Part 3 of 3
The Fundamentals of
Managed Service Provider
Part 3: Business Case and Readiness
Introduction / 3
01 What is the Business Case? / 4
Increased access to talent / 5
Reduced cost/improved efficiency / 6
Reduced risk / 7
Increased visibility / 8
02 Are You Ready? / 9
03 Recommendations / 12
Conclusion / 14
About the Author / 15
Table of Contents
This is the final of a three-part series designed to outline key components of a Managed Service
Provider (MSP) program. The papers will collectively discuss how companies today are deploying
an MSP program to help transform their human capital investment.
Two of the major stakeholders most often engaged in this strategy are Procurement and Human
research indicates that when these two groups work together effectively, an
MSP delivers significantly higher cost savings than MSPs without this vital collaboration between
HR and Procurement1
The approach taken in this series will be to address common questions about MSP programs, and
to provide a framework that allows for informed decision making. Regrettably, the complexity of
available solutions, confusing messages from the marketplace, and an array of strange acronyms
can make this process exceedingly difficult for organizations just beginning this journey.
As such, each of these papers will incorporate perspectives from the staffing and workforce
solutions outsourcing industry as related topics are presented and discussed. Numerous references
throughout each paper are attributed to three well-respected sources: Staffing Industry Analysts®
(staffingindustry.com), Forrester Research®
(forrester.com), and Aberdeen (aberdeen.com).
The series will explore three key areas:
• Part 1 – Explains what an MSP can do for your company—and why it’s important
• Part 2 – Demonstrates how your sourcing model can integrate with MSP strategy
• Part 3 – Articulates the business case for MSP and helps to determine your readiness
The following covers the third of those three areas – Business Case and Readiness. Be sure to
read parts one and two for additional observations on achieving effective talent management
through MSP solutions.
One final caveat
This information should prove valuable to procurement and human resources personnel as they
plan and prepare for the future. However, it also presents real value to stakeholders, whose
operations may be impacted by the MSP program and leadership from many other areas,
including finance, IT, or operational functions that may ask:
“What strategies can we deploy to manage the cost, technical competency, and risk inherent in
utilizing external labor?”
Aberdeen Group, Contract Labor Management – January 2009, page 17
To establish the benefits of an MSP, each organization must assess its own priorities—
but in general, there are four areas that drive the business case for an MSP.
What is the Business Case?
What is the Business Case?
Aberdeen Group, Contract Labor Management, January 2009, pg 19
Why Deploy an MSP?
Because the business case is real, and the concept simple—but the execution is not!
To establish the benefits of an MSP, each organization must assess its own priorities—but in
general, there are four areas that drive the business case for an MSP:
1. Increased access to talent
2. Reduced cost/improved efficiency
3. Reduced risk
4. Increased visibility
Detail on each element of the MSP business case is provided below, and in the next pages of
Increased Access to Talent
In a benchmarking study by Aberdeen, MSP users reported their on-boarding time was 50 percent
faster (2.9 days versus 5.7) and their time-to-fill was 20 percent faster (9.8 days versus 12.2)2
results should not be surprising, because of the supplier management and process improvements
inherent within an MSP program.
Typical components within an MSP program include:
| Requisition review with hiring managers to ensure accuracy, clarity, and compliance to policy
| Candidate pre-screening so that hiring managers only review the best candidates
| Continuous review of open positions and supplier engagement to ensure adequate submittal
| Process management through the interviewing and on-boarding process
| Supplier management to ensure adequate quality, quantity, and cost
| Reporting and data analytics
| Best practice sharing and benchmarking
Increasingly, companies are adopting a more holistic approach to the contingent labor talent
pool. They can integrate this workgroup into their workforce planning strategy and have
real-time visibility into available skill sets, globally. They also expand their view to include a
wider range of labor, such as retirees, interns, project workers, independent contractors and
consultants. Companies look for skill sets, and their related costs, around the world.
What is the Business Case?
Aberdeen Group, Contingent Labor Management, June 2010, pg 18
Ibid, pg 9
Ibid, pg 9
Reduced Cost/Improved Efficiency
A recent Aberdeen benchmarking study reports that top-performing organizations are 33 percent
more likely than all other companies to utilize an MSP3
, and those top-performing organizations
report an average 21 percent cost savings4
. Contrast this to the seven percent cost savings
reported by the average-performing organization5
—and it becomes obvious why many companies
pursue an MSP program to deliver results.
The hard cost savings are often captured in these forms:
| Rate card benchmarking and management
| Supplier on/off boarding strategies
| Requisition and assignment length controls
| Overtime limits/billing discounts
| Markup discounts/rebates
| Redirection or elimination of headcount associated with the MSP program tasks
Add to those hard cost savings the significant soft-cost benefits, and it’s no secret why companies
execute the strategy:
| Standardized contracting processes
| Standardized requisition-through-pay processes
| Vendor consolidation, where the MSP acts as the client’s agent
| Improved visibility to drive decision making
| Metrics and reporting to guide improvements
Are You at Risk?
• How many workers are
• Who is auditing for
compliance to IRS
• Are all workers drug and
• How effectively do you
control their access to
• Did you follow a standard
on/off boarding process to
• Is there an enterprise-wide
strategy to hire, or reassign
the best talent?
• What systems are in place to
approve, audit, and control
• Are the suppliers you utilize
under contract, audited
regularly, and offering the
lowest possible rates?
• Do you compare the cost/
benefit between workforce
pools (ie: using a consultant
versus a temp)?
What is the Business Case?
Aberdeen Group, Contingent Labor Management, June 2010, pg 5
Ibid, pg 9
Today’s definition of contingent labor is much broader than even a few years ago. In addition to
traditional workforce classifications such as Office or IT workers, it now also includes Independent
Contractors, Statement of Work (SOW), Consultants, and more. This workforce often operates
invisibly to the enterprise, largely because HRIS systems don’t capture the “human” nature of the
work. Instead, this human capital investment is lumped in with telecommunications, office supply,
and travel invoices—and disaggregated into departmental budgets managed by hundreds of
people around the world.
This is especially concerning as governments around the world turn their focus to recouping loss
of tax revenues from companies that classify their labor incorrectly. In fact, in the United States, the
Federal Government expects to collect an additional $385B in 2011 from these sources— which
includes potential penalties from companies that do not properly classify this workforce. Is your
Do you know if your workforce carries any co-employment risks? An MSP strategy can tighten
up contingent labor definitions, contract compliance, length of stay management, and ensure
consistent policy administration.
Another consideration is business continuity. Aberdeen’s latest survey indicates that nearly 20
percent of the average company’s workforce is contingent labor6
. Do you know who they are? If 20
percent of your organization’s workforce disappeared tomorrow what would it mean? Do you know
who these people are, and what they do?
Use the questions at right to determine if your company should be concerned.
One Final Point
Aberdeen reports that best-in-class programs have almost five times the regulatory compliance
than straggling programs7
. Experience has shown that usually five – ten percent of the client’s
suppliers were under-insured, and about two percent of the workforce wouldn’t pass their
screening requirements. How important is compliance to your company?
In our experience, it’s very important.
What is the Business Case?
Another key feature is the flexibility to scale to business demands. More and more companies
want the talent when, and only for as long as, they need it. Hiring full-time employees, only to
lay them off when the business slows, is both expensive and negatively impacts the employer
brand. An MSP program enables access to top talent—who join the organization understanding
their role and likely tenure. Thus, costs are aligned with demand and employer brand is
protected, as highlighted by the example below.
Early in 2009, during the global financial crisis, an MSP client came to Kelly®
with an edict to
reduce expenses by a significant percentage within 30 days. We later came to believe that they,
like many other companies, were experiencing difficulty in securing capital to finance their sales;
they often financed the capital goods they sold. Since the Kelly MSP program exceeded $50
million, there was considerable interest in lowering that cost.
Kelly took the following steps:
| Accessed VMS technology
| Pulled detailed data on all contractors working in Canada and the United States
| Included information on the type of work, length of assignment, and supervisor with contact
| Delivered this data in a few hours
While Kelly didn’t make the decision on how to reduce the cost—we provided visibility so
our client could make quick, intelligent business decisions. In this case, the client was able to
take cost out very quickly and justify in other cases why cost was critical to their business—for
instance, a great many of the contractors were doing design work on future products, something
the company did not want to eliminate. The client reported it actually saved jobs, because it
helped them to explain and rationalize the critical nature of the work.
It’s hard to put a price tag on this service—but companies with an MSP have concluded that
spend visibility is very important!
Are You Ready?
The business case to improve contingent labor utilization is almost always worthwhile—the challenge always
lies in the details. Failing to understand organizational, cultural, supply-base, end-user, and usage elements
almost always leads to a difficult implementation, with results that don’t meet expectations.
The business case to improve contingent labor utilization is almost always worthwhile—the challenge
always lies in the details. Failing to understand organizational, cultural, supply-base, end-user, and
usage elements almost always leads to a difficult implementation, with results that don’t meet
expectations. What do you need to know to thoroughly understand your options?
1. What volume, skills, and locations form the bulk of your needs?
2. Who are the key end-users and how receptive are they to change?
3. Are key stakeholders in HR, Procurement, Legal, Risk, Finance, IT, and the business level
4. Is there agreement on the relative importance of the four major outcomes associated with
improving a contingent labor strategy:
a. Access to talent – how difficult is the process of sourcing contingent resources?
i. Is the organization interested in a more flexible, scalable, or global model?
b. How critical is reducing cost and how does it align with quality expectations? Does it
i. Process efficiency – does standardizing processes and reducing back-office expense
ii. Does the concept of on-demand talent, flexing to needs, resonate with the company
c. Risk/Compliance – how concerned is your organization about the quantity and types of
talent they use?
i. Is there awareness to recent changes in IRS 1099 compliance activity?
ii. What about concerns with co-employment risk?
iii. How important are processes like contractor screening, security, confidential information,
and vendor contract compliance?
d. Visibility – how important is business intelligence to your decision making?
i. Do you need more visibility into this area?
Are You Ready?
5. Assess your organization’s current readiness for change. This includes:
a. Consolidation experience in other service categories, such as travel, office supplies, and
b. Operational alignment to work within a defined vendor base or process
c. Engagement with peer groups in other countries, if a multi-country solution is sought
d. Willingness and ability to mandate utilization of Web-based ordering or control systems
e. Experience moving to outsourced programs
f. Internal resources available to support or lead the change process
g. Urgency to change – does the strategy align with key business objectives?
The above list of considerations can seem daunting—but it doesn’t have to be. Knowing what you
don’t know is half the answer. Then decide if you need to know it.
Are You Ready?
Contingent labor programs involve people (suppliers), delivering people (contractors) to
people (managers) under the guidance of people (stakeholders). This four-way matrix is
both complex and subject to change—in direct relationship to all the people involved.
The only universal recommendation for an MSP we can make is to not make a universal
If you think about it—contingent labor programs involve people (suppliers), delivering people
(contractors) to people (managers) under the guidance of people (stakeholders). This four-way
matrix is both complex and subject to change—in direct relationship to all the people involved.
But we can highlight some points:
1. Moving from an environment where there are few sourcing models and fewer controls to one
with many models, managed within an MSP, is significant. In many cases, the best strategy is
to create the vision— but tackle the projects in priority—building upon success.
2. Consider keeping the scope of any initiative to that which you can control or are ready for.
This could be a major skill area (IT), or geography (U.S.), or some combination thereof.
3. Set expectations that there is a way to lower bill rates, gain access to more talent, improve
utilization, reduced risk, deploy globally—it just takes time, and the right roadmap.
4. While rate cards, improved controls, and flexibility are often the main drivers of change—
most of our clients would say that longer term, it’s the access to talent, visibility, flexibility,
and strategic alignment that pays the biggest dividends. Don’t limit your criteria to explicit
measures—plan for the positive press that comes with this strategy, it literally changes
In summary, there are four major reasons to consider an MSP:
1. Access to talent is improved, while reduced hiring and on-boarding time means the talent is
productive sooner. This is facilitated by improved MSP processes, hiring manager support, and
active supplier management.
2. The best-in-class contingent labor programs reduce cost by 21 percent. This comes from, pay
rate controls, rate card management, requisition and assignment management, re-allocating
internal resources, mark-up discounts, and a variety of soft cost savings as well.
3. Risk management is also improved. 20 percent of the average organization’s workforce is
considered contingent, and they carry with them many benefits, but if not managed properly,
also significant risk. They have access to confidential information, assets, employees, and
much more. And in some cases, they are critical to the enterprise’s success—yet invisible to the
4. Visibility is the “quiet” driver—with information comes the ability to make better business
decisions, including flexing the workforce to better align with business demands.
Readiness also presents a complex set of considerations:
• Understanding the technical components—spend, skills, and location
• HR and Procurement must work in tandem to optimize results—but a cross-functional team
• Gain consensus on the priority of the four MSP program benefits above
• Assess your internal experience, and change your readiness with this kind of initiative
About the Author
Tim Meehan, Vice President, Global Solutions and Services
Tim Meehan is vice president, global solutions and services, at Kelly Services®
, a leading workforce
solutions provider. He currently leads a team of people that consult with Americas-based
firms interested in enhancing their contingent labor workforce strategy. Mr. Meehan recently
returned from assignment in Asia where he held a similar capacity, working with Kelly®
headquartered in APAC to develop their workforce strategies. Prior to that, he led a regional sales
team tasked with developing new client relationships in the southeastern United States.
Mr. Meehan joined Kelly in 2002 with nearly 10 years of staffing industry experience. During his
time with Kelly he has deployed innovative workforce models to Fortune 100®
firms, many in
the banking, finance, transportation, and automotive industries. Prior to his work in the staffing
industry he held significant leadership roles within the printing industry.
Mr. Meehan was born in New Jersey and earned a Bachelor’s degree in Political Science from
Seton Hall University. Upon graduation he moved to California and earned a Master’s degree in
Business Administration from the University of Southern California. Mr. Meehan moved to Dallas
in the early 1990s and, along with his wife and two grown daughters, calls Texas home today.