The Bigger, the Better
Economies of scale are associated with ﬁrms oﬀering staﬃng-related services
By Theo Vadpey
The likelihood of a ﬁrm expanding its service oﬀerings is strongly associated with ﬁrm size.
As part of our 2012 Staﬃng Company Survey, conducted last September, we asked staﬃng ﬁrms to tell us which of eight staﬃng-related services they currently oﬀer, or would be likely to oﬀer within the next two years:
- Vendor management system
- Human resources outsourcing
- Managed service provider
- Recruitment process outsourcing
- Independent contractor compliance services
- Human resources consulting
- Master supplier
- Payroll processing
In reviewing the results, we stumbled upon an interesting ﬁnding — the likelihood of a ﬁrm to oﬀer any of these services is strongly associated with ﬁrm size — and for some services, there is a “trigger” size, where the percent of ﬁrms oﬀering a service rapidly increases.
Let’s take RPO, for example, which was the service respondents stated they’d be most likely to expand into — only a quarter of ﬁrms with revenue less than $120 million oﬀer it. As ﬁrms move from $25 million to $50 million to $75 million in revenue there is almost no change in their likelihood to oﬀer RPO. Only when revenue starts hitting $120 million is there a tremendous, almost discrete jump, from a quarter of ﬁrms of that size, to around 40 percent of them, and the number only goes up from there. Half of ﬁrms with revenue between $100 million and $500 million oﬀer RPO, as do nearly three quarters of ﬁrms with revenue above $500 million.
IC compliance services also has a trigger size of around $100 million, while other services trigger at higher revenue ﬁgures. The trigger size for oﬀering a VMS is closer to $250 million; HRO’s is around $500 million.
But even while ﬁrms’ likelihood to oﬀer some services display evidence of size triggers, not all of the services we tracked necessarily follow the same trend as RPO. For instance, although the percent of ﬁrms oﬀering VMS displays an upward trend before its trigger size, after that size, the relationship isn’t as clear.
The one noticeable non-conformist in the crowd is IC compliance services. The percent of ﬁrms oﬀering IC compliance services does rise sharply at $100 million in size, but at lower and higher sizes, there is little change in the percent of ﬁrms currently oﬀering it.
Master supplier, MSP, payroll processing and human resources consulting do not display evidence of triggers at all. Oﬀerings of these services are more gradually related to ﬁrm size.
For the others in the pack, it is likely that economies of scale associated with these services explain their relationship to ﬁrm size. That being the case, when considering oﬀering these services, it might be wise to remember the wisdom of crowds, and bear in mind that a successful launch may be more likely when a ﬁrm has reached the critical mass necessary to make it work.
Theo Vadpey is a research associate at Staffing Industry Analysts. He can be reached ad firstname.lastname@example.org.
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