April 25, 2023

As MSPs Rationalize Their Supply Bases, New Results May Depend on New Metrics

As uncertain economic conditions contribute to layoffs, hiring freezes, or interest rate hikes and wage growth limitations imposed by the Federal Reserve to curb inflation, the fallout lands squarely at the intersection of the marketplace and employment. Clients have become increasingly cautious, with managed service providers (MSPs) pressured to improve performance while reducing costs. This inevitably leads to a slowdown (or outright halt) in onboarding new staffing partners into programs or more rounds of supplier rationalization. You’re probably experiencing this yourself right now. Done well, rationalization can benefit all parties. But if MSPs are using the same old metrics to influence decisions, what’s preventing them from getting the same old results? Perhaps it’s time to consider infusing some new measurements into the process. 

The Rationalization Rationale

Whenever a conversation is framed about the conjoined effects of the economy and the labor market, it seems customary to include a preamble like, “With the fluctuating economy…” We live in a fiat system. By its nature, this kind of economic model is usually in some sort of flux. Continuing to reinforce that sentiment almost suggests that we are performing the same tasks while hoping for different results. In order to attain new outcomes, we must look toward new processes. 

With this constantly shifting economic and labor landscape, some change has occurred. MSPs have had to evolve from transactional intermediaries to strategic business allies. They’re now asked to deliver comprehensive services like contingent workforce data management, recruitment program administration, employee training, strategic insights, and enhanced vendor management processes that align suppliers to engagements more effectively.

MSPs are also tapped to transcend traditional solutions like budget management and talent channels to develop more advanced features such as supplier performance monitoring systems to streamline procurement processes or customized employee retention programs, while aggressively finding ways to reduce operational costs and boost productivity.

So, more rationalization. At least that’s what we’re seeing. And there are plenty of benefits that come from a well-orchestrated rationalization effort. 

Rationalization Rewards

Overall, staffing supplier rationalization can be a win-win for MSPs and staffing suppliers. By taking the time to carefully assess their staffing needs, MSPs can find the best possible suppliers to meet those demands. This can lead to reduced costs, improved quality, enhanced efficiency, and increased flexibility. 

  • Improved cost savings: Rationalizing the supplier base can help reduce costs by eliminating redundancies and negotiating better pricing with fewer suppliers.
  • Increased efficiency: Streamlining the supplier base can help reduce the administrative burden on MSPs, allowing them to focus on more strategic initiatives.
  • Enhanced supplier performance: By evaluating suppliers based on a standardized process, MSPs can identify top-performing suppliers and foster stronger relationships with them.
  • Improved quality: By working with a smaller number of staffing suppliers, MSPs can have more control over the quality of the resources they are provided with.
  • Increased flexibility: By having a diversified pool of staffing suppliers, MSPs can be more responsive to changes in demand.

For staffing suppliers, rationalization can lead to increased market share, improved profitability, enhanced relationships, and increased brand awareness.

  • Increased visibility and market share: Rationalizing the supplier base can help staffing suppliers gain more visibility and exposure to potential customers.
  • Improved collaboration: Working with a smaller number of MSPs can help staffing suppliers establish stronger relationships and foster greater collaboration.
  • Greater focus: By working with a smaller number of MSPs, staffing suppliers can focus their resources on delivering high-quality services to their clients.
  • Improved profitability: By working with a smaller number of larger MSPs, staffing suppliers can negotiate higher rates.
  • Enhanced relationships: By building strong relationships with MSPs, staffing suppliers can gain valuable insights into the needs of their customers.
  • Increased brand awareness: By working with high-profile MSPs, staffing suppliers can raise their profile in the market.

New Metrics for New Results

A robust rationalization initiative requires a great deal of analysis — and MSPs typically store a lot of data. Key performance indicators (KPIs), scorecard metrics, and compliance with service level agreements (SLAs) often drive much of the decision-making process. But are they telling the whole story? For the most part, MSPs have been using the same standard metrics for years. Do these sound familiar?

  • Time to fill: This metric measures the time it takes a staffing supplier to fill a position. A shorter time to fill indicates that a staffing supplier is more efficient and effective in finding qualified candidates.
  • Cost per hire: This metric measures the cost of hiring a new employee through a staffing supplier. A lower cost per hire indicates that a staffing supplier is more affordable.
  • Candidate quality: This metric measures the quality of the candidates that a staffing supplier provides. A higher quality of candidates indicates that a staffing supplier is more likely to find qualified candidates that meet the MSP's needs.
  • Customer satisfaction: This metric measures the satisfaction of the MSP with the staffing supplier. A higher customer satisfaction score indicates that the MSP is happy with the staffing supplier's performance.

There’s also a bunch of submittal ratios: submittals-to-hire, submittals-to-interview, total hires-to-submittals, and so on. Yes, these measurements provide some indication of historic performance. Yes, they remain valid and have their place. But to quote SEC Rule 156, “Past performance is no guarantee of future results.” And old metrics are definitely not uncovering the innovative and strategic value of supplier partnerships. Clients now expect MSPs to be strategic advisors. As we learned from 2021’s ProcureCon event, MSPs also want their staffing suppliers to become more consultative. Program leaders have been focusing on identifying where suppliers can become trusted advisors to drive confidence to the buying organization. They’re also looking for future potential, innovation, and better alignment.

But if we’re using the same metrics we always have, what are the odds they’ll produce these newer results?

In 2022, we presented a sort of thought experiment based on a labor productivity calculation launched by the U.S. Bureau of Labor Statistics (BLS). Our hypothesis was that new metrics could be innovated and used in the staffing industry. With that, we introduced a way to measure productivity, in terms of output, for contingent talent across an enterprise workforce program. You should check it out. 

Our industry has no deficit of metrics by which to assess the performance of staffing providers and MSPs, but have they kept pace with the evolving economy, nature of work, and technological advances that have dramatically altered the fabric of our modern world? It certainly wouldn’t hurt to revisit them, and the potential for new metrics should be explored. The solution, however, isn’t exclusively about creating a slew of fresh key performance indicators (KPIs); it’s learning to embrace smarter, more dynamic, and more adaptive ways to utilize KPIs.

New Ways of Evaluating Supplier Performance

With all of that said, let’s look at how MSPs could assess supplier capabilities — not just performance — in novel ways that could better reveal potential alignment, strategic insights, consultative collaboration, fit, and predictive analyses of future workforce output. Here are some concepts.

  • Supplier diversity: This metric measures the diversity of the staffing supplier's workforce. A more diverse workforce indicates that the staffing supplier is more likely to have a better understanding of the MSP's needs.
  • Supplier sustainability: This metric measures the sustainability of the staffing supplier's practices. A more sustainable supplier indicates that the staffing supplier is more likely to be a good long-term partner for the MSP.
  • Supplier social responsibility: This metric measures the social responsibility of the staffing supplier. A more socially responsible supplier indicates that the staffing supplier is more likely to be a good corporate citizen.
  • Supplier ethical behavior: This metric measures the ethical behavior of the staffing supplier. A more ethical supplier indicates that the staffing supplier is more likely to be a good business partner.
  • Supplier compliance: This metric measures the compliance of the staffing supplier with all applicable laws and regulations. A more compliant supplier indicates that the staffing supplier is less likely to expose the MSP to legal risk.
  • Supplier alignment: This metric measures the alignment of the staffing supplier's goals with the MSP's goals. A higher level of alignment indicates that the staffing supplier is more likely to provide solutions that meet the MSP's needs.
  • Supplier responsiveness: This metric measures the responsiveness of the staffing supplier to the MSP's needs. A higher level of responsiveness indicates that the staffing supplier is more likely to meet the MSP's needs in a timely manner.
  • Candidate engagement: This metric measures the engagement of the candidates that a staffing supplier provides. A higher level of candidate engagement indicates that the candidates are more likely to be interested in the MSP's open positions and are more likely to accept an offer if they are selected.
  • Referral rate: This metric measures the percentage of candidates placed by the staffing supplier who refer other candidates to the supplier or the client. A higher referral rate can indicate that the supplier is successful in providing a positive candidate experience and can result in cost savings for the MSP.
  • Cultural fit score: This metric measures the degree to which candidates placed by the staffing supplier align with the culture and values of the client. A higher cultural fit score can indicate that the supplier is effective in identifying and placing candidates who are a good match for the client's organizational culture, which can result in better employee engagement and retention.
  • Time to present qualified candidates: This metric measures the amount of time it takes for a staffing supplier to present a qualified candidate for a job order. A shorter time to present qualified candidates can indicate that the supplier is efficient in identifying and presenting qualified candidates to the MSP.
  • Candidate skills assessment: This metric measures the staffing supplier's ability to assess and match candidate skills with job requirements, based on factors such as technical skills, soft skills, and experience. A higher candidate skills assessment score can indicate that the supplier is providing candidates who are well-suited to the specific job requirements and can result in better job performance and employee retention.
  • Proactivity: This metric measures the supplier's proactivity in identifying and presenting candidates that are a good fit for the client's recruitment needs, based on factors such as market research, talent pooling, and competitor analysis. A higher proactivity score can indicate that the supplier is staying ahead of the curve in terms of recruitment trends and best practices and can result in a better return on investment for the MSP.

Innovation Requires Change More than Updates

Innovation has persisted as a concept and a talking point in this industry — to the point of becoming a buzzword more than a real goal. Over the past few years, we’ve seen a lot of inventions in technology, AI, and the “platformization” of staffing, as Staffing Industry Analysts (SIA) termed it. But genuine innovation is about solving problems. If the challenge for MSPs is to optimize a supply base that is more strategic, more consultative, and more focused on solving future problems, we need to determine new ways of measuring those attributes and prospective capabilities. 

Photo by Isaac Smith on Unsplash

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