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What Every Company Should Control But Doesn’t

by Apr 5, 2005

After completing nearly 100 return on investment (ROI) studies on retooling and new process implementations in the staffing departments of the largest companies in the world, we have come to a simple conclusion: the big easy impact from investments and change is often not where our customers ask us to look. At iLogos, we refer to this as the little secret of large corporations. Let’s consider an analogy to illustrate. Imagine you are coaching your child’s soccer team and that you are also responsible for the funds of the club. Many people advise you to cut spending on items such as drinks, mailings, etc. But the numbers show the most expensive items for the club are the jerseys. You just learned that if you centralized the jersey order you could reduce the number one expense in your club by up to 22%. However, you also know that all the players will complain, because they had their special provider make, for instance, a little red line on the side for his unique jersey or a special fabric for hers. Similarly in staffing, many organizations ask us, how could we save on search firms and on recruitment advertising? Certainly, there are spending analyses and cost reduction initiatives that can be implemented in those areas. Often, though, organizations are not suffering from being unable to solve the issues they are aware of. On the contrary, the bigger issues are those they don’t see. So what is a very big issue where you could impact your company performance so much that the CEO could be inspired to invite you personally for a cruise in the Caribbean? Contingent Labor Spending The low hanging fruit that most organizations are overlooking is contingent labor spending. When we mention contingent labor spending, most people look at us and say, “Maybe somewhere else, but not here!” Well, then, what does your organization spend on contingent labor? If you cannot answer precisely, most likely you are among those that don’t know what they don’t know. A case in point is an experience we had with a company that chose to inquire a bit more into this issue. At the end of the initial meeting they assured us the spending was limited and no more than $25 million. At the end of the second meeting, after further investigation, they revised their estimation to be double. By the end of the third session, the estimate for their contingent labor spending was four times the original number! Our studies on contingent workforce management show potential savings between 4% and 22%. The impact is derived from better negotiated bulk rates, control of maverick spending, rate enforcement, risk avoidance (remember the “Microsoft case”?), as well as better process efficiency of on-boarding and off-boarding. Some of those savings will not appear on your budget, and often are only considered by the people with the total corporate savings in sight ó your CFO and/or CEO. Like the soccer team scenario, perhaps you are not responsible for the procurement of the “jersey” today, or you are reluctant to be the target of much complaining from the players and the providers of the jerseys. But if you are not ready for that, you can pass on the cruise right now. How Can I Start? Some organizations we are consulting with are in fact aware of the potential savings, and either blame the lack of ownership or accept non-action and lost savings. Others tell us that they have taken the appropriate measure to control it by implementing a model called VOP, which stands for “Vendor On Premise,” in which a staffing firm comes onsite to fulfill open job requisitions and manage administrative processes such as billing and reporting. VOPs market themselves as “experts in contingent workforce management,” when in fact their expertise lies in “fulfillment,” that is, putting temporary workers into open job reqs. But fulfillment should not be confused with contingent workforce management; VOPs are staffing agencies or subsidiaries of staffing agencies. Although the VOP model seems to be a step in the right direction, it is a long leap away from reaching the full savings potential. A VOP’s primary goals (turf protection and generation of fulfillment revenue) are incompatible with the client’s goals of protecting the company from potential liabilities, managing costs and leveraging spend, and guaranteeing a high degree of customer satisfaction. Most organizations are satisfied with the VOP model for the simple fact that it provides a feeling of control. Indeed, having fulfillment and visible reporting gives the organization that perception. However, there is an inherent and unavoidable conflict of interest. It is like having one of those soccer jersey vendors come to the club and take all the orders at once, and constrain access to the other jersey providers. The motivation for the main jersey provider is to ensure that it captures most of the orders. When special requests are made, this main provider (a.k.a. the VOP) draws on its competitors ó and you suffer the double mark-up. It is important to understand the structures and nuances of the different models available out there. The pitfalls of the VOP model are part of the little secret that you have not heard about too often, simply because most of the staffing suppliers don’t want you to know. Now You Know What You Don’t Know Most of the organizations we work with either don’t own contingent workforce management issues, greatly underestimate the impact they have on them, or have deficient processes, such as Vendor on Premise, in place. Don’t forget, the worst situation to be in is to not know what you don’t know. The average company spends approximately 7% of its revenue on contingent labor. If we apply the average rate of savings that can be achieved to that 7%, it represents approximately a 1% increase in revenue on the bottom line of your organization. Knowing that, it is likely worthwhile to allot the time and resources to start figuring out what you now know you don’t know!

This article is provided for informational purposes only and is not intended to offer specific legal advice. You should consult your legal counsel regarding any threatened or pending litigation.

  • Garrick Weaver

    I agree with the article 100% as it helps to educate us on the difference between a VOP and a neutral third party. The real challenge for companies is to realize the value of having a netural third party to oversee the process. Technology though, like in most cases, cannot be the only tool to do this. A proactive focused approach needs to be included. Many agencies claim that they can be neutral while alos filling orders, however I have many examples of why it is almost impossible to do objectively. Many organizations do not realize that they do not even know the difference between a VOP and a Third Party Manager.