Shifting from MSP to Self-Management for Contingent Labor? Can You Afford It?
Updated: Jan 26, 2021
As companies look for ways to innovate and achieve a future-forward total talent management approach, there is a groundswell of momentum across many organizations to re-assess contingent labor category solutions. This is especially true where existing Managed Service Provider (MSP) programs are considered “mature” by industry standards. Category leaders believe they have “maxed out” on the value that an outsourced MSP provides and, further, the client believes they have the vision, tools, expertise, and resources (including budget) to operate the program themselves going forward.
“My team and I can do as good if not a better job than X MSP.”
In my experience, category leaders consider self-management (i.e., setting up a Vendor Management Office (VMO)) for two primary reasons:
Continued operational issues have eroded the existing relationship beyond repair
There is a belief that bringing the program in-house will reap renewed and sustainable savings
Given talent shortages, CEO expectations, and the fickle global economy, I would challenge category leaders to consider: Can you afford to self-manage? Does it provide a stronger solution, stakeholder experience, access to talent, and business value than an outsourced MSP?
In Favor of MSP
When a company decides to partner with an MSP, they do so because of the expertise, market intelligence, geographic reach, relationship management, flexibility, and ability to present a single, actively managed vendor-neutral program into their business.
MSPs have dedicated support resources that address supplier management, program operations, audit and compliance, training, and security. Their teams are skilled in their client’s business practices, develop relationships with key internal buyers, and are agile in resolving issues between technology (VMS), staffing suppliers, and the client organization.
Equally as important, their resources can flex depending on volume, critical business needs, and market conditions. Couple this with their deep relationships across industry experts, VMS and other technology suppliers, investments in market data and reporting tools, and the ability to derive trends from multiple programs across industries and their value becomes clear.
Additionally, access to market knowledge and industry best practices creates highly competitive program dynamics, ensuring a fair and competitive bid process and rate negotiations with staffing suppliers.
While MSPs are urgently working to create new innovative solutions that offer competitive advantage from one another, the case for outsourcing contingent labor management remains compelling and viable, in practice and results.
Of course, having an outsourced partner doesn’t come without its share of issues. Ensuring MSP alignment with company culture, gaining business unit stakeholder buy-in, addressing program office attrition, and balancing competing priorities will happen. At times, contractual metrics and service levels will be missed. I’ve seen these challenges lead quickly to the self-management option being quietly floated internally across key stakeholders. When this happens, I ask my clients the following:
How are these operational failures systemic and egregious?
Why not fix them by documenting process changes and attach remediation plans with performance metrics and financial risk/rewards that will be addressed over a short-term “cure” period?
Are you prepared to go through the change management, communication planning, contract termination, and business disruption resulting from severing the relationship?
I also like to remind my clients, this why you have service level agreements (SLA), key performance indicators (KPI) and quarterly business reviews (QBR) as a critical part of your contractual agreement – to provide guidelines for assessing and mitigating performance challenges across all four program stakeholders – client, MSP, VMS, and suppliers.
At this critical point in the MSP/client relationship, it is important for category leaders to consider whether internal program stakeholders shoulder some responsibility for operational challenges. There can be a lack of engagement, governance, program mandate, and compliance, or an unexpected reduction in spend under management to the extent that the MSP starts losing money. As a result, the MSP may shift resources, reduce service levels, and the like.
For staffing partners, if their already thin profit margins are further pinched, you can be assured your hiring managers will experience an erosion of skilled talent as inexperienced workers are cheaper. For some clients, cost considerations may sometimes outweigh quality.
(It’s important to note here, in my experience, a failure of joint governance, active leadership, and mutual accountability for program success is usually the root cause of these issues.)
Any of these (or a combination thereof) will put program success at risk. The MSP and their staffing partners are in business to make money just like their clients. So, even with contractual safeguards, why are so many companies considering transitioning these programs inhouse?
Move Towards Self-Management
If category owners are looking to insource, how contingent labor is valued, measured, and managed (based on the current state) needs to be the baseline to assess current and desired future performance. This includes documenting internal processes and reviewing market scans of other MSP solutions as well as client programs similar in size and scope that will drive future program design, structure, and goals. This is a healthy action whether the client is a first-time buyer or a mature program. It will drive whether they decide to remain with the incumbent, re-bid the business, or self-manage.
The important questions for category leaders and business owners to consider:
Are you prepared to invest direct company expenses to build and sustain the appropriate VMO organization inclusive of people, process, tools, structure, risk management (including contract management) and supplier engagement that has the appropriate sponsorship, mandate, and accountability?
Will the anticipated additional savings and reduction in operational issues more than offset these significant, recurring internal investments?
Clients need to be reminded what the MSP invests in — whether funded by staffing suppliers through the program or not:
Program management costs
Implementation and change management costs
Training and staff development
Advanced analytics capabilities
Access to proprietary, redacted data from other programs for trends, reporting
Deep industry partnerships
Influence and direct expertise on VMS / tech build with partners
With all attributes considered, can you still afford to self-manage this category?
Self-Management Complexity Will Be Greater than Anticipated
Can a self-managed VMO work? Sure, it can. Depending on program scope, scale, maturity, investments, and leadership engagement, self-management is an attractive alternative to outsourcing. Bringing your program in-house offers unique benefits:
Enhanced protection of vital company, personal, and intellectual property
A more intimate understanding of talent and spend data especially if combined with full-time employment categories managed by HR/Talent Acquisition
An opportunity to expand internal total talent management knowledge, competencies, and practices
Developing an agile team of talent practitioners and category leaders that can toggle between contingent and full-time categories to achieve higher fill rates and speed to productivity for the business
Closely manage direct contracts between suppliers and the business for speed, access to talent, and appropriate investments
Potentially develop direct sourcing strategies for specialty needs
Further, according to Forbes, “There is a hidden opportunity for insourcing: the ability to tap into existing employee capacity to take on more projects,” potentially reducing overhead and developing intellectual property internally.
Making Your Decision
As category leaders, talent practitioners, and business owners, I’d urge you to strongly consider these questions as you assess program management options (outsourced v. self-managed):
How are you valuing outsourced services for talent today? How do you measure success? What is your future business strategy and how will contingent labor fit into supporting that strategy?
How is total talent management being applied within your organization? Do you have a partnership with HR/Talent Acquisition sharing insights, trends, talent needs, goals and success measures?
Are your internal priorities focused on savings as a critical driver and the primary measure of successful program and Procurement performance?
Where will you gain strategic expertise and deep partnerships across analysts, data sources, and specialty staffing companies that drives performance?
What is your strategy to introduce innovative talent solutions such as human cloud platforms and specialty online talent communities?
What is the spend under management today in relation to the total available contingent spend? Are all categories included as designed? Are you including independent contractors, Statements of Work (SOW), and subsets of consulting?
What executives are engaged to champion the program? Is there a mandate for participation? Are objectives clearly stated and agreed by all stakeholders?
The decision to either launch a self-managed program or optimize an outsourced MSP relationship will be one of the most difficult category leaders will make in their career. Where the conversation gets real is whether the benefits to self-manage and absorb direct costs far outweigh an outsourced, agile, service-focused MSP solution with minimal cost for entry and sustained operations. Only time and client behavior will tell what the future holds.