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Contract Staffing’s Long-successful VMS Model Leads Us to a New Recruitment Marketplace

Employers Looking to Better Manage Agency Spend Have a Success Template in Contract Staffing

Business is full of things that are out of our control. So, when there’s an opportunity to truly manage a variable, it’s a powerful thing. Especially when that variable is a cost.

One cost area companies continue to struggle with is acquisition of full-time hires, the biggest variable in that area being the cost of fees paid to staffing agencies. Much of the time, decisions to enlist recruiting services are either reactionary, made without any view to alternative sources of talent, or both.

$72 billion is spent annually on recruiting services, products, and staff in the U.S. alone.

It would be foolhardy to believe that the value of a good staffing firm can be replaced. It is, however, completely reasonable for the C-suite to expect this spend to be addressed more strategically, and with the same rigor other strategic investments receive.

The ultimate goal for an organization might not be to eliminate agency fees, but to ensure that they’re working with the agencies that provide the best talent. Those agencies may even have a more lucrative set of terms than those just “mailing it in” when it comes to candidate quality.

The recruiting marketplace model has re-emerged as a tool to help get control over this spend, and in some cases forge better relationships with quality service providers.

In our latest industry brief, “Marketplace Recruiting, Vendor Management, and a Peek Into the Future of Talent Acquisition,” we look at why recruiting leaders have been turning to the marketplace model, what will drive even further adoption, and which specific iteration currently has the best odds for success.  

The model has been proved before — in contract staffing.

In the ’90s we saw contract labor and staffing go through a boom as we geared up for the Y2K challenge. Corporations managed project deployment more efficiently and they deferred risk and costs by not being the employer of record with this rapidly expanding workforce and model. After the turn of the century, companies — having deferred risk and becoming even more efficient at managing projects — turned their focus to another challenge associated with the emerging contract workforce: the spend. Contract labor was normally employed by a staffing agency, which in turn “billed the labor out” to a client. For tech skills that were in high demand at that time, it wasn’t unusual for staffing agencies to see hourly margins of 50 percent, or even much more (e.g., if the client pays $100 per hour for labor, the contractor gets $50 and the agency gets $50). Corporations put pressure on staffing agencies to provide more visibility into bill rates and became less reactionary to the availability of talent coming from agencies. Competition became fierce among contract tech staffing firms, while bill rates and margins started to decrease. Tech providers responded with solutions like IQNavigator, B-Line, and Chimes — online marketplaces that drove competition among agencies and gave companies more control of the bill rates and contractor pay rates.

With all of the constraining of cost in the contract labor market, and all of the new technologies and emerging hiring models in the full-time-employment workforce (job boards, ATSs, social media), you would think the contract staffing market would be flat or shrinking. Think again. It has grown to an enormous $416 billion globally ($124 billion in the U.S.) and is projected to double to more than $800 billion globally ($245 billion in the U.S.) by 2020.

The marketplace concept has been proved in the contract and temporary staffing markets. Eighty percent of large employers and a rapidly growing number of midsize firms have adopted vendor management systems (VMS) to manage all of their contingent hiring.

Will the prevailing model be VMS or some other marketplace model? We believe the market will begin to answer that question in 2015.

Read the brief here: “Marketplace Recruiting, Vendor Management, and a Peek Into the Future of Talent Acquisition.”