Over the coming decade, business leaders must rapidly adapt to a host of transitional dynamics that will forever redefine how they engage with customers, vendors, and their own talent. Just as businesses must evolve, so too must managed services providers (MSPs). They can no longer sustain progress as intermediaries focused on cost containment. MSPs must become agents of order, process optimization, and workforce strategy in an era of extreme disruption. The question facing them is “how?” Direct sourcing represents one of the trends in staffing with the most momentum. Given the nature of the model, it would seem a catalyst for pushing MSPs and staffing agencies aside. But MSPs have the experience, strategies, and resources to help clients maximize their direct sourcing efforts. And this is where managed services can transcend into curated services for the shift toward platform-based talent clouds.
What Is Direct Sourcing?
The discussions around direct sourcing dominated the ProcureCon Virtual Expo this January. Honestly, it makes sense. For the past 7 years or so, the staffing industry has experimented with and latched onto new types of models to help reinvent talent acquisition. Organizations have toyed with crowdsourcing and migrating to marketplace systems that mirror Amazon. There were hits and misses. Direct sourcing, however, has emerged as a clear area where these ideas could converge and thrive.
With technology becoming “smarter,” businesses are looking to elevate their contingent workforce solutions by leaning on internal expertise and leveraging outside consultants who can deliver advanced levels of support—without the perceived limitations of relying on third-party staffing and recruitment agencies. Ultimately, companies are moving in a direction where they want to hire contract workers for projects or as full-time employees (the direct sourcing paradigm allows employers to capitalize on the “try before you buy” opportunities of contingent work).
In direct sourcing, companies build their own internal candidate networks to draw from. This pool can be made up of former employees, retirees, or job seekers who have submitted resumes into the company’s applicant tracking system (ATS). In other direct sourcing scenarios, such Beeline’s direct sourcing marketplace, the talent pools become platform-based exchanges. Clients still source prospective candidates on their own. Unlike a company’s internally constructed sourcing pool, this system is populated by talent submitted from staffing providers, recruiters, companies with outplacement programs, alumni networks, or virtually any entity with candidate pipelines. The platforms themselves have evolved from traditional vendor management systems (VMS) to meet these new demands.
No More Business as Usual
As we explored in our eBook “MSP Partnerships: Work Reimagined, Workforce Reinvented,” MSPs are poised for yet another transformation if they move past the transactional status quo of the past and embrace their prospective role as an advocate, consultant, curator, and portfolio manager.
The structures that evolve will no longer be businesses as we think of them; they will become social enterprises, as Deloitte described: “A social enterprise is an organization whose mission combines revenue growth and profit-making with the need to respect and support its environment and stakeholder network. This includes listening to, investing in, and actively managing the trends that are shaping today’s world. It is an organization that shoulders its responsibility to be a good citizen (both inside and outside the organization), serving as a role model for its peers and promoting a high degree of collaboration at every level of the organization.”
These ecosystem-based models decouple consumers, vendors, and buyers while ultimately uniting and aligning them. Amazon proved that virtualized, platform-based business models will define the future of commerce. What started as an online bookseller blossomed into a holistic and revolutionary approach to uniting buyers, sellers, and distributors in a centralized exchange for any product. Amazon achieved this by developing a solution stack that integrated modern technology platforms with a multi-sided marketplace and lean operations.
This is precisely what the Human Talent Cloud proposes to accomplish: a marketplace or exchange where buyers (clients) can select and use the services of sellers (candidates). The missing piece is distribution. That’s where savvy MSPs come into the play. Without a mechanism to curate the flood of resumes pouring into this talent pool, clients are still left with the “lawless wild west” scenario of crowdsourcing. MSPs can curate sourcing, manage the workforce once engaged, and help to accommodate the payrolling. In this way, employers receive the direct sourcing they desire while continuing to reap the benefits of outsourced workforce solutions programs.
Businesses are witnessing the rapid growth of people working under these alternative arrangements. By 2020, according to Kelly Monahan, Jeff Schwartz, and Tiffany Schleeter’s Decoding millennials in the gig economy: Six trends to watch in alternative work, the number of self-employed talent is projected to reach 42 million, or triple its current rate.
“For many years, people viewed contract, freelance, and gig employment as ‘alternative work,’ options considered supplementary to full-time jobs,” Deloitte explained. “Today, this segment of the workforce has gone mainstream, and it needs to be managed strategically. Given growing skills shortages and the low birth rate in many countries, leveraging and managing ‘alternative’ workforces will become essential to business growth in the years ahead.”
The Role of MSPs in Direct Sourcing
The Case for Using MSPs and Supplier Partners
In the ProcureCon panel “Debunking Direct Sourcing Myths,” LiveHire Co-Founder Mike Haywood brought up a lot of compelling points that illustrate the need for MSPs in direct sourcing.
- MSPs should be developing hybrid models to help curate direct sourcing talent pools and manage the contingent workforce.
- Payrolling providers have strong profit opportunities by payrolling direct-sourced talent as employers of record, which helps clients maintain compliance, prevent co-employment risk, and enjoy the cost savings associated with contingent workers.
- Direct sourcing needs to sit in the human talent cloud as an exclusive and standalone system to scale in an agile way.
- More than 100 enterprises in the USA and APAC have scaled to 95% direct sourcing through talent clouds.
- Clients experience faster ramp up, quick scalability, and better quality of hires when engaging suppliers or MSPs in the process.
- Clients can allocate suppliers to handle all direct sourcing efforts or specific segments.
Curated Sourcing and Curation
MSPs can not only help clients with direct sourcing, they can incorporate the initiative into their existing programs for the same gains in hard and soft cost savings, speed, operational efficiencies, compliance, and the lower-risk advantages already associated with outsourced workforce solutions.
- MSPs can create a dedicated team to handle direct sourcing, working closely in collaboration with those hiring managers to delve into their talent needs to enhance curation.
- Many MSPs have included some semblance of recruitment process outsourcing (RPO) into their programs. That means they have recruiting professionals on staff who can be assigned to the program.
- MSPs may also select specific staffing partners from their supply base to undertake the sourcing and screening process, with the MSP curating the submittals and requisitioning.
- In a hybrid model, they can coordinate efforts with a client’s internal recruiters to supplement and strengthen the sourcing through the company’s candidate pool.
- Allowing the MSP to leverage its existing third-party processes of job advertising, onboarding, and payrolling, clients realize reduced hiring times, faster time to productivity, better employer branding, smoother onboarding, and more efficient candidate pooling.
More Robust Candidate Pools
Yes, many clients are tapping into their own candidate pools for direct sourcing, including existing resumes in their internal databases, alumni networks, and applicant systems. Others have turned to ecosystems like Beeline. MSPs can obviously swim in the same waters, but clients shouldn’t discount the vast candidate exchanges that already exist in the MSP’s vendor management system (VMS).
The VMS stores an incredible array of available candidates across other programs, suppliers, and industries who can be re-engaged, marketed to, and sourced. For enterprises that already utilize an MSP, this additional candidate pool already exists. Think of it as a tiered recruiting structure, similar to an MSP’s supply base architecture. The client’s pool could serve as tier 1, the primary destination for first-round sourcing. The MSP could then become the tier 2 source for niche positions or roles unable to be filled by the first tier.
The VMS also has gates, business rules, and controls built in to ensure approvals, rate cards, communications, onboarding, negotiations, assignment limits, and more.
In iteration 2.0, MSPs sought to move from the transactional to the strategic, helping drive innovation after attaining the program’s initial goals of cost savings, supplier rationalization, and operational streamlining. Direct sourcing becomes an opportunity to make that point more salient.
As the MSP evolves within the new program, the direct sourcing process will mature and grow in sophistication. It will progress from internally driven recruitment teams who source specific roles to a more enterprise-wide exchange.
This is the stage in which MSPs, as consultative partners, can help client stakeholders uncover new ways to refine their processes. The client’s staff will continue to oversee core elements of direct sourcing but with the MSP tackling other aspects of the arrangement, such as compliance monitoring, audits, onboarding, payrolling, supplier structuring, performance and data analysis, and strategizing on continuous improvement planning.
This approach opens the doors to a win-win. Clients enjoy the compliance and consistency that comes with an MSP program, powered by the savings and augmented efficiencies associated with direct sourcing.