Should you trust a contingent workforce program to a blended MSP/VMS solution?

Building an agile workforce for an on-demand world

For most organizations, human capital expenses constitute the largest single cost of doing business. It is also a growing source of concern for executives who worry about finding the top-tier talent they need to compete and succeed in an increasingly on-demand world. Companies that traditionally relied on internal workforces of direct employees are increasingly adopting a workforce mix of employees and non-employees that lets them effectively manage their fixed costs while adapting quickly to market changes and opportunities.

To acquire and manage this extended workforce, leading companies turn to solutions like vendor management systems (VMS) and managed service providers (MSPs). These resources not only help to automate the contingent staffing process. They can source and manage all types of talent and deliver a wide range of insights to help organizations make better workforce decisions.

Business drivers for contingent workforce management

Organizations centralize their contingent workforce management (CWM) programs for a variety of reasons. Twenty years ago, the primary reason was to control costs by rigorously enforcing corporate policies for the management of staffing vendors and preventing “rogue spend” by business units engaging contingent staff or contractors without proper oversight and control. Over time, as costs were reduced through supplier consolidation, rate negotiations, and other techniques, CWM programs increasingly focused on other issues such as security and compliance risk mitigation, quality measurement, and process efficiency. These, in turn, have paved the way for total workforce optimization initiatives, which would be impossible in the absence of a sophisticated CWM program.

How a MSP and a VMS add value

MSPs help their client companies streamline their contingent workforce engagements, give them visibility into their staffing spend, enable cost savings, and measure their staffing agencies’ performance with objective metrics and KPIs. Through their services, MSPs help CWM program offices improve visibility into contingent labor spend and staffing vendors, manage and optimize contingent workforce program performance, and mitigate risks. Some MSPs also provide recruiting process outsourcing (RPO) services to support their clients’ hiring of employees as well as non-employee workers. Whether supporting full-time or contingent workforce requirements, MSPs add value by supplementing their clients’ program team with professional services performed by experienced talent acquisition specialists.

While MSPs focus on delivering services, VMS is the technology solution on which these, and other, services are delivered. Operated by an MSP or by a self-managed CWM program office, the VMS provides the tools necessary to automate the sourcing and management of all categories of non-employee workers, including contingent staff, contractors, outsourced labor, consultants, freelance talent, and more.

The VMS automates talent sourcing, onboarding, and offboarding, time and expense management, milestones and deliverables, invoicing, and payments. In addition, through its visualization, analysis, and reporting capabilities, the VMS turns data into insights to support better workforce planning and other business decisions.

A short history lesson

MSPs and VMS solutions both originated in the 1990s, when companies first tried to reduce their rapidly growing costs for outside services — particularly IT services. Many companies retained an MSP to manage their temporary help or contract worker needs on-site. To automate these processes and manage a multiplicity of staffing vendors, many MSPs developed software for their own use that ultimately evolved into today’s VMS platforms.

After operating in tandem for several years, most leading MSPs and VMS providers chose to separate. They recognized that while their services for clients were often complementary, their development paths were diverging as their capabilities expanded. To deliver the innovative services clients requested and new technologies made possible, MSPs and VMS providers would each need to develop the separate resources, executive leadership, and product development priorities that only independence could provide. As a result, from a landscape that once included a majority of “blended MSP/ VMS” solutions, there are fewer today, and the leading MSPs and VMS providers with the most contingent spend under management are not among them.

What a “blended MSP/VMS” approach offers

A “blended” or “combined MSP and VMS” model purports to provide certain advantages over its counterpart, the “best of breed” model that involves selecting a VMS provider and also one or more VMS neutral MSPs. The primary advantages put forward for the “blended” approach are lower costs and the simplicity of managing a single entity.

Cost is certainly important. Both the MSP and the VMS provider expect to be compensated for their services, whether they are a fully integrated unit or separate entities, and a number of funding models and pricing methods are commonly used in the industry to determine both the source (supplier-funded or company-funded) and amount of this compensation.

Single-vendor MSP/VMS operators claim that making a single provider responsible for program implementation and deployment can help to minimize inefficiencies. They also cite the MSP’s dependence on VMS performance in order to meet service level agreements (SLAs), claiming that VMS deficiencies can be corrected more quickly and easily if the VMS is under the direct control of the MSP. Blended MSP/VMS models claim to offer tighter integration at a strategic level, allowing MSP services and VMS technology to be aligned precisely with each client’s business priorities and stakeholder requirements. In this arrangement, the service provider offers a single point of contact, takes precise directions from the client, and communicates these directions throughout the provider’s organization.

What a partnership of independent MSP and VMS providers offers

In contrast to this single-point-of-contact approach, combining one or more independent MSPs with an independent VMS provider offers a team approach in which the partners represent a range of complementary skills and points of view. As contingent workforce strategies and technologies evolve, this diversity may be beneficial to the client.

Over the past several years, MSPs and VMS providers have entered an environment in which new technologies, ranging from online talent platforms to artificial intelligence (AI), are transforming the ways talent and services can be sourced, engaged, and utilized. Where once contingent workforce programs were primarily tasked with providing a dependable supply of contingent labor and statement of work (SOW)-based services at the best possible price, with minimal compliance risk, the increasing business emphasis on speed and agility is forcing CWM programs to adapt as well.

Going forward, contingent workforce program teams must deliver additional benefits in support of their companies rapidly changing, global, and competitive business goals. To meet these needs, MSPs and VMS providers are increasingly focus on speed (“time to fill”), agility (shorter, more specific, talent engagements), and the ability to engage a much broader range of talent than traditional talent suppliers are able to deliver.

Evolving MSP landscape

In recent years, forward-looking MSPs have significantly adapted their business models and service footprints, embracing more technology and expanding from contingent staffing into more complex service categories. Many have developed their own proprietary analytics tools and services, and others have branched out from non-employee staffing into RPO and other services that position them to support total talent acquisition (TTA) or total workforce optimization (TWO) initiatives.

Points worth pondering

For CWM program managers attracted by the simplicity of directing one provider of both MSP and VMS services rather than two, having a single point of responsibility may seem very appealing. However, it is worthwhile to remember that, by restricting yourself to one supplier, a single point of responsibility can also potentially be a single point of failure.

Therefore, it is worthwhile to consider what your options would be if:

• Your combined MSP/VMS provider faces a financial crisis or similar issue
• You are limited to one single long-term service/technology vision and roadmap
• Either the MSP side or the VMS side fails to keep pace with technology developments in its industry
• MSP globalization is limited by VMS globalization capabilities, or vice versa
• Proliferation and diversification of new talent sources exceed MSP’s service or VMS’s technical capabilities
• You decide to add an unaffiliated MSP with special geographic or labor category expertise
• You elect in the future to self-manage all CWM functions in-house, operate the VMS directly, and eliminate the MSP

Conclusion

Proponents of a blended or combined MSP/VMS model for CWM services suggest that their approach results in lower costs and greater management simplicity than the more widely accepted “best of breed” model.

This supposed simplicity may come at the cost of growth potential, while a best-of-breed solution offers virtually unlimited expansion capabilities in terms of geographies, labor, service categories, and talent sources. In contrast, a blended MSP/VMS solution will always be limited to the capabilities of a single vendor, with its limits determined by the weakest half of the MSP/VMS equation.

While the blended MSP/VMS might meet the short-term needs of a CWM program whose primary goal is to minimize service costs and internal resources, this could turn into a disadvantage if the program needs to expand or change its scope, geographically or in other ways, or to anticipate changes in the marketplace. In that case, you would be forced to replace your MSP, or VMS, or both, with significant consequences to your workforce management program’s momentum.

To meet the talent needs of a dynamic organization whose goal is to increase workforce agility to compete and succeed in an on-demand world, a best-of-breed MSP and VMS solution is likely to prove the better choice.