Clients often ask us whether companies are bringing their contingent workforce management (CWM) programs in-house or if the trend is to outsource these programs to a third-party managed service provider? We are seeing companies going to bid for an MSP after years of running their own program management office. At the same time we see very mature, well-run MSPs transitioning their programs back to their clients using the insourced model. Although in many cases you can cite such factors for insourcing or outsourcing as program maturity, company size or the quality of the providers, one business case study reveals some far more valuable lessons. The rationale for either choice is best demonstrated by studying a real situation where two companies of similar size, location and maturity chose to go in opposite directions. It’s a “Tale of Two Programs.”
Let me set the stage. The first is a financial services company that has managed its own contingent workforce program for nearly 10 years. The other is an insurance company and has had its program managed by a well-respected MSP for about the same length of time. They share a number of similarities:
- Both have had CWM programs for nearly 10 years.
- Both have primarily professional-level workers and heavy dependency on IT workers.
- Both contingent workforces are primarily US-based.
- Both have more than 10 locations and at least two primary corporate centers.
- Both have higher-than-average diversity goals.
- Both have more than $200 million in spend on temporary labor alone.
- Both have implemented a vendor management system (VMS) and a supply chain of staffing companies.
But that is where the similarities end.
Outsourcing the program
The financial services company’s in-house program has been driven by its procurement organization — with literally no HR stakeholder involvement. It is common for programs of this size to be driven by procurement, but after years of operating, HR has usually begun to get involved because the professional contingent workforce is a prime source for direct hire talent. Having the program synchronized with talent acquisition efforts can yield big advantages at a time when talent is more and more difficult to secure. Given this, HR wants a seat at the CWM table.
Being a procurement-driven program presents other challenges over time. Procurement, at the end of the day, has to deliver savings. Sure, they have other objectives beyond cost savings and metrics to meet, but if you have a department dedicated to support contingent labor, sooner or later that overhead is going to invite scrutiny. Post-recession, there was tremendous pressure to keep costs down and talent — especially contingent talent — was not considered a high value investment. Over the years, costs were slowly cut and the once-dedicated program office was whittled down to a bare-bones operation. Most staff were assigned additional duties and only dealt reactively with problems, not evolving with the state of the industry. If their VMS offered new features or functionality, there was no one with the bandwidth to execute on them and service suffered. As the service levels began to fall, numerous exceptions were allowed and the supply chain got increasingly disenchanted with their diminishing share of spend. A self-service approach for engagement managers on a VMS is certainly possible, but it will naturally lead to rogue spend, risk compliance issues and general complacency. When your largest supplier is your payrolling provider, you can bet there are issues with the value your program is generating. The lack of competitive bidding alone starts increasing labor costs. The program, like any living thing, has to be nurtured and grown or it begins to wither and die.
The final decision to outsource to a third-party MSP came after a survey prompted by a new procurement executive. The survey revealed what most everyone already knew: unhappy customers internally, cumbersome processes, not all skills in demand covered by the suppliers. After meeting with key suppliers, it was also noted that they were unhappy with the program; no feedback, requisitions were old, too many suppliers getting in around the program and no relevant score card to track their success or lack of it.
Bringing It In-house
The insurance company in the case study used a different approach to managing its contingent workforce. A cross-functional team was formed to get the large spend under a central functional lead by human resources, specifically the talent acquisition group. They partnered with procurement, finance and legal to look at their use of contract labor and had procurement source providers to offer solutions. Their first decision was to bring in a third-party MSP and centralize all external labor purchases under this new department. Right from the beginning, the group was considered a valuable component of the total HR strategy. Starting slowly, they began enrolling departments and divisions into their program. When the program gained critical mass they asked the MSP to bring in a VMS. Procurement helped negotiate contracts and eventually began consolidating the supply chain now that they had good data, good support and proven performance; lowered cost, increase value and streamlined processes.
After enrolling new company acquisitions, capturing rogue spend, adding IT projects to their scope and even their independent contractors, the talent acquisition group started to explore the “total talent management” approach. HR was responsible for all forms of talent in the organization no matter how they were paid, who their actual employer was or what the nature of their work was. This talent acquisition group began to develop an expertise that rivaled their competitors and even the MSP. In fact, the MSP chose to move off-site and provide only a shared service remotely; managing issues resolution, reporting and analytics and some supplier consolidation.
Over the years it started to become obvious that the CWM department was managing the program and the MSP was becoming less critical. In a sense, they trained their own replacements. Their internal customers were happy, educated and supported the program objectives so much so that rogue spend was nearly nonexistent. Cost savings, year over year, was increasingly more difficult to achieve. The program’s achievements were really credited to the internal program and they began to make a case for moving the program in-house.
Their use of their VMS was considered “world-class” because they implemented every innovation. The integrations with other areas of services procurement and enterprise systems, meant there were IT staff members spending an increasing amount of time managing them. The transaction fees applied to suppliers was as low as it could get. Any additional savings would have to come from the elimination of the supplier’s transaction fee charged by the MSP. By lowering the supplier’s cost their charge rates should be lower. Their case was strong and the consensus was to begin phasing out the MSP.
Both programs experienced successes and met challenges. Their decisions were well founded and rational. Every company using an integrated workforce of internal and external workers can learn valuable lessons from what each experienced:
- Procurement has an important role in program development, but when you get beyond the co-employment and regulatory concerns, HR needs to own the CWM program and build a collaborative environment: HR, procurement, senior executives, business leaders, legal and finance.
- Centralizing disparate processes keeps tight controls over policies and processes, lowers risk and improves the results, but governance needs to be continued in order to keep these controls relevant.
- Leveraging large spend for favorable discounts / contract terms can only get you so far because if the providers don’t see a value in the form of improved business and profits, they will lose interest and take their talent elsewhere.
- These programs have to be able to grow with demand. If the allocation of resources needed to keep up with demand isn’t available, you have a case for outsourcing.
- Internal costs are easy to track while savings are difficult to report on, so it is hard to present a value proposition for an internal program. Sooner or later, you need to show cost savings and satisfied customers in order to be funded.
- Program adoption is a key to any successful CWM program. Inclusion of suppliers and providers aids in sound decision making and category scope expansion which leads to buy-in and support. Ultimately though it is the “champions” throughout the enterprise that become the most important aspect of program adoption.
- Regular review of supplier performance and response to their feedback keeps them engaged and interested in their performance.
- Both models have their place; know when it is time to change. Either way, complacency can kill either program design – focus needs to be on engaging the entire scope of stakeholders.
The contingent workforce continues to grow in overall importance to a company’s successful talent acquisition and management strategy. It is also evolving as more alternatives to the traditional employment model become popular. When the workforce is more than 20% non-employee and as it stretches up to 50%, the urgency to seek a well thought out solution increases dramatically. These solutions are living breathing entities and need to be nurtured and kept fresh in order to provide value, which in turn ensures the program’s survival..
At some point every CWM program needs to review where it is, and where it needs to go. Will you recognize when it’s time for a change? Consider getting an outside perspective on your current CWM model and operational efficiencies. You can’t assume that one model or another is going to last forever.