Jon Osborne's Blog the age of VMS

Our annual survey of large staffing buyers has indicated an unbroken chain of increased VMS usage year after year.  In 2008, the percentage of large buyers using VMS passed the 50% mark.  Preliminary results from our latest buyer survey now underway suggest usage went up again in 2009.  This trend has two major implications.

Enter efficient markets
First, among large buyers staffing is rapidly evolving into an efficient, mature market, by which I mean suppliers are being commoditized and profits for this business will increasingly tend toward a modest, market-level return.

If you want to know what a modest market-level return is, picture fast-food, where a handful of large players have driven the price of a piping-hot, instantly-served double-cheeseburger--delivered in less time than it takes to drive from the order window to the pick-up window--down to $1.29, where a multitude of once highly successful small players have now vanished or exist now at the margin, hanging on through streetwise culinary skills, desperately personable staff or deliberately quirky cache. 

In a commoditized market with no barriers to entry, the benefits go to the consumer and only the most low-cost and/or high-quality producers survive.  Damn that capitalism.  All that might sound bleak, but the good news is that plenty of staffing firms are already operating in the new VMS world at a profit, likely not an extraordinary profit, but efficient staffing firms are still making money.
Exit sales push strategyThe second implication of the rise of VMS -- is that the age is passing in which staffing is sold to large buyers via a large commissioned sales force.  Buyers have always hated getting bombarded with phone calls from staffing salespeople; indeed, our survey data suggests that has been one of the key drivers of VMS adoption, perhaps even more so than price.  Now that large buyers have adopted VMS, the role for sales is very much diminished.

So what are profit-seeking staffing firms to do?  There are three options.

1) You can search for large buyers who don't use VMS.  Though these are dwindling in number, there are still many around, and likely there will always be a limited number of large buyers who for whatever reason prefer not to go the VMS route.  This is essentially a niche strategy that will depend on finding and keeping what will increasingly be a purple squirrel.

2) Alternatively, you can accept VMS and try to become that sleek cost-cutting machine ever alert to customer preferences that tends to dominate in efficient markets.  Most successful staffing firms are already there in some degree, but VMS will make sure they are never extraordinarily profitable.  If you plan to go that route, find out what metrics your buyers favor and perform well by those metrics.

3) Lastly, you can tap into the disaggregated world of smaller, occasional buyers, who will never use VMS because they don't have the critical mass of business that would justify it.  Such buyers cannot be effectively approached, however, through labor-intensive sales calls.  For these, sales are best made through marketing, something of which staffing firms do very little. 

Marketing, what a concept!
So what about marketing?  Our benchmarking data indicates staffing firms typically spend just 0.6% of revenue on marketing and advertising, only a third of what they spend even on rent.

And it shows--at least if worker brand recognition means anything.  Our survey data indicates that among a sample of mostly contingent workers, more thought Robert Half to be a fictional brand than a real one, and 56% thought Aerotek to be either a machine tool manufacturer or a software developer; even well-known Manpower was perceived by 17% to be either a construction company or a machine-tool manufacturer.  Occasional staffing buyers are not likely to know much more about staffing firms than occasional contingent workers would.  For anyone selling to the smaller buyer, a little more advertising might be justified.

No matter how you look at it, VMS is not just coming to a neighborhood near you--it's coming to your neighborhood.  This would be a good time to figure out how you plan to sell to your customers in its wake.


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