SI Review: Aug. 21, 2014

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David & Goliath: With the right strategy, staffing firms may succeed without going through a VMS

Use of vendor management systems mushroomed over the last decade as heavy users of contingent labor turned to them to manage contingent workforce costs and get visibility into their temp workforce. And staffing suppliers have felt the pain.

The now-familiar concerns include: prohibitions — in some cases — against direct contact with hiring managers; lower bill rates; and lack of transparency are just a few.

Some companies that place workers via a VMS don’t see it as profitable. In fact, some say certain VMS placement deals come at a loss. A panelist at a recent Staffing Industry Analysts conference quipped VMS stood for “vanishing margin strategy.”

Supplier anathema apart, buyers, still seem to like VMS. Use among large companies remains at a high level. A new survey of large companies that use staffing found 72 percent have a VMS in place today and 24 percent are exploring adding a VMS within the next two years.

But do staffing firms have to go through a VMS in order to thrive? Is it practical to even think of avoiding VMS or minimizing VMS business?

Experts say it’s possible, but it depends on what type of staffing firm it is.

“Is a staffing agency able to succeed without going through a VMS? I would say ‘yes,’” says Donn Harvey, president of Protingent, a Redmond, Wash.-based provider of IT and engineering staffing that has appeared on Staffing Industry Analysts’ list of fastest-growing staffing firms. “That’s the short answer because people do it, obviously.”

However, it depends on what type of staffing firm you want to have, Harvey says. Are you aiming for maximum efficiency or do you focus on high value and service?

There are a number of companies that are very successful that only work VMS accounts. “If you’re set up and configured to be a low-cost provider, you can also be successful,” Harvey says. But there are realms of staffing that are not VMS compatible. “When you get into the professional realm — and there’s a scarcity of talent — every situation is different as far as the pay rate and the markup and the benefits. It doesn’t lend itself to a cookie-cutter VMS model.”

High-touch service also includes working closely with highly-skilled talent.

“It’s super critical especially in the higher end professional staffing because candidates get familiar with working with specific staffing companies and they like to kind of stick with what they know and so we have candidates that we’ve developed relationships with over the years,” Harvey says. “And they’re not available anywhere else, so that’s part of the value that we add.”

Working with VMS can mean focusing on constraining costs as much as possible. Harvey says he’s heard of staffing firms setting up its applicant tracking system software to automatically match resumes and be able to send it to VMS clients at the touch of a button. A human being does not view the resumes before they are sent on. But you need the human touch if you want to be successful outside of the VMS, and that’s where specialization comes in.

Find a Niche

“In order to be successful without going through a VMS you really need to specialize,” says Gary Zander president of Project One Inc., a New York- based staffing firm that specializes in digital media and entertainment. “When you’re a specialty player … you have to make investments in researching and understanding your industry niche, domain training and development of your staff and take a much more consultative approach to how you do business.”

Costs are higher when you’re a specialty provider, which means your prices are higher, Zander says. But at the end of the day the client is paying for your knowledge, expertise and a much higher level of service. The higher price is more than made up by the greater return on investment. Specialty providers are able to help clients under- stand the market, develop tailored staffing strategies, attract and retain fresh top talent — allowing them to bring in resources more cost effectively and quickly.

“Too often procurement people solely focus on price,” he says. “However, they really need to look at the larger return-on-investment picture. Most times, lower prices produce lower ROI versus a higher price with a much greater ROI. When it comes to people, a talented and experienced professional can be as much as five to 10 times more productive than one who is weak. And when you factor in the higher level of service and support from a top specialty provider, the ROI is even significantly higher.”

And while a more generalist firm may find a great match, a specialized firm can deliver consistently, Zander says.

But not every client or situation calls for a high level of service, Zander says. Some companies may have generic or commoditized needs. That type of business may be better off under a VMS when low prices are an important factor. But when top talent is scarce, success is critical, deadlines are tight, and the client needs a supplier it can depend upon — there’s no substitute for a specialized staffing firm that truly understands the client’s business, he says.

Small- to Midsize Customers

Another strategy outside of VMS is pursuing business from small and midsize companies that typically don’t have the volume for a VMS.

“If you want to be working with very large Fortune 500 companies, it is very difficult to do that anymore without dealing with any sort of vendor management system, but if you want to work with smaller, midsize companies then I think it is absolutely possible,” says Allison O’Kelly, CEO of Mom Corps., a Philadelphia-based staffing provider that appeared on Staffing Industry Analysts’ list of fastest-growing staffing firms.

Few Fortune 500-size firms don’t use a VMS, O’Kelly says. Although smaller staffing firms may be able to make one-off placements at such large firms even though they may have a VMS in place. Providing niche skills may provide a steady stream of business but it’s not scalable.

O’Kelly agrees. “If you want a lot of volume and a lot of placements and really to be a true partner with a client — and the client is a large organization — then I think you definitely need to go the VMS route,” she says.

One negative about VMS is when a client aims to winnow the number of suppliers to only a small number — that can put smaller, newer, more niche or women-owned or minority-owned firms at a disadvantage, O’Kelly says.

VMS Doesn’t Mean Bad

It can sometimes be difficult to avoid all VMS business. However, VMS doesn’t necessarily mean bad.

“In many ways, it’s good if it’s managed well,” says O’Kelly, who does do business through VMS. “If the vendors know exactly which types of business they are working on, and there’s a lot of transparency, then it can really organize the system and get a lot of people working on things in a more efficient manner.”

However, there are some systems that don’t work well. And such systems may not even be good for the client because people are getting frustrated and clients aren’t getting the candidates submitted.

Protingent’s Harvey agrees that all VMS situations are not created equally.

While some VMS situations aren’t good, some are. “They let you talk to managers, and they manage the bill rate and not the margin,” he says.

It can also depend on how the VMS is set to operate. The same VMS could work in different ways at different staffing buyers.

“It’s entirely possible to have a VMS relationship that works just fine for the staffing firms,” Harvey says. “What I always like to see — and I hope the industry goes there — is where a little more reason comes into some of these agreements, and companies realize that working with the VMS and the staffing firms are more of a partnership relationship that is actually benefiting the company because they get better services.”

Craig Johnson is managing editor, staffing publications, at Staffing Industry Analysts. He can be reached at cjohnson@staffingindustry.com