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These Are the 3 Biggest Trends in Workforce Innovation

Keeping up with the changing world requires constant innovation — and this includes hiring. Evolving technology, the shifting generational makeup of the workforce, and a candidate-centric market[...]

February 18, 2020

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MSP or Self-Managed Contingent Labor Programs?

The contingent labor management game: you can’t win without a team

The late 1970s signaled the video game revolution. Boomers and Generation X kids surely remember the excitement of their first Pong or Atari 2600 consoles. Then things got really interesting around 1980 when Mattel released Intellivision, the first 16-bit game system. It boasted superior graphics, sound, controls and a more robust user experience. The enhanced playability also allowed for complex and immersive fantasy games, which laid the foundations for franchises such as The Legend of Zelda. The ambitious Intellivision title that served as a landmark for the genre was Sword & Serpents.  

Anyone who played this game remembers something called the Fool’s Folly, a generally inescapable trap. The true nature of the folly was in thinking that a single player could beat the game. The success of an indirect labor program isn’t radically different. Hiring managers who single-handedly attempt to undertake the administration of all vendors and contingent workers may find themselves prey to a trap with no internal mechanisms for escape.


A cooperative quest

In Swords & Serpents, a knight navigated a labyrinthine dungeon to reclaim the kingdom from an evil serpent and avenge his monarch’s death. It wasn’t a simple chore. The knight had to manage several disparate quests, uncover hidden artifacts and collect specific items to attain his victory, all while battling a challenging array of opponents. Even worse, some of the items had been enchanted with pitfalls, particularly the Fool’s Folly scroll, which vexed players with an unsolvable dilemma. Reading it transported the knight to walled room from which there was no escape.

There was, however, one solution: having a teammate play as a wizard who possessed all the spells necessary to conquer these obstacles -- to tear down walls and pacify the labyrinth's inhabitants. To win the game required an orchestrated effort where the knight took care of the main objectives of his kingdom while the wizard managed all the supporting elements. The knight could not easily prevail alone; at least not without suffering catastrophic failures and frustrations. Even then, a final victory boiled down to luck.

In complex, cross-divisional contingent labor programs, hiring managers who go it alone, like the plucky knight, may find the hurdles insurmountable. It’s not a matter of ability, prowess or resolve -- it’s the distraction of too many moving parts, too many side-quests, too many puzzles to solve. Without a partner who’s well-equipped to handle the peripheral objectives, the hero is pulled away from his core strengths and duties, making the journey more perilous.

Hiring managers need to be aware of the potential pitfalls they face when attempting to charge into battle without an experienced ally.


MSP or self-managed?

There are, of course, instances when a self-managed program can become the ideal solution for hiring managers. Most industry research suggests that programs run by MSPs achieve greater compliance, performance and cost savings. Even if these programs are the exceptions rather than the rules, they warrant merit. Zenith Talent spoke with a client team that has done an excellent job of managing their contingent labor initiative, saving the company $50 million over the last five years. The self-managed program reportedly costs the company 0.16 percent of the bill rate, versus the 2.75 percent management fee charged by most MSPs. The internal team is very systems- and process-oriented, and highly engaged with the 12 vendors filling the requirements.  

Still, this isn’t the case for many clients. Here are some crucial factors to evaluate prior to engaging an MSP or attempting an internally run contingent talent solution.

  • Spend: A program with minimal spend, usually below the $10 million mark, probably isn’t global, doesn’t deal with a wide breadth of labor categories and has very direct compliance requirements. Hiring managers will need to maintain a large enough supply base to drive competitive pricing, yet the true value of outsourcing to an MSP could be negligible.
  • Geography: If the spend is not dispersed across multiple locations, the indirect labor program is more likely to be conducive to centralization, if not already centralized. Internal hiring managers would require little effort to consolidate and manage the initiative with lean, dedicated, internal resources.
  • Requirements: A program with fairly homogeneous procurement needs may be well served by a self-managed team. A large call center, for example, or even a warehouse, which may require only administrative and light industrial workers, would be easy to centralize and monitor given the slight diversity of skills needed. As locations and in-demand skill sets grow, however, an MSP program starts to make more sense.
  • Experience: For hiring managers who have actively administered contingent labor programs, have built supplier networks, understand VMS technologies from a super-user perspective and are adept at contracts compliance, a self-run program could be easily overseen. For hiring managers uncomfortable with these processes, consulting an MSP would prevent business disruptions and the time spent figuring out the learning curves.
  • Environment: If the organization is defined by repeatable processes, strict reporting structures, rigid policies and firmly established guidelines, skilled hiring managers may have fewer challenges to overcome in taking on the additional duties of handling suppliers and their talent. If, on the other hand, the organization is more individualistic, decentralized or dynamic, hiring managers may falter in attempting to rein in the chaos. Herding cats and restoring equilibrium to disorder are the bailiwicks of MSPs.


Self-managed program pitfalls

MSPs bring a consultative and programmatic approach to contingent labor management that creates efficiencies, provides pertinent business intelligence, enables effective decision making, identifies cost containment opportunities, mitigates risks, increases compliance and allows hiring managers to focus on their jobs. Meanwhile, the MSP is tackling the day-to-day responsibilities for requisition distribution, order fulfillment, on-/off-boarding activities, reporting and performance monitoring. Self-managed solutions, on the other hand, can often lead to:

  • Inefficient or inconsistent processes and procedures
  • Lack of compliance and risk mitigation controls: infrequent or absent auditing, maverick spend, non-standard agreements, etc.
  • Impersonal supplier communications: without dedicated MSP professionals facilitating dialog, lone hiring managers may rely exclusively on VMS
  • Missed savings opportunities from lack of supplier sourcing and competition, insufficient market research and benchmarking, lack of invoice consolidation, failure to keep abreast of industry best practices
  • Increased risk of misclassification or co-employment
  • Difficulty monitoring program performance and compliance
  • Lack of supplier mentoring and development
  • Inability to conduct ongoing training or change management initiatives
  • The need to increase internal staff to support the program, resulting in higher internal costs


Supplier management challenges

MSPs have experience managing large groups of suppliers across all their client programs. They have also cultivated networks of proven, previously vetted supplier partners. The ability to offer high performing suppliers opportunities with other clients allows MSPs to leverage their negotiation and rate reduction power.

  • Resources: MSPs provide onsite teams bolstered by cost-effective shared services groups to handle back office support for administrative tasks. To efficiently manage a diverse and distributed base of suppliers, hiring managers will need to dedicate company staff, resulting in increased overhead.
  • VMS: MSPs possess superior working knowledge of many market-leading VMS systems. Their professionals are adept at generating reports, analyzing data and producing mission-critical business reviews for program performance. Hiring managers may not have the experience or time to utilize the systems to their fullest extent in satisfying core business objectives. MSP teams also have systems administration knowledge, allowing them to easily configure the tools, adjust privileges, administer users and produce ad hoc data.
  • Program management: Hiring managers are familiar with their existing programs and rely on internal subject matter experts for additional insight, which may also be limited to their programs. MSPs offer broad levels of experience and lessons learned from the variety of clients and industries they serve, enabling a richer focus on continuous improvement initiatives and identifying emerging best practices.
  • Supplier network: MSPs develop departments that are devoted to supplier engagement and management. They are constantly building networks of diverse and uniquely skilled suppliers across all of their accounts. Hiring managers don’t typically have access to such an expansive base of vendors, nor will they have the time to commit to ongoing sourcing efforts while attempting to manage all other aspects of the program.


MSPs aren’t just for large programs

Some companies believe that at certain levels of spend, usually $20 million or less, deploying an MSP program makes little sense. Staffing Industry Analysts says this is no longer the case.

“In the past, many companies worried that annualized spend of less than $20 million did not warrant – or could not sustain – a full MSP/VMS solution.  To some extent, that was true, and so these companies managed their programs in-house through their Procurement and/or Human Resource teams.

“Today, innovative MSP/VMS service providers are able to deliver the benefits offered through these programs within more spend-restricted environments.  This is accomplished in a number of ways, including shared program management staff and scaled technology platforms (i.e. VMS Plus).”

MSPs, as they’ve evolved, have grown more fluid and scalable. They can offer the same benefits to smaller clients as they do to those with hundreds of millions in annual spend.

  • They reduce redundant processes in contingent management controls and costs
  • They increase productivity
  • They reduce contingent labor lifecycles and time-to-fill rates
  • They enforce compliance with standardized terms and conditions across the supply base
  • They maintain constant communication with suppliers and hiring managers


Winning the game

In many cases, reverting to self-managed programs, regardless of the automation technologies present or amount of spend, places the burden -- and the costs -- back on internal procurement or HR teams. To ensure optimal performance and outcomes, the knight in this game needs a wizard to help guide him through the maze.

It’s a basic coordination game involving the Nash equilibrium theory. In order to ensure that all participants receive the highest payoff, players must coordinate their efforts by choosing the best strategy for the group. Defection, on the other hand, may benefit one player in the short-term, yet the overall game will result in a net loss. As attractive as self-managing a large contingent labor engagement might seem, the presence of a coordinated MSP allows hiring managers to fulfill their quests without distractions or stumbling into traps that can’t be sprung from the inside. Learn more about how MSPs help hiring managers!

Sunil Bagai
Sunil Bagai
Sunil is a Silicon Valley entrepreneur, thought leader and influencer who is transforming the way companies think about and acquire talent. Blending vision, technology and business skills honed in the most innovative corporate environments, he has launched a new model for recruitment called Crowdstaffing which is being tapped successfully top global brands. Sunil is passionate about building a company that provides value to the complete staffing ecosystem including clients, candidates and recruiters.
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