SI Review: August 2013

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Don’t Blame the VMS

Change the way you use the tool

By Scott Wintrip

People love to hate the vendor management system (VMS). But VMS, in and of itself, is not really the issue; it’s how it’s being used. Like a doctor recklessly prescribing medications without fully diagnosing the patient, a significant number of buyers and VMS providers have been similarly negligent. Making things even worse, many staffing and recruiting companies have willingly participated in this debacle.

Just as patients have adverse reactions when taking the wrong drugs, customers and staffing firms are being adversely affected — by significantly increased labor intensity, poor communication between hiring managers and recruiters, and low quality of talent provided as a result of the downward pressure on margins.

How did we get to this point? In a confidential conversation earlier this year, a VMS pioneer admitted to me his dismay at how VMS is being deployed. “Just like the advent of the Internet created an over-reliance on it as a recruiting medium, some people are using VMS irresponsibly. It was never destined to take the place of sound practices.”

While employing technology that increases operational efficiencies is smart business, expecting that automation, of any type, will eliminate the need for proven methods is pure folly. These erroneous ideas are at the core of how VMS is being deployed and used irresponsibly.

Contrary to Popular Belief

Driving many of the poor practices and behaviors are outdated or inaccurate beliefs about the VMS model. Here are five common myths:

  1. Verbal communication with hiring managers is unnecessary in a VMS scenario. If hiring were as simple as posting jobs and having vendors submit potential candidates without talking with any hiring managers, the Internet and job boards would have eliminated the need for the staffing industry years ago. A growing number of companies are starting to realize that verbal contact between decision-makers and vendors makes sense when ground rules for it are established early in the process. One of the largest banking institutions in the U.S. went from no contact with hiring managers to allowing it for important questions and debriefs after interviews. Not surprisingly, assignments and jobs are now being filled more quickly with better candidates who are retained longer in those roles.
  2. VMS systems make the process more efficient. While automation and technology have the potential to increase efficiencies, this is not always an automatic outcome. An effective strategy combined with tactical plans that are supported by the right technology solution always creates better outcomes. More than a dozen of the IT staffing companies I advise reported an increase in labor intensity when working VMS orders. In every one of these scenarios, the client or the VMS provider had prescribed a process they were required to follow to the letter. However, when given the opportunity to weigh in on the process, these same firms reported significant reductions in labor intensity for both themselves and their customers. Key to this was following a system that required a high degree of responsiveness by the vendors and the hiring managers.
  3. Volume makes up for lower margins. Even when increased volume occasionally makes up for lower margins, higher labor intensity drains away profits. In audits conducted in the past year, it initially appeared that the companies managing these contract and direct hire deals were more profitable as a result of their VMS business. However, when labor intensity, longer response times and higher submittal to placement ratios were factored in, the leaders in these firms learned that these accounts generated either minuscule profits or, even worse, were break-even, generating literally no money for the bottom line.
  4. Submissions can only be made through the VMS. The company with the talent wins, and not all of them are submitting through the VMS. For years, staffing firms have been winning deals by being there when those working through the VMS can’t get it done. In just the first quarter of 2013, nine of the companies I advise posted record earnings when working with VMS users without going through the VMS. In each case, they dealt directly with the hiring managers to fill openings that were not being filled quickly and effectively. In most cases, their time-to-fill was less than half of the measured results through the VMS.
  5. You must engage in an increasing amount of VMS business to be competitive and profitable. While avoiding all VMS is not a sound business strategy, the opposite extreme of taking all you can get is no better. Depending on their size, companies that strategically select a few good VMS opportunities per location as part of their business mix generate five points more in profits than those that rely on it for more than 20 to 25 percent of their revenue.

Radical Accountability

The customer is always right, until the customer is wrong. Just like it’s inappropriate to let patients prescribe their own medical treatments, it’s patently improper to stand by and allow staffing malpractice to continue, given the harm it causes to all involved. What’s needed is radical accountability, an unwavering responsibility for getting done what matters most.

In staffing, this means quickly and efficiently filling the open assignments and jobs of customers with the best available candidate. Those that do this should be fairly and equitably compensated for their efforts, allowing for sustainable businesses that can continue to meet the needs of customers. There is no room for increased labor intensity, poor responsiveness, complete bans on access to hiring managers and low margins that impact the quality of service.

How do you stop staffing malpractice? Speak up. Make the case for an inclusive dialogue that allows you to affect the process for the mutual good. Show companies how their methods can be improved to reduce effort while improving quality. Use case studies, parachute stories, references, data and process visuals to demonstrate the value of sound practices in a VMS scenario.

VMS is not going away, nor should it. It’s the poor habits and bad business practices that have come with it that need to be excised like a cancerous tumor. Used in the right way along with good communication, nimble responsiveness, and sustainable markups, both buyers and staffing firms can have healthy businesses where the needs of all parties are consistently met.

[SIDEBAR]

The 10-Factor Test

Not all VMS opportunities are created equal. Next time you are pursuing a prospect that uses a VMS to manage the process, apply this VMS Test. Your results will guide you in deciding if it is worth your time, energy and effort to accept this business.

Answer each question yes or no.

  1. Have you been provided with detailed job descriptions, required and desired skills, details on cultural fit and specifics on compensation and benefits (if applicable)?
  2. Will you have access to the managers to whom the positions report to ask questions and discuss important details?
  3. Has the client committed to providing detailed feedback about submittals within one to two business days from submission?
  4. Does the client appear to be using the VMS system in a manner which reduces labor intensity?
  5. Has the customer designed and communicated a hiring process, using the VMS, that appears to be fair, reasonable and workable, especially when compared with how you normally do business?
  6. Does the amount of labor intensity required to do the work seem reasonable when compared to potential profits?
  7. Has your primary contact been highly responsive to calls and e-mails?
  8. Does this business opportunity seem to be sustainable over the weeks, months and even years ahead?
  9. Has the customer indicated an openness to feedback when their process is not working effectively?
  10. Having carefully thought about and answered these questions, are you excited about this VMS opportunity?

Scoring

Count the number of “yes” answers and compare to the scores below.

10: There is a better than average likelihood that this business is worth the effort.
9: This has potential as long as the prospect adequately addresses your “no” response.
7-8: You’re likely to be disappointed with your return on your investment of time, energy and effort. Proceed with extreme caution, working with the prospect to deal with your “no” responses.
5-6: This prospective customer will become a drain on your time, energy and efforts. Pursuing this is not recommended.
0-4: RUN AWAY NOW! This account is not worth pursuing.

Scott Wintrip is founder and president of StaffingU. He can be reached at scott@scottwintrip.com.

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Southwest Airlines

Greg Muccio 08/06/2013 01:17 pm

Nice article and while I don't agree with all of the points, I agree with the main one that the VMS is often misused. I often tell my team that our tool is great, but it won't think for us.


HireVelocity

Jacob 07/31/2013 01:17 pm

Scott,

Great write up. I have seen a love/hate relationship with VMS systems over the years. While I see the importance of having a system in place so that 50 agencies are running wild within a company, the way most are being utilized hurts the company who uses them. Most of the time I have been a part of a VMS, I have to lower my margins in order to even be considered. While that might be good for the procurement department, it hurts the recruiting efforts. Recruiters are motivated by incentive and (if all things being equal) will spend their time and effort on placements that make them more money. If this happens in all the agencies on the VMS, the effort going into helping the client drops off.
Thanks again for the read.


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