The Fundamentals of Managed Service Provider (MSP) Programs Part 3 of 3 Part 3: Business Case and Readiness By Jennifer Spicher
contents This is the final of a three-part series designed to outline key components of a Managed Service Provider (MSP) program in support of a company s more comprehensive strategy for Talent Supply Chain Management. p3 p4 Introduction What is the Business Case? Increased access to talent / 5 Two of the major stakeholders most often engaged in this strategy are Procurement and Human Resources our experience indicates that when these two groups work together effectively, an MSP program delivers significantly higher value than without this vital collaboration. Reduced cost/improved efficiency / 6 Reduced risk / 7 Increased visibility / 8 This series addresses common questions about MSP programs, and provides a framework that allows for informed decision making. The series will explore three key areas: 1 Explains what an MSP can do for your company and why it s important Jennifer Spicher p10 p12 p14 Are You Ready? Recommendations Conclusion 2 3 Demonstrates how multiple sourcing models can integrate with MSP strategy Articulates the business case for MSP and helps to determine your readiness The following covers the third of those three areas Business Case and Readiness. Be sure to read parts one and two for additional observations on achieving effective talent management through MSP solutions. This information should prove valuable to procurement and human resources personnel as they plan and prepare for the future. It also presents real value to stakeholders, whose operations may be impacted by the MSP program and leadership from many other areas, including finance, IT, or operational functions that may ask: What strategies can we deploy to manage the cost, technical competency, and risk inherent in utilizing external labor? 2 3
What is the Business Case? Why Deploy an MSP solution? To establish the benefits of an MSP, each organization must assess its own priorities but in general, there are four areas that drive the business case for an MSP solution: 1. Increased access to talent 2. Reduced cost/improved efficiency 3. Reduced risk 4. Increased visibility Details for each element of the MSP business case are provided in the following pages of this section. Increased Access to Talent Leveraging an MSP helps companies improve access to quality talent as part of their overall workforce strategy. Comprehensive management of contingent workers enables flexibility to augment staffing levels as needed for special projects, obtain highly skilled talent quickly, workaround headcount restrictions, and to improve coverage during peak periods. Typical components within an MSP program include: Requisition review with hiring managers to ensure accuracy, clarity, and compliance to policy Candidate pre-screening so that hiring managers only review the best candidates Continuous review of open positions and supplier engagement to ensure adequate submittal activity Talent Cost Process management through the interviewing and on-boarding process Supplier management to ensure adequate quality, quantity, and cost Reporting and data analytics Best practice sharing and benchmarking Organizational Priorities Increasingly, companies are adopting a more holistic workforce planning strategy and including the contingent labor talent pool as they assess available skill sets globally. They are also expanding their view of external labor to include retirees, interns, project workers, independent contractors, and consultants. Risk Visibility 4 5
What is the Business Case? what is your greatest benefit? Reduced Cost / Improved Efficiency A recent Aberdeen benchmarking study reports that best-in-class organizations are Reduced Risk Today s definition of contingent labor is much broader than even a few years ago. In addition are you at risk? While cost savings can often present a great advantage to companies that deploy an MSP solution many clients report that other key benefits such as greater access to talent, improved quality of workers, and mitigation of risk are more critical drivers in their long-term strategies. 53 percent more likely than all other companies to leverage MSP solutions. Additionally, those companies using MSP have a 36 percent higher rate of cost savings on contingent workforce spending than companies not using an MSP. Taking into consideration the cost and efficiency gains, it becomes obvious why many companies pursue an MSP program to deliver results. The hard cost savings are often captured in these forms: Rate card benchmarking and management Supplier on/off boarding strategies Requisition and assignment length controls Overtime limits/billing discounts Redirection or elimination of headcount associated with the MSP program tasks Add to those hard cost savings the significant soft-cost benefits, and it s no secret why companies execute the strategy: Standardized contracting processes Standardized requisition-through-pay processes Vendor consolidation, where the MSP acts as the client s agent Improved visibility to drive decision making Metrics and reporting to guide improvements to traditional workforce classifications such as clerical/administrative or IT workers, it now also includes Independent Contractors, Statement of Work (SOW providers), Consultants, and more. Oftentimes, these non-traditional workers are managed through decentralized operating budgets or procurement spend categories and are not captured in HRIS systems thus making the investment in this workforce invisible to the enterprise at large. This is of particular concern as governments around the world turn their focus to recouping loss of tax revenues from companies that classify their labor incorrectly. For example in North America the IRS (United States) and the Canada Revenue Agency (CRA) have implemented aggressive plans to uncover worker misclassification and co-employment violations. Is your business exposed? Do you know if your workforce carries co-employment risks? An MSP strategy can tighten up contingent labor definitions, contract compliance, length of stay management, and ensure consistent policy administration. To properly manage independent contractors and statement of work projects/services, many companies leverage specialized services, such as Independent Contractor Engagement Specialists (ICES) along with their MSP. Companies using ICES have achieved a 65 percent higher rate of compliance to federal, regulatory, and state policies according to Aberdeen research. Another consideration is business continuity. Aberdeen s latest survey indicates that nearly 26 percent of the average company s workforce is contingent labor. Do you know who How many workers are properly classified as independent contractors? Who is auditing for compliance to regulations? Are all workers drug and background screened properly? How effectively do you control access to confidential information? Did you follow a standard on/off boarding process to protect assets? Is there an enterprisewide strategy to hire, or reassign the best talent? What systems are in place to approve, audit, and control this workforce? Are the suppliers you utilize under contract, audited regularly, and offering the lowest possible rates? Do you compare the cost/ benefit between workforce pools (i.e.: using a consultant versus a temp)? they are and what they do? If greater than 20 percent of your organization s workforce disappeared tomorrow what would it mean? How important is compliance to your company? Use the questions at right to determine whether your company should be concerned. 6 7
What is the Business Case? Increased Visibility Another key MSP benefit is enhanced visibility into the amount of third party labor supporting the company, where those individuals are located (geographically and by job category), and what systems they are accessing. Knowing how these resources are being applied across the business enables better decision-making and the ability to justify the investment. More and more companies want the talent when they need it, and only for as long as they need it. Hiring full-time employees, only to lay them off when the business slows, is both expensive and negatively impacts the employer brand. An MSP program enables access to top talent who join the organization fully understanding their role and likely tenure. Thus, costs are aligned with demand, and employer brand is protected, as highlighted by the following example. Case Study Early in 2009, during the global financial crisis, an MSP client came to KellyOCG with an edict to reduce expenses by a significant percentage within 30 days. We later came to believe that they, like many other companies, were experiencing difficulty in securing capital to finance their sales; they often financed the capital goods they sold. Since the KellyOCG MSP program exceeded $50 million, there was considerable interest in lowering that cost. KellyOCG took the following steps: Accessed VMS technology Pulled detailed data on all contractors working in Canada and the United States Included information on the type of work, length of assignment, and supervisor with contact information Delivered this data in a few hours While KellyOCG didn t make the decision on how to reduce the cost, we provided visibility so our client could make quick, intelligent business decisions. In this case, the client was able to take cost out very quickly and justify in other cases why cost was critical to their business for instance, a great many of the contractors were doing design work on future products, something the company did not want to eliminate. The client reported it actually saved jobs, because it helped them to explain and rationalize the critical nature of the work. It s hard to put a price tag on this service but companies with an MSP have concluded that spend visibility across the workforce is very important! According to Aberdeen research, 56 percent of organizations cited the improvement of visibility into all facets of contingent workforce management as their top priority in the past year. For companies that first need to get better insight and oversight regarding their third party labor data, an initial step may be to start with an ID management solution and then expand to sourcing models once greater data visibility is secured. 8 9
are you ready? Assessing the readiness of your organization to embrace an MSP program requires much reflection. Don t underestimate the organizational, cultural, change management, supply base, and end-user elements that must be addressed to achieve a smooth implementation and maximize results. What do you need to know to thoroughly understand your options? Consider: 1. What volume (headcount and spend), skills, and locations form the bulk of your needs? 2. Who are the key end-users and how receptive are they to change? 3. Are key stakeholders in HR, Procurement, Legal, Risk, Finance, IT, and business operations involved? 4. Is there agreement on the relative importance of the four major outcomes associated with improving a contingent labor strategy? a. Access to talent how difficult is the process of sourcing contingent resources? i. Is the organization interested in a more flexible, scalable, or global model? b. How critical is reducing cost and how does it align with quality expectations? Does it include: i. Process efficiency does standardizing processes and reducing back-office expense count? ii. Does the concept of on-demand talent and flexing to needs resonate with the company culture? d. Visibility how important is business intelligence to your decision making? i. Do you need more visibility into this area? 5. Assess your organization s current readiness for change. This includes: a. Operational alignment to work within a defined vendor base or process b. Engagement with peer groups in other countries, if a multi-country solution is sought c. Willingness and ability to mandate utilization of Web-based technology for requisition management d. Experience implementing and adopting outsourced programs e. Internal resources available to support or lead the change management process f. Sense of urgency does the strategy align with key business objectives? g. Identifying executive level sponsor/internal program champion In reviewing your readiness, above, knowing what you don t know is half the answer. Engaging an experienced MSP provider can help guide you to the other answers. c. Risk/Compliance how concerned is your organization about the quantity and types of talent they use? i. Is there awareness to recent changes in government compliance activity? ii. What about concerns with co-employment risk? iii. How important are processes like contractor screening, security, confidential information, and vendor contract compliance? 10 11
recommendations Once the business case has been developed and proven, determine the beginning scope of your MSP program. Start by carving out a category or geography that can benefit or fit within the above assessments. Some companies will be ready for global control and mandates to an MSP. Others may only be able to start with a specific category they have current access or control of to start the benefits and process. Over time and with internal success stories, your business case begins to speak for itself, justifying the addition of other categories or geographies to an MSP. Some additional points for consideration: 3. Set expectations around MSP program objectives. If desired and properly planned for it is possible to lower bill rates, gain access to more talent, improve utilization, reduce risk, deploy globally it just takes time, and the right roadmap. 4. While rate cards, improved controls, and flexibility are often the main drivers of change most of our clients would say that longer term, it s the access to talent, visibility, flexibility, and strategic alignment that pays the biggest dividends. Don t limit your criteria to explicit measures plan for the positive press that comes with this strategy. 1. It is significant to move from an environment where there are few sourcing models and fewer controls to one with many models, managed within an MSP. In many cases, the best strategy is to create the vision, and tackle the projects in priority, then build upon success. 2. Consider keeping the scope of any initiative to that which you can control or are ready for. This could be a major skill area (IT), or geography (U.S.), or some combination thereof. 12 13
conclusion In summary, there are four major reasons to consider an MSP: 1. Access to talent is improved through more efficient hiring and on-boarding meaning the talent is productive sooner. This is facilitated by improved MSP processes, hiring manager support, and active supplier management. 2. MSP usage can result in 36 percent higher contingent workforce cost savings. This comes from pay rate controls, rate card management, requisition and assignment management, re-allocating internal resources, mark-up discounts, and a variety of soft cost savings. 3. Risk management is also improved. 26 percent of the average organization s workforce is considered contingent, and they carry with them many benefits. If not managed properly, contingent workers also carry significant risk. They have access to confidential information, assets, employees, and much more. And in some cases, they are critical to the enterprise s success yet invisible to the business. 4. Visibility is the quiet driver with information comes the ability to make better business decisions, including flexing the workforce to better align with business demands. Readiness also presents a complex set of considerations: Understanding the technical components spend, skills, and location HR and Procurement must work in tandem to optimize results but a cross-functional team is critical Gain consensus on the priority of the four key MSP program benefits Assess your internal experience, and your change readiness, with this kind of initiative References Aberdeen Group, Contingent Workforce Management: The Next-Generation Guidebook to Managing the Modern Contingent Workforce Umbrella May 2012 Staffing Industry Analysts, 2011 Contingent Buyer Survey: Vendor Bidding Models and Staffing Agency Rate Structures March 2012 14 15
About the Author Jennifer Spicher is Vice President & Americas Practice Lead, Contingent Workforce Outsourcing Solutions with Kelly Outsourcing and Consulting Group (KellyOCG). She joined KellyOCG in 2009 to help accelerate the company s growth in strategic accounts. Ms. Spicher is responsible for solutions design and architecture, implementation and overall program delivery, as well as customer satisfaction for client programs. She has a wealth of experience and demonstrated accomplishments in the human capital industry, which has fueled her ability to consult with clients, understand their needs, and recommend customized solutions to align with their workforce strategy. Jen was named a 2013 Pro to Know by Supply & Demand Chain Executive magazine. About KellyOCG KellyOCG is the Outsourcing and Consulting Group of workforce solutions provider, Kelly Services, Inc. KellyOCG is a global leader in innovative talent management solutions in the areas of Recruitment Process Outsourcing (RPO), Business Process Outsourcing (BPO), Contingent Workforce Outsourcing (CWO), including Independent Contractor Solutions, Human Resources Consulting, Career Transition and Executive Coaching, and Executive Search. KellyOCG was named to the International Association of Outsourcing Professionals 2012 Global Outsourcing 100 list, an annual ranking of the world s best outsourcing service providers and advisors. Further information about KellyOCG may be found at kellyocg.com. kellyocg.com All trademarks are property of their respective owners. 2013 Kelly Services, Inc. Y0167C