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The Evolution (and Future) of MSPs

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If you’re fortunate enough to attend the Staffing Industry Analysts CWS Summit in Dallas, Texas on October 19th and 20th, you may observe how sophisticated and technologically advanced the Managed Service Provider (MSP) staffing model is today. But take note: It hasn’t always been that way. The model has undergone a dramatic transformation in the last 20 years. Here’s brief look at where it started, how it’s evolved and where we see it going.

The beginnings

In the 1980s and early 1990s, staffing was built around the simple process of calling an agency to find one placement to meet a workforce need. Pressed for time and often struggling with finding workers who possessed a particular skill set, hiring managers typically called on local agencies to find and place workers.

Slowly, that model evolved, as hiring for larger and more complex needs — in a call center or on a production site, for example — required more understanding and more on-site contact than a simple phone call could provide. To accommodate these needs, sites with more than 100 contract employees popularized an on-premise model; it allowed the staffing company to achieve greater integration with the business they were hiring for and respond to workforce needs more efficiently.

They recognized that even at locations with more than 1,000 contract workers, one-on-one interaction between recruiters and candidates was important. Having the right workforce mattered when it came to meeting business and production goals. Staffing companies added people — managers, recruiters and administrators — solely focused on providing that essential candidate relationship on-site.

Evolving to meet the need

Over time, as companies centralized more of their programs, they began to request a primary or master vendor model where one staffing company could be used to hire across multiple locations. This model also allowed the master vendor to bring on additional capacity when they needed it, too: If the master vendor needed help fulfilling the requirements they were tasked with, they were able to turn to sub-vendors to supplement the hiring. Clients developed close relationships with their master vendor, leveraging those relationships to secure the best resources and volume discounts.

The master vendor model was not without its flaws. For larger companies with global needs, some master vendors struggled to successfully fulfill across all positions and sites. The more complex the business needs became, the more critical it was to have a partner who could ensure that positions were filled on time.

Globalization sparks the MSP

Over time, companies became more globalized. The staffing model that worked so well — a master vendor or series of on-premise models — no longer seemed to satisfy human resources and procurement executives. As globalization changed businesses by bringing additional complexities, a need for greater transparency and a dramatic increase of SOW work, the industry began clamoring for a new type of solution.

The solution came in the form of the Managed Services Provider (MSP), a model that moved away from the central relationship between a recruiter and a candidate and towards a focus on overall business needs. Most global first-movers in the MSP space did not have a recruitment function — instead, they managed teams of suppliers. The separation between recruitment and management was a critical selling point for these providers, especially for companies that had been let down by master vendors who failed to provide the staff the company needed.

The impact of technology

Globalization and the failure of master vendors to meet evolving staffing needs were not the only factors pushing businesses towards adopting an MSP model. The need for more comprehensive data and real-time reporting played a big role, too. How could companies understand their entire program without visibility into each site’s usage and each supplier’s performance? How could MSP providers hold suppliers accountable and measure the success of the program without immediate, real-time reporting? Without a comprehensive Vendor Management System (VMS) to provide the visibility and data needed to successfully manage a program, MSP providers were flying blind.

MSPs responded to these needs in different ways. Some MSP providers decided to develop their own tools. Other providers partnered with technology experts to find the right solution for each customer. Regardless of how providers arrived at their individual solutions, a trend emerged: VMS tools have become essential elements for all MSPs.

The industry, today and tomorrow

MSPs have been popular with global companies for the past five to ten years. These companies have focused on project-based work on an international scale with a clear separation between the recruiting and MSP functions. Often, these programs have 100 or more suppliers and include both staffing and SOW work. For those large clients, it is now time for them to re-evaluate how their models work for their organization and perhaps move from a one-size-fits-all model to a more customized solution.

For smaller organizations with multiple locations and more than $5 million in annual contingent labor spending, the MSP solution has proven to be an increasingly appealing option. In fact, Staffing Industry Analystsforecasts that the staffing industry in the U.S. alone will grow by 7 percent in 2016, and they foresee the global market for MSPs and VMS tools will “continue to grow robustly” in the coming years.

More and more companies are choosing to move from a decentralized model where every hiring manager must manage their own suppliers to a centralized, holistic workforce program. Mid-market customers are taking the best elements from the largest programs (e.g. supplier management and VMS technology) and tailoring them to meet their programs’ needs using a more agile supply base, more customized program management options and and a greater focus on the contingent worker experience.

The newer iterations of the MSP model for the mid-market customer have not lost sight of the importance of the recruiter-candidate relationship. In fact, there is a renewed focus by many on how to best manage suppliers to ensure the best workforce for the organization.

The CWS conference in October will include many roundtable topics around how to make the MSP program work best for just about any organization. This customized approach will appeal to both large programs and mid-market customers seeking a new solution. Regardless of where your organization is in implementing a more complex program, everyone in the industry continues to seek that elusive balance between customization and simplicity.