How often have you heard it said “They bought the business” or “we lost the bid because we wouldn’t work at a loss?” In the world where staffing firms must work through managed services providers (MSP), these are common complaints. The problem is twofold. Staffing firms have to first establish a niche and then increase margins making it profitable to be in business. And this has to be done in an MSP-centric world.
The reality is that even though the MSP is touted as having value to both buyers and staffing firms, there has been very little in the way of differentiation from one MSP provider to the next. It comes down to price. Procurement departments are known for their attachment to the bottom line. MSPs offer them a great solution: quality labor at competitive prices. This gives procurement a license to force staffing agencies to deal with the MSP.
I am not trying to cast negative aspersions on the MSP service offering, but what I am saying is that MSP providers and staffing firms need to take steps together to fend off the inevitable commoditization of talent. The MSP model is here to stay. Staffing firms for their part have to work with the MSP and provide a good quality worker so everyone wins. There are some significant steps that staffing firms can take to avoid being lost in the crowd. Here are some tips:
Productize. Working with an MSP relationship, there is a definite opportunity to modify service offerings and address different segments of the market. Find that niche that nobody serves. This will help to generate unique and differentiated value propositions.
Customize. By offering peripheral service offerings — such as change management or business intelligence — you have a better chance providing your customers with a unique offering that allows them to pay you a premium for your services.
Innovate. The key to innovation when working in the MSP space is it forces your competition to try to respond to your value proposition. Keep the competition on its toes.
Digitize. Your investment in technology is essential. To compete effectively, and with technology changing rapidly, it is essential to have a dedicated team and strategy to address this. If you don’t, you are not only seen as behind the times but your costs will increase, reducing margins.
This brings me to the next part of the problem. Once you have carved out that niche, firms need to look at expanding margins.
A number of my clients, representing a good cross-section of suppliers, constantly ask how they can expand their margins in this business climate. Here are a few things to consider:
- Profitability versus market share. Choose your customers wisely and don’t be afraid to fire others that are not profitable. Accounts matter but don’t spend precious resources trying to just get on a list. Access the client opportunity and pursue those that you have a competitive advantage in supporting. Niche is not a bad word. Leverage your supply capability.
- Compensate your teams based on a percentage of margin contribution and not just production. Set a minimum level that needs to be obtained to warrant compensation. This will drive the appropriate behaviors and contribute to you not becoming destined to be the low price provider.
- Do more with less, deploying technology where applicable in your business. Eliminate bureaucracy and redundancy and increase your speed to market. This could be a competitive differentiator.
- Don’t replicate what your competitors do to make themselves seemingly more attractive. Negotiate an innovative pricing model that establishes a win-win opportunity. Remember that a discount on mediocrity is just that and often, your client is not aware of market realities that affect pricing. Provide them with solid data and demonstrate the value you bring through that knowledge and access to a better supply.
Commoditization is inevitable unless you make a commitment to innovate. The marketplace will reward champions — MSP or staffing agency — that will change the landscape and drive supply chain innovation. I would much rather be one of those who are initiating that change. Wouldn’t you?
Dan Hanyzewski is principal at RedMitten.com, a staffing firm and division of West Shore Partners LLC. He can be reached at firstname.lastname@example.org.