By Jason Ezratty
If the history of vendor management systems were to be played out in a movie, the opening scene would consist of a young, scrappy VMS being chased by angry, well-dressed stafﬁng companies who want VMS off their turf. Later, we would see stafﬁng companies reluctantly tolerating the VMS, who has won the favor of the more powerful buyers. Still, it would be clear that despite their tolerance, the now less-proﬁtable stafﬁng companies would be all too pleased to see VMS vanish forever. Other factors in the movie would foreshadow a more glorious ending for the VMS, acting as core component of the total talent management landscape, thoroughly integrating human resources-ﬁnance-security-procurement-accounts payable with workﬂows and data.
While this movie does not yet have an ending, I sense we are entering the denouement — that part of the story where things come together. The VMS was built to automate competitive bidding among U.S. stafﬁng suppliers as a reaction to the buying frenzy prompted by the Y2K bug and dot-com fever. Savings were delivered to buyers on a supplier- funded implementation while getting transparency and automated compliance controls along the way. The beneﬁts were rich enough and the barrier to entry sufﬁciently lowered that VMS was ﬁlling a need. Now, the VMS is being asked to do much, much more, and to carry the usability, robustness and data-leveraged intelligence that the more brand-name corporate software experiences deliver. Is VMS ready to step up to these ever higher expectations, across a global user base, complete with multiple languages, currencies, and highly diverse compliance standards?
The Forgotten Stakeholder
Too often we talk about the VMS in a vacuum, underrepresenting the stafﬁng companies that provide the primary input. I believe this is because of the many and complicated demands of the buyer, the VMS is expected to accommodate a great variety of different circumstances. Accordingly, little time is left to address the needs of the supplier.
Frankly, many stafﬁng companies are still offended by the VMS. The VMS promises supply chain efﬁciency across multiple channels of non- employee talent acquisition. Stafﬁng companies are the recruitment engines matching available talent with buyer needs, and then the legal employer of the selected workers. Overall, temporary worker spend is still about three times bigger than project SOW spend currently going through VMS systems. Clearly a critical link in the supply chain, the stafﬁng agency, while footing the bill for the vast majority of VMS installs, is largely a forgotten stake- holder when VMS product managers consider which users to serve with which features in the next release.
In a sense, it is the early American story, taxation without representation, but in this case the stafﬁng companies are far bigger and more proﬁtable than the VMS and MSP companies that stand between them and their customers. However, lest we forget the stafﬁng company was the original character in our movie, able to extract premium value out of relationship-selling tactics until the VMS put a spot- light on the price points and provided an alternative transactional medium to going to football games together. And now, there are other, larger forces entering the scene as size and strategic importance of incorporating non-employee workforce channels into an overall strategic workforce plan increases. Those buyers who master this balance of total work- force orchestration will be more competitive and have access to quality talent. It is too core to produc- tivity and spending efﬁciency to not have such an impact.
The enormity of spend and headcount at play in the contingent workforce management (CWM) industry, now close to $100 billion in total spend under management, imparts tremendous responsibility upon the systems and services charged with ensuring their stability and performance. However, from a ﬁnancial standpoint we must remember that spend under management is different than revenue — i.e. watching after someone else’s money is entirely different than counting in billions when referring to one’s own money. Sure, most MSPs have a multibillion dollar stafﬁng parent, but on its own the MSP company or VMS company taken strictly within a CWM context typically rings in at an order of magnitude or two smaller.
After the Acquisition
All changed earlier this year when VMS market leader Fieldglass was acquired by SAP for nearly $1 billion. That’s a nice valuation for a company with $27.4 billion in VMS spend under management in 2012, each transaction of which generates revenue in the form of a fee typically ranging from 0.25 percent to 2.50 percent, depending on the type of labor, program spend volume, and the country a given transaction pertains to.
The CWM industry is abuzz trying to come to terms with the effects this acquisition might bring. One thing is clear: The acquisition will affect, to varying degrees, each of the characters on the CWM scene. The immediate, visceral reaction seemed to be severe, that Fieldglass/SAP combined would create sufﬁcient gravitational effect to consume or out-compete the rest. I’ve heard it all: “Beeline is likely to be sold ASAP, Adecco will want to dump it now …” or, “IQN is in trouble now …” In my opinion, these statements show a misunderstanding of what differentiates one VMS company from the next and why customers choose the way they do.
Indeed, Fieldglass deserves to be called a market leader when adding 2 million new users speaking 15 different languages accessing its systems in 2013. True, such size and growth requires a degree of excellence that others have not been tested for. But IQNavigator and Beeline, too, have some impressive chips stacked before them. IQNavigator has been investing, not retreating, as evidenced by its newly assembled management team of seasoned software executives and its purchase of ProcureStaff. And it would be foolish to count Beeline out of the race given its stellar brand appreciation and big visible accounts it continues to win. So no, SAP buying Fieldglass does not automatically answer the ques- tion of which VMS will buyers turn to in the future. However, there is no question that Fieldglass being under SAP will be a selling catalyst, strengthening an already strong competitive appeal.
For example, one of the biggest political obstacles to the VMS footprint is the CIO’s ofﬁce, doing its duty to leverage the ERP, ﬁnance, HRIS, e-procurement and AP systems investments. The SAP platform is the most likely for a VMS to run into these days; and, given the sometimes $500 million investments into these installations, it’s no wonder that a CIO will take such a dogmatic stance about decommissioning non-SAP applications in favor of SAP-based modules or conﬁguration extensions of an existing platform. There’s no shortage of consultants and programmers happy to charge exorbitantly for their advice and coding, all of which has created an economy of its own.
Now, instead of squelching a VMS implementation, declaring it third-party and seemingly similar to existing SAP modules and Ariba functionality, the CIO has a genuine VMS to choose from within the SAP portfolio. Given the Fieldglass acquisition, it can justiﬁably give the impression that Fieldglass is a de facto ﬁnalist in any RFP — having the biggest footprint, strongest brand, and now, in line with the SAP overlords.
Big Stakes, Big Names
On the other hand, others out there remain stead- fast to compete, seeing the SAP acquisition as a call to build the next-generation VMS, with a range of ideas on how to take fresh approaches. However good the ideas, and no matter how much I believe in the courageous souls claiming to be willing to commit the next several years of their lives at giving a start-up a go, I believe the timing is wrong to give a start-up a go. I believe this next phase of competition on the VMS landscape will only involve bigger guns for bigger stakes, requiring a level of capital raising that becomes unrealistic for a newcomer starting from scratch, especially given the number of established VMS companies getting acquired.
Finding That Niche
Beyond the top three market-leading competitors — Fieldglass, IQNavigator and Beeline — VMS companies are in a tricky position. At this point, it seems highly improbable that anyone outside of the top three can make a legitimate attempt at leading the market in the near future. Too much would need to change for that to happen considering the ever- expanding number of countries multinational corporations are demanding, and the increasingly complex human capital sourcing, onboarding and management scenarios the modern VMS must be able to morph into. Instead of competing to be the best and biggest VMS in the world, some are thinking about specialization, to attempt to be the biggest and best in niche market sector — be it a particular industry, size of program, skill category, or some other way of deﬁning a segment of the market that is under- served by those who approach the entire market at large, claiming to be all things VMS to all CWM program scenarios.
Finally, we consider how the character of the VMS plays into the movie about the fate of the stafﬁng company, too. Perhaps something other than the VMS, like online stafﬁng, becomes the greater disruptor that stafﬁng companies must contend with. Stafﬁng companies have been under the thumb of commoditization across many skill categories. The time is now to innovate, or fossilize.
If the nature and form of the stafﬁng industry evolves, so too must the VMS. Therefore, VMS providers might want to consider paying more attention to the vocal minority of suppliers that have come to embrace the VMS, those that predict market conditions to be one that will likely include the VMS and have restructured their sales and recruitment infrastructures accordingly. These suppliers are the real standouts, and they are winning. Supplier score cards commonly show these relative newcomers as top performing. If only the VMS companies took them more seriously, and actually equipped them with better tools and data.
Jason Ezratty is president of Brightfield Strategies. He can be reached at email@example.com.