Rise of the vendor neutral managed service program (MSP)

With European firms spending an annual sum of approximately €130B in temporary labour, organisations are scrutinisng their current models of managing contractors to find greater efficiencies wherever possible. Rightly so, there’s certainly no shortage of providers in the market willing to offer “model solutions” for more cost-effective outsourced labour programs.

Though traditional models have offered value, they have not been without fault. However, as these models have evolved, they have yielded much greater results. In fact, it seems that the newest methodology in contractor management-the vendor neutral managed service provider model-is gaining widespread adoption for good reason; the proven success organisations are having with it.

Organisations have multiple choices when it comes to managing their contract labour programs. Some manage it internally themselves whilst others prefer an outsourced model. The outsourced approach has several options as well. Heads of HR and Procurement are constantly under pressure to deliver supplemental talent at the lowest price possible. The constant pitting of quality against price translates to angst and confusion for those responsible for managing contingent labour. With billions of Euros spent annually on contingent workers, it's easy to understand why staffing companies are so eager to ingratiate themselves in organisations and offer solutions that manage the fulfilment of requisitions. 

They say necessity is the mother of innovation. This was certainly true in the case of the first formal managed staffing model. Clients, feeling financial constraints, asked their staffing suppliers to deliver qualified labour for less. Smart suppliers countered with what appeared to be a win/win solution. They offered to guarantee a specific mark-up along with onsite personnel in exchange for an opportunity to fulfil all requisitions. Thus, the Vendor on Premise (VOP) or Master Vendor Program (MVP) was born. This model prevailed for many years and still exists in certain pockets even today. Over time, however, the inherent problems with this model became evident.

The Vendor on Premise or Master Vendor Program proved highly effective for many organisations, but it was not without its faults and risks. In theory, the solution initially appeared sound. The client would realise price reductions and the supplier would be able to provide one-stop shopping and mitigate its margin losses with incremental volume.  Over time, however, organisations came to realise that there was a high degree of "maverick spend." In other words, a high percentage of contract spend was occurring outside the sanctioned program. Overall costs increased, managers who sought greater variety in their supply base complained, and negativity began to surround the program. Eventually incumbent master vendor programs were replaced by competitive master vendor programs promising better value. In many cases, these client companies surmised that the staffing company was poorly managing the VOP so they simply chose to replace them with someone else's solutions that promised a new way of doing business and a higher degree of service. It was easy to blame the staffing company and hope for a better future with the new staffing company. Realistically, organisations should have been evaluating the model itself in tandem with evaluating the VOP's performance. Deeper analysis would have revealed that the model itself was flawed.

For large and complex staffing programs that have a high number of professional service (white collar) contractors, the master vendor or vendor on premise model is destined to be problematic. The underlying premise of the master vendor program is that one staffing company can provide all of the needed contingent talent. Of course, that is a highly suspect assertion in most cases. Granted, this model has merit if the required talent is more commodities based, where the skills are at the "ground floor" level and the supply is plentiful. Clerical/Administrative and Light Industrial positions can often be well managed by one supplier in a master vendor program. However, as the required skill levels increase, the geographical need increases, and as the number of labour types (IT, finance, clerical, etc.) increases, no single staffing company can effectively and competitively provide 100% of the supply. When these companies can't fill all of the requisitions, they often subcontract to other staffing companies to increase their sourcing depth. Invariably, this leads to disgruntled feelings from competing staffing firms, as the only opportunities they get to work on are the difficult ones that the master vendor can't fill. This begins to touch on another inherent flaw in this model.

The master vendor model alienates all of the staffing firms that desire to do business with the client but are forced to work through the master vendor. This means they are going to get the hardest requisitions while having to pay a fee to the master vendor for the privilege of receiving these orders. Staffing firms don't relish the opportunity to work on one-off requests at low margin rates. These staffing companies, disenfranchised with the model and lack of opportunity, begin to work outside the system and develop relationships directly with hiring managers who are not satisfied with the level of service that the master vendor is providing. Maverick spend increases, costs are no longer contained and the client has limited visibility into what is actually occurring within its contractor population. What is the next step? Throw out the provider and get a new one to repeat the mistakes of the past. Without question, there have been some very good master vendor programs but there have also been some very poor ones. The point is that lack of success has not always been due to poor performance on the provider's part. In many cases, the model was flawed and destined to fail. A "one shoe fits all" approach begets behaviour that ultimately ran counter to the objectives of the program and finally manifested in failure. As organisations and staffing firms began to suffer the cyclical nature of replacing programs with like programs, a new model came to bear. Enter, the Lead Vendor Program.

Simply put, the Lead Vendor Program introduced additional staffing firms to the mix. It acted similarly to the master vendor program, but the firm managing the engagement introduced competitors with the aim of showing the client that quality would increase while the cost would decrease due to the newly created competitive environment. This model was a significant improvement as it appeared less self serving on the master vendor's part and allowed competing firms to play inside the system. This, of course, helped in reducing maverick spend and in placating hiring managers demanding more variety in their supply base. The lead vendor lost a large portion of volume that would have been enjoyed from a master vendor model but still secured the ability to manage the program and ensure a healthy percentage of the business. While a step in the right direction, this model was not the panacea the industry had hoped for.  The competing staffing firms were often suspicious of the lead vendor and still sought ways of undermining the system when possible. Yes, the model was better, and fairer. It just wasn't fair enough. Again, we started to see incumbent programs replaced with competitors' solutions. Same program--different lead vendor. It would not be until another economic downturn that a highly evolved model would enter the scene. In 2001, when the Internet bubble burst and the economy slumped, a game changer arrived on the scene. A challenging economic climate acted as the impetus to a wholly new and innovative model. 

The advent of VMS (Vendor Management Software) brought an entirely new, yet highly effective vendor management model. The vendor neutral managed services program was born. In the height of the Internet boom, IT contractors were scarce and valuable. Companies paid a premium to protect themselves from the dreaded Y2K as well as to install other technology-based solutions. Organisations faced out of control IT spend and short suppliers of talent. VMS (Vendor Management Software) hit the market at a fortuitous time and offered great promise. Eager to reduce costs, drive process efficiency, and gain visibility into contract spend and supplier performance, organisations began adopting VMS solutions. Early adopters posed an excellent question to the VMS companies. They asked, "If I'm to implement your vendor management software, who is to administer it and run my program?" Certainly some organisations managed the program internally, but those that had been in the practice of outsourcing these duties had a legitimate concern. Some of the VMS firms responded, "We will train whoever does it today." Thus, some of the master vendor programs and lead vendor programs were suddenly in charge of managing the use of the VMS. However, a select few of the VMS companies responded by offering vendor neutral MSPs.  These VMS companies offered to run an impartial program in which there was no vested interest in who filled the requisitions. As a result, the vendor neutral MSP was conceived.

The vendor neutral MSP model has gained tremendous traction over the last 5 years as organisations and staffing firms appreciate a model that focuses on competition and performance. A vendor neutral managed service program is one in which the company managing the program does not provide staffing. In its early days, there was a fair amount of disagreement between what constituted a vendor neutral program and what did not. For example, some espoused that a vendor neutral model meant that the company providing service had to be a stand alone firm with no affiliation with other staffing companies. However, two of the market leaders in the U.S., Beeline and Chimes, were owned by parent companies that also owned staffing firms. They too claimed to provide vendor neutral MSPs, since they had no vested interest in who did the staffing. Over time, the industry came to recognise that vendor neutrality, in its truest form, is simply the absence of an ability or desire to show favouritism to any one company. Sceptics of Beeline and Chimes eventually had to concede that those firms did in fact run vendor neutral programs. Today, vendor neutral managed service programs are simply those in which the company running the program does not provide staffing services; they simply have oversight for these activities.

The vendor neutral MSP model has gained in popularity because all three constituents-the organisation, the MSP and the vendor-all benefit. The client ("organisation") is the prime beneficiary because they are able to outsource non-core duties to experts who maintain a fair and competitive environment. This "level playing field" environment fostered by the vendor neutral MSP means hiring managers have access to an appropriate supply base which increases quality and reduces costs. The staffing firms win because they are judged strictly on their performance and their ability to provide quality at a fair price. Nobody is taking the easy jobs and passing on the hard-to fill-jobs. They all get the requisitions at the exact same time and get to compete. The vendor, of course, benefits from the revenue derived from providing its service. For once, all three constituents can rest assured they are operating in a performance based arena. Evidence of this model's success rests in the turnover scorecard. There are certainly examples of vendor neutral MSPs being replaced by competitors, yet the percentage is relatively low. It appears the shelf life of a vendor neutral MSP is significantly greater than that of a VOP or a lead vendor program. The model is sound.

When choosing a model for your organisation, there are many considerations. While the vendor neutral model has great merit and success, it isn't necessarily the right model for your organisation. Every model has its own merits. There are, albeit few, examples of companies going from a vendor neutral MSP back to a VOP. It is important to understand your contingent workforce landscape and apply the appropriate model that will best deliver the results you seek. The following is intended to provide high level guidance on which model to choose:

Vendor on Premise (VOP) / Master Vendor Program (MVP)

In this model, one staffing company is charged with filling all the requisitions. This model often guarantees a fixed mark-up and comes with onsite personnel to help manage the program. While this model fails to provide a competitive environment, there are valid reasons for deploying it sometimes. If your contingent workforce program is relatively small (50 - 100) or if it is comprised of low skilled workers, then this program might make sense. This is especially true if your company operates in one geographic location. Under this scenario, it is feasible that one staffing company can meet most of your needs. As long as you can derive value and get a good price, this model is valid. However, this model begins to break down when positions get harder to fill.

Lead Vendor

This model is similar to a VOP but the master vendor introduces competitors into the equation to supplement its ability to source talent. This model is better perceived by other staffing firms because they at least get a chance to compete for some business. Of course, there is still a degree of mistrust and resentment since the lead vendor has a preferred status and maintains oversight of the requisitions. If your company has an excellent relationship with a single vendor but you don't want to put all of your eggs in one basket, this model can make sense.

Vendor Neutral MSP

The company overseeing contract labour management does not provide staffing services. This model has been rapidly gaining acclaim and success as it is perceived by staffing firms to be the most fair to everyone in the program. A competitive environment is established which translates to better quality and price. In this model, performance is king. This model can make sense in any scenario. Once you chose this model, you have to decide whether or not you want to choose a separate VMS (vendor management software) or if you want one provider to do both. There are pros and cons to each. If you go with a separate VMS and MSP, you get the flexibility of choice. You may love a VMS and a different MSP provider. This option allows you to have the best of both worlds. If you chose a vendor neutral MSP that brings its own VMS, you will get better pricing, have greater accountability with "one throat to choke", and you will probably leverage more functionality in the VMS since your MSP knows it so intimately.

Whichever model you chose, be sure that you spend as much time in your due diligence process looking at the companies, not just their solutions. What is their vision? Which customers have they lost and why? What have been their greatest successes? What do their customers say about them? How do their financials look? It is important that you first understand which model makes the most sense for your organisation. It is equally important that you choose a company with whom you respect and like. The company you choose will be responsible for managing one of your highest expenditures. You will want to enter into a veritable partnership vs. a client-vendor relationship. Ensuring that you find a partner with a respectable balance sheet, similar values and a vision that aligns with your long term goals will position you well in managing such an important component of your labour force.

About Beeline

Beeline International provides workforce solutions that manage recruitment, development, and retention for leading global companies, healthcare organisations and government entities. By leveraging technology and providing technical and strategic services, Beeline International streamlines the recruitment and management of permanent, temporary/contract, project based labour and delivers employee lifecycle visibility through talent management solutions, organisational development, and custom eLearning. As part of Adecco SA, the world leader in workforce solutions, we are backed by the size and scale of an organisation with over 29,000 full-time employees and more than 5,800 offices in over 60 countries and territories around the world.

Biography

Mr. Leeby serves as Senior Vice President at Beeline. Mr. Leeby oversees business development, marketing, and the talent management business unit. He has been with Beeline for seven years. Prior to joining Beeline, Mr. Leeby spent 10 years in the consumer products industry serving in various sales, marketing, and strategic planning roles. Mr. Leeby attended Vanderbilt University where he received a Masters in Human Resources and a Bachelor of Arts degree.