more, companies are seeking standardized processes, program visibility and cost savings.
According to SIA’s 2014 Contingent Buyers Survey, “MSP use rose to a new high, following two years of stability.” The SIA Contingent Buyers Survey reports that company size matters, as MSP usage is more common among large buyers than small buyers.
Buyers understand that an MSP offers more than cost savings. They recognize that an MSP:
- Standardizes the contingent labor process by implementing best practices best suited for the business, market and workforce.
- Engages in a global network and shared services to more efficiently deliver a total contingent labor solution.
- Integrates innovation and technology to leverage analytics and better sourcing strategies.
- Infuses the program with relationships that are client centric and consultative, thus leading to better program delivery and better access to quality talent faster.
- Administers global compliance through proper classification and alignment to country labor laws.
What about companies without an MSP?
According to SIA’s 2014 Contingent Buyers Survey, just over a third (34%) of large companies do not have an MSP. Of the 34% of companies without an MSP, 22% plan to “seriously explore it within two years.”
Without an MSP, a company must invest significant time and resources to manage its contingent labor. The chart below highlights the estimates to manage such functions.
Consider this – if a mid-sized company does not have an MSP, they are likely investing at least 11 hours per day managing their contingent worker program. SIA suggests that organizations without an MSP dedicate 66% of their resource’s time annually on workforce administration. By those numbers on the low end, a contingent labor program is costing a minimum of $80,000 per year; those costs can be as high as $200,000, or much more for large multi-national organizations. This is in addition to the cost savings innate to an MSP.
With the right MSP, your most valuable assets could yield greater results.
Does your company evaluate its contingent workforce costs?
The savings realized with an MSP can be measured in two ways – hard costs and soft costs. Hard costs are realized in various ways including, but not limited to, rate reductions, consolidating or bundling suppliers and leveraging volumes. Soft costs are captured with focus areas such as reduced transactional costs, improved efficiencies as well as improved contract and supplier management.
MSPs work with clients to identify and realize hard and soft cost savings, which includes identifying and eliminating maverick spend. Soft cost savings are realized by maintaining the best supplier relationships too. The key is to create supplier partnerships that are strong, fair, profitable, educational, engaging, competitive (in a healthy way), and most importantly, deliver quality workers.
Does your company track and ensure accurate employee classification?
The Internal Revenue Service estimates that 30% of workers are misclassified. In September 2014, the Department of Labor awarded $10.2 million to approximately 24 states to increase their response to tax evasion tactics.
MSPs provide oversight, legal expertise and compliance management to help protect a client from financial and regulatory risk. In regard to the Affordable Care Act (ACA), an MSP can help clients manage the new demands of the law and associated costs. ACA maintenance can extend to surveying the supplier community to confirm that options selected by suppliers will comply with the ACA. As part of their management role, MSPs provide strict governance and risk mitigation recommendations regarding all contract labor engagement policies and processes.
How do you measure your contingent workforce? Or do you? Does your company have a diversity program? Do you have diversity suppliers? Does your company have access to the best talent?
First off, Key Performance Indicators (KPI) and Service Level Agreements (SLA) are typically written into a Master Service Agreement. From day one, your company agrees to your contingent workforce program objectives. You understand what the measurements are and you have a system in place to capture them. '
In December 2014, CNBC addressed the “diversity problem” in Silicon Valley. With the story Silicon Valley ‘needs guidance’ to boost diversity, Entrepreneur presents a clear picture of how the technology sector has a “glaring lack of black, Hispanic, and female talent” with Google, Yahoo and LinkedIn reporting that the population of workers is 60% male, with black and Hispanic workers representing less than 10%.
While the industry continues to debate “vendor neutrality,” most MSPs would agree that in certain labor categories distributing orders fairly amongst staffing providers allows for an unbiased decision yielding better returns. From improving cost savings to increasing fill rates and better quality talent, vendor neutrality affords real value especially in the technology sector. MSPs work with clients to define programmatic goals and objectives, commonly called KPIs and SLAs. Based on program goals, the MSP designs an end-to-end workforce management program.
Do you have a Vendor Management System (VMS)? Do you have someone to interpret your data to give it meaning?
Global operations can vary to such degree by country that capturing these various country-specific laws and regulations could easily expose a company to additional risks when engaging, on-boarding and off-boarding contingent labor.
In terms of visibility, one cannot reasonably discuss insight without consideration of technology. VMS technology enables the MSP to know who is working where, for how much, for how long, for whom and for which project. The VMS provides insight into spend trends, buying habits, cost impacts, anomalies and classification.
The technology also provides consistency in on-boarding and off-boarding candidates as well. But the VMS technology cannot interpret the data; it is a point-in-time data snapshot. Beyond the VMS, interpretation is the value, which an MSP can provide.
To add value to your organization, select an MSP that understands and operates based on key human capital objectives.
To select the best MSP consider the following when making your decision:
- Is the provider recognized as a global MSP leader?
- Does the provider have substantial experience managing MSP programs with leading VMS technology?
- Will the provider offer a solution with actionable analytics and program visibility?
- Has this provider implemented a truly global program spanning more than 100 countries?
- Does the provider have similar industry experience?
Can the provider demonstrate practical examples addressing key human capital objectives:
Defining value is far more complicated than determining cost. It varies greatly based on a number of elements. There is market value, economic value and the buyer’s perception of value. Defining the value of an MSP is much easier. With a growing contingent labor market and a steep increase in global MSP spend managed over the past several years, at Pontoon we believe there are three key elements central to the value of an MSP: client-centric and consultative relationships, analytics and sourcing innovation and a global footprint with shared services. With a focus on relationships, innovation and the globe, we invite you to experience the value of our MSP and gain better people in a better way.
Pontoon is a global HR outsourcing company specializing in improving an organization’s talent. We manage the contingent workforce and statement of work resources on behalf of our clients, as well as source and recruit direct hires. Pontoon’s approach results in significant cost savings and revenue improvement, increased worker quality, workforce insight and greater regulatory
compliance. A division of Adecco with operations in nearly 100 countries and with more than 1,000 colleagues worldwide, the Jacksonville, Florida-based organization delivers solutions to more than 100 industry-leading companies.