In a previous article we provided an overview on the topic of self-managing your contingent labor program versus outsourcing to an MSP partner. We explored some of the common reasons organizations have arrived at this question, and presented our prescribed antidote: the Talent Forward MSP service. Digging deeper into this topic, we now turn our attention to the logical follow-on questions: What are the benefits and risks of self-managing your contingent labor program? And, in what situations does self-managing your contingent workforce program make sense?

5 Strategic Outsourcing Questions

Before we explore the benefits and risks of self-managing your contingent workforce program versus outsourcing to a third-party MSP service provider, let’s revisit a basic framework designed to help you decide if it is a topic even worth exploring further. As you think about your current contingent workforce program, ask yourself the following high-level strategic outsourcing questions: (Simply answer “Yes” or “No” to each.)

1. Is this function core to what we do as a business? Are we experts at delivering it?

2. Do we know how to find, manage, and retain the talent it requires to operate?

3. Are we willing and able to climb the learning curve? Do we know: Who will help us? How we will stay up to date? What technology we will need to be successful?

4. Does managing this function fit within our organization structure? Who will “own” it?

5. Can we justify taking on the additional fixed overhead cost?

If you answered “Yes” to each of the five questions above, then your contingent workforce program may very well be a candidate for self-management, and the rest of this article will be relevant to you as we explore risks/benefits, and scenarios where it might make sense to self-manage your program.

If you answered “No” to all five questions, then it should be very clear that your contingent workforce management program is a function that is best outsourced to an expert third party solution provider.

A mix of “Yes” and “No” puts you on the fence, and you should think about how good a fit it is for the talent and time you have available on your team. Could an outsourced specialist do it better and deliver more value? If you do it internally, is the potential benefit worth the cost?

The MSP Gold Standard: A Talent Forward MSP Service

Organizations who choose to self-manage their contingent workforce programs tend to overestimate the immediate gains available, and dramatically underestimate the long-term challenges. Many organizations don’t appreciate the breadth of knowledge required to be successful, and how cross-industry global experience can be beneficial.

The internal team of a self-managed program will need subject matter expertise in supplier performance management, contingent contract management, contingent workforce legal and regulatory compliance, supplier optimization, contingent labor procurement processes and program governance, and an in-depth understanding of how to aggregate and interpret extensive VMS data, and more importantly how to take action on the insights derived from that data!

When contemplating the strategic value an MSP service provider, it is largely the same list. They bring expertise and experience to every component of your program. A world class MSP partner will make this look easy, despite the complexity under the surface. But if you don’t have a benchmark, or prior experience, how would you even know what a good MSP service should look like and function best?

Here’s our view:

The primary objective of an MSP service provider should be to ensure clients get access to the best talent, in the right time and place, for a fair price – regardless of source, or worker classification. At Hays we call this enabling approach our Talent Forward methodology, and it is fundamentally different than the old and outdated command and control MSP service model which is still prevalent in the marketplace.

Built on a framework of innovation and delivered with an enlightened strategy, there are four major elements in a Talent Forward MSP service, all designed to work together and provide clients with better access to talent. We’ve covered the first three in prior articles:

• Staffing Supplier Enablement– Building a program where Vendor partners are informed, excited, engaged and committed to delivering the best talent to our clients.
• Extended Supply Chain– Expanding and optimizing the mix of traditional and alternative talent, including SOW, service providers, and online marketplaces (with compliance and governance)
• Direct Sourcing– An outsourced recruiting solution, that leverages our client’s brand to build and engage a proprietary talent community, which can then be used to source workers at a significantly lower cost and quicker time to productivity than the traditional staffing suppliers.
• Technology & Analytics– Streamlined process, real-time data capture across the enterprise program, rate card development, benchmarking by market and competitors, Worker availability, robust analytics, and the resulting decision-making insights for a foundation of your technology-enabled service delivery.

When deployed in a program environment built around open communication, transparency, and true partnership between a client and its talent supply chain – Talent Forward delivers the vision of “MSP v3.0”. It is a progressive and future-proof method for operating a contingent workforce program that ensures organizations consistently attract and retain the talent they need in both today’s challenging talent environment, and tomorrow’s.

Potential Benefits from Outsourcing Your MSP Service to a Partner

The latest research from Staffing Industry Analysts shows that over 60% of enterprise companies engage a 3^rd party service provider to manage their MSP. Why is outsourcing the management of contingent workforce programs so popular? As it turns out, the reasons are rooted in the complexity of the ever-evolving world of work and the challenges of recruiting and retaining a dynamic workforce. Here are a few of the most common reasons firms choose to engage external MSP service providers:

• Expertise/Experience: Managing a contingent workforce supply chain is not a core function of most firms. Most procurement, human resources, or talent acquisition professionals are not experts at contingent workforce management. These professionals are often unfamiliar with the latest human capital trends and techniques — and they may not be inclined to become experts in yet another specialty
• Capability: Effectively and efficiently managing a contingent workforce program requires a growing, diverse skill set. Years ago, firms could get by with home-grown talent. But today’s complex world of work, and ever evolving workforce, requires highly developed technical expertise.
• Cost: Outsourcing your contingent workforce management to an MSP service provider is almost always going to be less expensive than doing it yourself. While the fees for outsourcing may seem high at first, they can, in fact, be very cost effective. The key consideration here is that you gain access to a diverse, high-quality set of skills without having to hire, train and supervise a team of specialists. And since you are using the talents of experienced specialists, they are also likely to produce better outcomes, quicker than if you were to take it on yourself.
• Flexibility: With outsourced contingent management services you also gain substantial leverage because of your MSP partner’s infrastructure and network. Since MSP contracts are typically volume-based, you are only paying for what you need when you need it, and you can easily scale up or down.
• Focus: Running your own contingent workforce program can be time consuming and distracting. With outsourcing you keep your most valuable resources focused on their core jobs.
• Accountability: One of the oldest value propositions for MSP service providers is that they represent “one throat to choke!” In other words, the outsourced partner provides a single point of accountability for the entire contingent workforce program. All program issues and results belong to them. That should make even the toughest stakeholder happy.
• Innovation: Since contingent workforce management and recruitment services are their primary business, you will typically see top-tier MSP service providers investing significant resources into developing new services and exploring enabling technologies. This commitment to innovation and investment is much tougher to do if its just for your organization.
• Resources: MSP service providers typically deploy onsite program management teams supported by cost-effective shared services groups to handle common back office support and administrative tasks across many programs.
• Technology: Most major MSP service providers work with a number of enabling technologies, including extensive knowledge around configuring and managing vendor management systems (VMS) that are vital to the successful operation of a contingent workforce program. Their professionals are adept at generating reports, analyzing data and producing mission-critical business reviews for program performance.
• 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.
• Talent: Access to the right talent, at the right time and place, for a fair cost is the ultimate arbiter of whether a contingent workforce program is successful or a failure. This should be the primary objective of your MSP service provider, and the good ones build their reputations by delivering on that promise.

Challenges from Outsourcing Your MSP Service to a Partner

As we’ve seen, an experienced MSP service provider can 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. Behind the scenes, the MSP is then tackling the day-to-day responsibilities for running the CWM program. This includes requisition distribution, order fulfillment, on-/off-boarding activities, reporting and performance monitoring.

Like any form of outsourcing, choosing an MSP partner to manage your contingent workforce program can also present some challenges:

• Morale & Accountability: Depending on how the program is currently being managed, and by whom, you may encounter Internal morale and accountability issues by outsourcing. For example, existing staff may feel threatened when you bring on a new partner. In addition, your team may not be used to the pace and pressure of a results-oriented contingent workforce program. To help mitigate these issues, you will need to clearly define people’s roles, let staff know that they are part of a larger team now and explain that success depends on everyone doing their part.
• Access: In most outsourcing situations some of the team performing certain aspects of the program management or operations functions may be located off site. While this arrangement contributes to cost savings, it is a change from having the whole program team sitting on site. Getting used to working with remote partners can sometimes be frustrating and a difficult adjustment.
• Potential higher cost: The vast majority of MSP clients report that outsourcing costs them less. After all, it allows them to avoid the long-term costs associated with hiring and supervising employees, and enables them to flex with demand and only pay for the services they need. Some organizations who have underinvested or never had a formal program, find that outsourcing increases their costs. This is an expected outcome because these firms have not invested the resources to build or maintain a successful program hence their desire to outsource to an experienced partner! When they start outsourcing their costs are naturally going to be higher because they are now paying for all the resources it takes to operate a world-class contingent workforce program.

Potential Risks in Self-Managing Your Contingent Workforce Program

To round out our conversation on self-managing your contingent workforce program, there are also a few potential risks to consider if you take on the role of being the MSP service provider with an internal team. The most common risks we’ve seen include:

• Inexperience: Internal program teams often don’t have any experience in running a contingent workforce program. These teams are often assembled from interested (or assigned!) team members pulled from their human resources, procurement, or talent acquisition roles.
• Technology: The optimal way to manage a contingent workforce management program is to deploy a vendor management system (VMS), this powerful technology offers a full cycle (often referred to as “req-to-check”) set of features and functionality. Hiring managers often don’t have any experience or time to utilize this technology. The internal MSP team must gain the systems administration knowledge, enabling them to configure the tools, adjust privileges, provide training, administer users and produce ad hoc data.
• Best Practices: Inexperience in delivering MSP services can result in inefficient or inconsistent processes and procedures. Without the depth and breadth of knowledge that a global MSP provider has gained across many clients, and the resulting best practices, an internal team must learn as they go, often making painful mistakes along the way.
• Cost: Many new internal organizations neglect to fully account for the added costs of team and infrastructure required to support the program. The new cost center must be staffed with employees, trained, and equipped. In addition, 3^rd party consultants are often engaged to provided needed best practices and industry insight. These added costs often erase any planned cost savings from self-managing.
• Risk management: Most experienced professionals have a working knowledge of employment law as it relates to regular employees. Because the contingent workforce has traditionally been provided and managed by third parties it is not as common to find a strong working knowledge of labor law relating to non-employees. Without compliance and risk mitigation controls, and strong legal support, this can create a program environment with an increased risk of worker misclassification and co-employment exposure.
• Supply chain management: People aren’t parts! Just because an organization has a strong procurement function with experience in buying traditional goods and services doesn’t mean they have any competence in the complex human capital supply chain. We often see organizations misjudge the challenges of managing staffing suppliers including: poor supplier communications, lack of supplier market sourcing and competition, insufficient market research and bench-marking, no supplier mentoring or development, failure to keep abreast of industry best practices.
• Staff/team: As mentioned earlier, one of the “hidden” costs of self-managing a contingent workforce program is the dedicated team and infrastructure required to operate it. A related challenge that we often see is the lack of career mobility for the team operating the program. Unlike a global MSP service provider that has many programs and a consolidated back office to support, a single program offers no opportunity to move up the ladder or take on more responsibility. People often leave as a result. This turnover, with the resulting loss of experience and relationships, can be very costly for a self-managed program.

Scenarios Where Self-Managing Your Contingent Workforce Program Might Make Sense

Now that we’ve explored the potential benefits and risks from outsourcing your contingent workforce program to an MSP service provider, and examined the potential risks of self-managing, it is time to shift our focus to scenarios where self-managing your CW program might make sense.

There are cases where an internally run labor program can be the right solution for an organization, providing the most value and the best service for hiring managers. Typical factors to consider include:

• Low Spend:A program with relatively small contingent workforce spend, usually below $5-10 million annually, probably isn’t going to be viable for outsourcing. In order to properly scope, implement, and operate a new program, MSP partners must invest significant resources – this relatively low level of spend typically won’t justify the expense for the partner or the cost for the organization.
• Limited Geographic Scope:Local programs with one or a few locations are more conducive to self-management. If the spend is dispersed across multiple locations, or is global, then it is often better suited to the experience and broader footprint of an MSP partner. With small local programs, internal hiring managers are much easier to manage, and program governance is simplified.
• Standard Talent Requirements:Organizations with fairly homogeneous talent needs, concentrated within one or a few standard roles, may be well served by a self-managed program. For example, a large call center or a warehouse, may require only administrative and light industrial workers, would be easy to centralize and monitor given the low diversity of skills needed. As locations and in-demand skill sets grow, however, an MSP program can start to make more sense.
• Predictable Turnover and Volume:If your contingent workforce turnover and volume are consistent, and predictable, then the program becomes much easier for a leaner and less experienced internal team to manage. With increased variability and complexity internal teams can quickly become overwhelmed and may not have anywhere to turn for support.
• Slow Growth Organization:If your organization is in a mature and slow growth industry, and your talent requirements mirror that, then self-management is a good option. One factor that many organizations neglect to consider is their future growth, if you are on a fast growth trajectory then self-management will likely prove to be a myopic decision as your program scales in complexity and scope.
• Small Supply Chain:Organizations that don’t utilize many staffing suppliers are well suited to either self-management or a prime vendor relationship with one staffing supplier, particularly if they have a good working relationship and the supplier is performing well. The risks with this approach are not having a large enough supply base to drive competitive pricing and being held captive to one supplier.
• Internal CWM Experience:Through smart hiring, or sometimes blind luck, some organizations have experienced contingent workforce management expertise on their staff. It is much easier to self-manage if your team has actively administered contingent labor programs in the past. The experience of building supplier networks, understanding the intricacies of VMS technologies, and staffing supplier contract compliance are not common skillsets! For internal teams without this experience it can be a very challenging road to go it alone with the support of an expert MSP service provider. In addition, organizations who self-manage must be committed to investing in ongoing training, new technology, and innovation to remain competitive in the talent recruitment marketplace.
• Environment:If your organization is defined by repeatable processes, strict reporting structures, rigid policies and firmly established guidelines, your internal program management team may have fewer challenges to overcome in taking on the additional duties of handling staffing suppliers and contingent workers. However, if your organization is more individualistic, decentralized or dynamic, then hiring managers will likely struggle as they attempt to control the chaos. Experienced MSP service providers thrive by providing expert change management and process, creating order out of chaos.
• Culture:Organizations with a strong culture, and a history of developing their own solutions instead of buying from third parties, often choose to manage their program internally. In some environments internal employees are more likely to run a program that is consistent with the company’s culture than a third party, which can help drive adoption. The risk in this bias should be obvious – one of the greatest hazards of deciding to self-manage versus outsourcing is having to learn things the hard way versus leveraging a partner’s experience and best practices.
• Track Record of Success:Finally, if you are lucky enough to have knowledgeable, experienced, and motivated internal staff running your program; with a comprehensive program governance in place; a “hardened” process that is proven and repeatable; with high program adoption; and satisfied hiring managers who are getting the talent they need; with no “back doors” or rogue spend (contingent spend happening outside of program) – then your organization is definitely the exception. Congratulations are due to the team, and there is no reason to change your approach!

Conclusion

Outsourcing your MSP to a third-party workforce solutions provider has proven to be very popular in organizations of all sizes and across almost every industry. While outsourcing is almost a requirement for complex programs, it is not uncommon to find a self-managed MSP when the environment is smaller and simpler, for example when there is less than $5-10M in annual contingent spend, concentrated in a few categories of workers, with only one or a few suppliers of talent, in one physical location.

Many organizations arrive at the decision to self-manage their program out of extreme frustration with their incumbent MSP service provider, and a failure to realize that there are innovative new approaches, like the Talent Forward methodology, designed to solve their contingent workforce management challenges.

In this article we explored the common benefits and risks of self-managing your contingent workforce program versus outsourcing to an MSP service provider, and we also examined the most common scenarios where self-management makes sense. The final article in this series will help if you’re still undecided on the right strategic path – we’ll share a strategic framework to help you explore the topic of self-managing your contingent workforce program and make the best and most informed decision for your organization.

NOTE: This article is part of an ongoing series exploring key elements of the Talent Forward MSP strategy, along with key insights and best practices from the workforce management experts at Hays Talent Solutions.