ERE.net

by Dr. John Sullivan & Master Burnett

For many in corporate staffing, contingent labor management is an unpleasant activity often relegated to the lowest-cost outsourced service provider the organization could find, mainly because no one internally wanted to deal with it.

The work is largely considered mundane, process-oriented, and as a necessary overhead cost that provides little or no value.

If you work now or have worked in an organization that views contingent labor management this way, you work or have worked in an organization that has no clue about the future of strategic talent management!

Contingent Labor Taking Over?

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More bad news on the employment front today as Spherion reports it lost $126.2 million in the last quarter of 2008, giving it a $118.5 million loss for the year.

The staffing and RPO company’s 4th quarter revenues were $507.5 million, down $74 million over the same period in 2007. For the year, Spherion reported revenue of $2.19 billion versus $2.02 billion the previous year.

“Challenging economic conditions adversely impacted our company’s performance during the fourth quarter,” Spherion President and Chief Executive Officer Roy Krause says in the financial release announcing the results. “Our focus on cash flow and containment of operating costs continues to improve our financial stability and flexibility during these challenging economic times.”

The revenue figures were below Wall Street’s expectations. Analysts estimated 4th quarter revenue between $518 million and $522 million.

The news, however, didn’t negatively affect the already battered stock price. Spherion was up 3 cents on the day to $1.37. The stock price has been as high as $7.08 in the last year, but began a downward slide in April before dropping precipitously in October as the extent of economic crisis made headlines.

In releasing its numbers, Spherion said, “The continuing economic volatility makes it difficult to predict with any certainty the amount of demand that will be seen in the market, and therefore management has elected not to provide revenue and earnings guidance for the first quarter of 2009. The company believes that a combination of existing cash balances, operating cash flows, and existing revolving lines of credit, taken together, provide adequate resources to fund ongoing operations.”

If you think any plans to increase hiring is good news, then get yourself a copy of the Manpower quarterly employment outlook for 2009. (Link at bottom.) Even though two-thirds of American companies expect no change in their workforce numbers during the first quarter of 2009, 16 percent say they’ll be hiring.

A year ago 22 percent predicted hiring gains. Curiously, about the same number of companies expect to reduce the workforce in the 1st quarter as did last year. Thirteen percent now say cuts are coming compared to 12 percent a year ago.

It’s in the big, wide middle where the numbers have shifted. The 67 percent of the companies that say they’ll neither grow nor shrink is almost 12 percent higher than a year ago. In the outlook for the 1st quarter of 2008 Manpower said 60 percent of the surveyed companies foresaw no workforce changes. What changed were the number of hiring companies.

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Corporate recruiting is lucky.

We are the piece of any corporate HR function that can show our business hard and fast data around spending and savings. We can show you, Mr. Hiring Manager, how much you spent last year per hire, how quickly we filled your need, the quality of those candidates, and exactly where we found them, plus about 37 other data points. Wow. We’re good. Recruiters, not usually a shy bunch, will market our successes to you relentlessly. We run staffing like a business and we like to make sure you get that.

So, how is it that we measure every molecule of a full-time hire, and continue to drive down cost per hire, but know little about the “other” side of staffing. I present to you contractors. Shady sort. And a little scary, if you remember the Microsoft fiasco a few years ago. Co-employment is not your friend. This uneasy feeling may have something to do with our lack of touch on them, or their price tag. But, you can’t really run a business without them.

It used to be that once a contractor requisition was approved, it was automatically distributed to our vendors. We chose these vendors based on information they provided that they (a) could provide us the best rates while (b) guaranteeing excellent quality ( c) from their “unique” databases where they’d have access to people no one else could find. Cool. Except that we spent $7M last year on contractors. Not cool.

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When economic times are volatile and businesses are facing a downturn in revenue, many CFOs turn their attention to cost-containment. A logical place to start cutting costs is labor, given that in many industries labor costs account for an average of 60% of all variable costs.

The volatility in the business climate not only dictates that labor costs be contained, but also that organizations become more agile in their use and deployment of labor, a characteristic not generally managed well in the traditional employer/employee relationship.

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article by Dr. John Sullivan and Master Burnett

The traditional contingent search business model is a risky one in that it is incredibly susceptible to macroeconomics, technological innovation, and population demographics. While many industries can balance their product and service portfolios to survive the most brutal application of the laws of supply and demand, many smaller contingent search providers ride a one-trick pony. In 1999, contingent search providers were riding waves of success that made those on the North Shore of Maui look tame. Search commissions were rising steadily, exceeding 45% in some markets, newbies to the profession were pulling down six-figure incomes, and the influx of job orders seemed unending.

Then 2001 hit, and one contingent firm after another cut back, laying off thousands. Now that double-digit employee growth is once again a challenge for most companies, you would think that the glory days of contingent search are back. But, as many firms will attest, they aren’t.

Revenue Is There, But Not From the Same Sources

While industry revenue is forecasted to grow from 10.4% in 2005 to 11.6% in 2006, the industry is deriving the greatest percentage of newly booked revenue from value-added services, namely temporary or contract staffing and professional services. More companies are relying on contingent workforces than ever before. It is estimated that in 2006, as many as two-fifths of newly created jobs are first offered on a temporary basis. That’s a fourfold increase in the growth of contract labor in just 10 years. While the job orders being placed with traditional contingent agencies aren’t drying up, the increased use of contingent labor and a confluence of technology driving candidate visibility is forcing such firms to change or die. With the opportunity to maintain minimum placement volume needed to sustain a business in jeopardy, many contingent search providers are increasing the scope of value-added services they offer, and are finding clients more receptive than ever. The contingent search industry has long been one that defined success too early, in that it never sought out opportunities to extend the value of its services beyond the initial placement transaction.

This lack of prior industry development has made the industry ripe for a series of progressive, qualitative transition cycles. Early leaders embracing this transition are already blurring the lines between temporary staffing, contingent staffing, retained staffing, professional services, and training. With this transition firms like Adecco and Kelly, which had few urban competitors, today have thousands, ranging from local companies of one to foreign companies of thousands.

The Confluence of Technology Driving Candidate Visibility

Traditional contingent search firms take advantage of their ability to find candidates who have not been found by companies or who have been overlooked. It is, for the most part, a low-volume, high-margin business. However, the confluence of numerous technologies that service the recruiting function and the proliferation of the Internet have made a majority of the world’s workforce more visible to corporations and, in the process, eroded the value proposition contingent search providers once banked on. In this new era, contingent search professionals are finding it a lot harder to find a candidate who:

• Doesn’t appear on a lock-out list (a list of the agencies’ other clients or strategic partners of the client organization);

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