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Managed Services Providers…    Conversation Part II

by Julia Fournier, Managing Partner (To read Part I of this blog: Click Here)

Having never really “blogged” before I must say that the comments from my last post compelled me to keep going. The most interesting and. in my opinion, representative of some of the failures in our space were the following;

1. Mr. Wetherbee’s program was implemented and run by Kelly — a competitor to the incumbent suppliers. That’s a no -brainer. (In fact, I wouldn’t be going out on a limb if I suggested that Supplier-owned MSP programs are likely the source of MUCH of the hostility in the marketplace!)

2. Many times, Supplier-owned MSPs aren’t “really” MSPs at all — just a different name for an attempt to grow their business. (I’ve seen this one a lot, and been accused of it, given that Comensura / Guidant was a peer to a staffing company)

In our opinion and a very big reason why we have achieved the success we have is that we are vendor and technology agnostic. As recently as today I had a discussion about the internal development of a technology that might meet 90% of the requirements of our clients. In addition, we periodically have an internal discussion partially driven by our clients about getting into the “staffing” and “recruitment” industry. The fact remains that would without question take our eyes off of what we do. I say that not as a partner but as someone that believes in the credibility of the service we provide, and the requirement to keep our focus on what we  do. Having lead the operations of an MSP for 5+ years it would be impossible to provide an unbiased service offering if you stand to gain from a 13-17% margin associated with contingent or contract labour resources in multiple classifications. That means that your client’s would and, no doubt, do experience requisitions directed to a firm that isn’t only associated with the MSP space but also one that is in this business for the sake of benefiting from controlling the requisition. That leaves all firms in the program at a deficit regarding requisitions and spend overall. And worse having an inability to ensure the protection of their data regarding their resources, current engagements and proprietary information.

I can say this and that is that while “contract ownership” might not have evolved to the extent that it should have. Being in this space would be a lot easier if clients’ didn’t opt to work with firms that masked themselves as Managed Services Providers when their core service offering is the provision of IT, Professional or Staffing services. Having spoken to many fortune 300 companies, “the jig is up”. While this statement will be anything but popular, I think major users know now that the primary goal of those that mask themselves to be in this space is to drive more revenue to themselves. As I said in my previous post let’s do the math. One contractor comes on board at an average margin of 15%, the average billing of an MSP is 1-2% of overall spend. 10 resources placed can surpass the revenue of an MSP in a quarter, if the average compensation is above $100K per year which is what most companies are experiencing with their independent contractor base. If you question what the motivation is – do the math. The ownership of the requisition far surpasses the goal of providing a neutral program.

 

If you own the order you can drive that 10 resource requisition to your firm. This is what has soured the industry in large part against MSP’s. The reality is that they don’t invest in process flows, resource management programs and overall management to drive an effective MSP solution that focuses on savings. Companies that mask themselves as MSP’s have a core business of providing human capital solutions because it is more profitable to provide resource solutions than it is to provide Managed Services Solutions. In the absence of owning the requisition, the only risk these providers would face is the decision making of MSP’s that are neutral and non biased, when you remove the bias the threat to some becomes all the more pervasive, and to others all the more enticing. Companies that mask themselves as an MSP do this typically to serve as a foot in the door on every requisition. When you own the requisition you direct it to your firm first. When making a decision regarding an MSP make sure that there are no affiliates, and if they are a major staffing, IT or professional services company ask yourself what the motivation is for them? If you sign them, keep your fingers crossed as you watch the spend continue to sway in their favor, and do the math.

 

If you have an MSP that has a staffing co. affiliate take a look at the growth in their revenue in the last 12 months. That should suffice.


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Tags: affiliate conflicts, managed services, managed services provider, procurement services,

9 Comments »

  1. Very interesting write-up, I appreciate your viewpoints. While you bring up some great points about vendor neutrality in MSP programs, the fact remains that most of the largest MSP providers also have a staffing arm of their business and I highly doubt we will see that change in the near future. I personally feel that staffing companies like Kelly, Volt, Adecco, etc. are the human capital management experts so it makes sense that they also act as the MSP. However, I do agree that vendor neutrality with these companies can be an issue, especially if the MSP/Staffing Company sells their client on vendor neutrality but keeps the orders for themselves. I can tell you from personal experience that this was never the case during my tenure with Kelly, if they sold a vendor neutral solution to the client than that is what they delivered. I personally feel that the issue with vendor neutrality can easily be overcome by allowing clients to periodically audit the date/time stamps on transactions that are standard in most, if not all, VMS technologies. A simple audit by the client periodically could easily prove the neutrality of the program or not. Maybe that’s even a service level agreement that can be added to a contract.

    Bottom line, with the right controls and service level agreements in place I feel a staffing company can be a very effective MSP. It’s the ones that don’t act with integrity that bother me the most.

    Thanks again for sharing your point of view on this topic, I look forward to seeing more

    Comment by Bill Wetherbee — July 14, 2010 @ 3:00 am

  2. Very interesting discussion and great insights from different reference points.

    Having sold and managed MSP/Supplier programs for Kelly, and participated as a regional supplier in programs managed by both national staffing companies and “pure MSP’s” (very rare once you start peeling their corporate layers), I would agree with Bill’s point about integrity. I’ve seen programs where the MSP is also a supply chain partner and gives their sister staffing company a heads-up on new requirements before they are keyed into the vms application. I’ve seen situations where a client hiring manager calls their favorite participating supplier with a heads-up so they can line up a resource for them before creating a new req. I’ve also seen a few instances where the client tries to take control of this issue by including language in the RFP prohibiting the selected MSP from participating as a supply chain partner, forcing the bidder to decide whether they want to participate as either the MSP or a supplier.

    My experience is that “vendor neutrality” in the MSP space is dependent on the integrity of the stakeholders and the “tightness” of the work flows and audit/reporting capabilities built into and managed within the vms application.

    Look forward to learning more about this from others.

    Comment by Mark Siegal - CTS — July 14, 2010 @ 4:44 pm

  3. Bill – My questions to you and all of you who are graciously participating in this discussion and who have worked in the global staffing industry for many years is simply this:

    Why would a global staffing company be in the MSP space?
    What do you think those who provide MSP services plan to gain from their participation in that vertical?
    What is the top line revenue achieved in the provision of MSP services compared to their staffing revenue?

    You make a statement that implies the staffing companies are “the human capital management experts” – while they are the experts when it comes to recruiting, skill selection, on-boarding, off-boarding, tax remittances and payroll – are they the experts regarding the creation of value based category management programs? These services now demand driving multi-faceted human capital solutions from procurement through off-boarding to some sophisticated fortune 500 companies. Simultaneously while managing, in many cases, the performance of what can be hundreds of suppliers in multiple human capital categories.

    If they are experts, other than the ability to recruit and place with entry level service coordinating resources. Often operating on average in many branch offices globally. What qualifies them to deliver what has now become a very sophisticated service offering that far exceeds the ability to identify and screen candidates?

    Comment by Julia Fournier — July 18, 2010 @ 10:05 am

  4. Mark,

    Let me put the thoughts into a different industry – like automobile. Why would GM want or let Ford manage a fleet program on behalf of one of their clients? In particular one where the prices of their cars were set at the same rate and GM had the ability to control their volume. Would the management of the fleet program do anything for the core competency of GM other than potentially lead to the sale of more cars? What would GM think if Ford was given first access to all of their products to take a look under the hood and catalog every part prior to launch?

    The audits would be easier than they would be in staffing, as some staffing companies literally have over 50 service line brand, as does GM, I suppose. The work involved in determining which brands are GM brands isn’t as tough as it would be in staffing and professional services company. Some brands and corporate names aren’t always visible in annual reports and aren’t visible at all in privately held companies.

    This is all simply food for thought. I can say however, having supported procurement organizations in the management of multiple categories, I will leave it at this…If I had to recommend an audit to ensure the successful management of an outsourced program out of the gate – then I would be a bit worried about the choice made in giving a supplier control of the channel.

    Comment by Julia Fournier — July 18, 2010 @ 10:21 am

  5. As a supplier to many MSP’s we have seen this process go both ways. It all hinges on the relationships that are built with the MSP program managers. A crucial part of my position is to manage those relationships. With several MSP’s, that have recruiting arms as well, we have competed quite well and have grown our business with those clients. I have been told that each MSP is vendor neutral and their is no favoritism involved, which isn’t really the case. We have lost some bids because that relationship exists but have also been the go to company on many projects that their own recruiting arm couldn’t compete on. The reason we are as successful as we are is because of the relationship building with the MSP’s and understanding that they are also the client, in fact they are more the client then our actual client. Make them upset and you are not going to prosper, work with them, follow the rules and do everything in your power to get the job done, communicate problems to them and you will succeed. The MSP’s can’t be successful with out the suppliers, so at the end of the day they don’t care where the leads are coming from, they want the good candidates, with the best rate, in the fastest amount of time you CAN break through the recruiting arm and prove yourself as a true ally in the VMS process.

    Comment by Alex Stone — July 18, 2010 @ 10:22 am

  6. Thank-you for your comment. I can imagine that when supplying to MSP’s that are also staffing in the programs that you have to be highly competitive and talented, and it sounds like you are. The firm that presents the strongest candidate first will always get a 50% chance to fill the req because client satisfaction for most of these firms comes first.

    What you don’t see though, and what I would be interested in hearing about from someone are the reqs and volume you don’t see.

    Comment by Julia Fournier — July 18, 2010 @ 10:23 am

  7. Julia,

    I appreciate and understand your passion for your point of view on this topic.

    In my opinion, hiring solutions are ultimately about getting the right people in the right positions efficiently, cost-effectively in a compliant (both legal and company policy) way. People, process and technology are the building blocks of any successful solution. None of them by themselves is a true, sustainable solution. In today’s marketplace, I believe there are many legitimate, viable ways of achieving this goal. Ultimately, the “success” of a solution is determined by the internal and external stakeholders including the hiring manager, HR, Procurement, Finance, Accounting, Legal, IT, Staffing providers, VMS provider, candidates, etc. Different types of stakeholders will have different opinions and assumptions about what is most important. Depending on the organization, its business drivers, culture, industry, etc. vendor neutrality may or may not be an over-arching goal of its workforce management program, nor should it be in every instance.

    Staffing companies, like other types of solution providers, have evolved as technology, business models, market demand and opportunities have changed over time. Similar to market leaders in other industries (i.e. Burlington Northern, Apple Computer, Microsoft, Digital Equipment, Wang Labs, Xerox ,etc.), the companies that saw and pro-actively planed for the future have thrived, while those that didn’t are either out of business or lost the opportunity to become something greater than they are today. Contract Manufacturers have grown beyond providing component assembly services. Component manufacturers have grown into systems integrators. Payroll providers like ADP have grown into Human Capital/Talent Management solutions providers. Forward looking Staffing companies have done the same thing successful companies in any industry have done. They understand and listen to their customers and develop solutions to add value and become stronger business partners, and they see and respond to competitive threats.

    Your comparison to the auto industry is interesting. However, people are not an easily configured commodity which is one of the reasons why I believe large, complex client companies have developed such a large list of suppliers to begin with. In addition to assessing skills and experience, understanding a candidate’s “soft skills, motivations, goals, etc and mapping them to the hiring manager, business unit and company are also critical for successful placements. The types of skills needed by a company, their locations, why they need the skills, when they needs the skills, etc all factor into a “successful” program and vary widely between client companies. The “art” of staffing cannot be programmed into a software application or business process. It is developed by staffing professionals working with their clients over time.

    I agree with your comments about the need to be “technology agnostic”. I also believe that we need to be “model agnostic” for the same reasons.

    Thanks for starting this lively discussion.

    Comment by Mark — July 26, 2010 @ 12:02 pm

  8. Mark,

    I love this topic overall because I think that you can see the opportunities that exist. The phrase that comes to mind is “stick to the knitting”. You can’t be great at all things, and while I don’t disagree with you on diversification, I am more in favor of diversification if the areas that you choose to pursue are collaborative with your industry or specialization. When you take on the role of owning the requisition, and you have the ability to inflate your own revenue by participation in a particular service offering in particular by comparison to your competitors, it has a tendency at some stage to adversely impact the customer. Which hurts us all.

    When those that have outsourced start to in-source because of the models that they choose, we are all penalized. I tend to think that if certain companies stuck to the knitting fewer companies would in-source because we no matter what the model the service offering regardless of the choice, would have proven time and again the value offered. Until that is the case, this will be a topic that continues to get a rise out of me as you can see :) . There are a few others that I am as passionate about, so stay tuned !!

    JF
    Managing Partner

    Comment by Julia Fournier — July 26, 2010 @ 12:23 pm

  9. Julia,

    Taking VMS/MSP/VOP/RPO solutions out of the equation, Staffing companies have to be experts at building and operating scaleable recruiting operations that source candidates through multiple internal and external supply chains to consistently meet their clients’ needs and be profitable. Even small regional staffing companies typically hire, place and manage 10,000+ employees annually, while some nationals probably exceed 1,000,000. Staffing companies also have to be experts in local pay rates, benefits, etc in order to attract and retain their talent. Applying core competencies in streamlining and automating hiring processes, building and managing labor supply chains, understanding and managing labor costs, etc. to a VMS solution is clearly within the scope of what successful Staffing companies do.

    In my experience, successful partnerships in any industry are built on defining “success” prior to implementation, putting in the systems to measure and report on it, having a pro-active continuous improvement process in place to identify/close gaps, sharing new best practices and re-calibrating the definition of success over the life of the relationship as client needs change. Each client will have its own definition of success. If the VMS provider meets/exceeds its client’s expectations, the client will stay. If not, the client will make a change. The client’s decision will be based on the performance of and value delivered by its VMS partner, not its VMS partner’s business model.

    From reviewing HCMWORK’s web site, it appears your organization provides its clients exceptional service and value, allowing you to retain and add customers. Would you attribute this to the company’s knowledge, expertise and performance, or because HCMWWORKS provides a “vendor neutral” solution?

    Mark

    Comment by Mark — July 26, 2010 @ 4:21 pm

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