By Steve Knapp
As companies rein in their supply chain for external labor, there usually are significant cost savings to be realized immediately. As a managed service program (MSP) eliminates the rogue spend, it will in turn leverage a smaller number of preferred suppliers and bring down costs. I am frequently asked what return on investment or cost savings companies can expect beyond year one for a contingent workforce management program run by a third-party MSP.
I have assisted many organizations in creating a compelling business case for building an MSP to manage contingent labor. The easy part is demonstrating the first-year savings, especially when working with a company that hasn’t had significant controls in place before. The hard part can sometimes be showing further savings in each of years two through five.
In truth, the savings you achieve in year one should continue, at a minimum, as you have now established a new baseline. If your savings was 20 percent in year one, your second-year savings is still 20 percent from the original baseline. The same goes for years three and beyond. Unfortunately, many businesses don’t count savings that way. It’s all about “what have you done for me, lately?”
Here’s how I suggest articulating the year-on-year value creation of an MSP.
1. Assuming you outsourced your program to a third party (or intend to), you need a good strategic managed service provider. As the saying goes, you get what you pay for. If you have squeezed the MSP’s revenue too much, you will invariably end up with a tactical MSP focused on transaction processing rather than value creation.
2. Companies need to start thinking in terms of value rather than just cost savings. A sturdy oak desk will initially cost more than a flimsy one made of balsa wood, but the oak desk will last for ages while the balsa wood will snap in half if you breathe too hard.
3. Your contingent workforce program must have an idea of where it wants to get to in terms of maturity. Program maturity should be viewed along multiple dimensions. How comprehensive is it? How strategic is it? How is it governed? How sustainable is it? How measurable is it? After all, with contingent labor becoming an increasing part of your company’s talent strategy, don’t you want that workforce to be a competitive differentiator against other players? Aligning with business objectives, addressing all labor categories and geographies, being able to adapt with changing business demands and having line of sight into everything that’s going on with your contingent workforce — these are all goals for program maturity, many of which are not achieved in the first year.
4. Understand and maximize the performance of your program with respect to quality, efficiency, cost and risk. What this means is that by focusing on a holistic view of the program rather than just cost, you can articulate the value creation of the managed service program (if it is performing well). You will be getting the best resources at the “best” price in the most efficient way while decreasing the overall risk to your organization.
So if someone asks you what the business case is for an MSP after year one, tell them that as your program gets more mature and performs more effectively it will create the best value of all — a strategic workforce able to make your company more competitive.
Steve Knapp is senior associate with Brightfield Strategies, which helps Fortune 500 companies with contingent workforce strategies. He can be reached at firstname.lastname@example.org.