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?

Unless you are new to the workforce, chances are you have noticed a significant increase in the percentage of people working around you who are not employees of your organization. Sure, in the past there was the occasional temp who stepped in while someone was on family leave or covered activities during high-volume work periods, but today many organizations are awash with contingent labor of many types.

You may sit next to a temporary worker, a medium- or long-term contractor, an outsourced service provider, a consultant, a worker on loan from a strategic partner, an onsite representative from a vendor, a virtual worker (automation), or be connected to an offshored worker via collaborative technologies.

In just 20 years, the percentage of work allocated to contingent labor on average has grown from 6% in 1989 to more than 27% in 2009.

According to another study just completed in January by the Aberdeen Group, a majority of employers identified that their use of contingent labor would increase moderately in the next two years (1:10 employers are prepared for significant growth in the utilization of contingent workers).

[The Aberdeen Report on Contract Labor Management is available free to individuals who register for access thanks to report sponsorship by Peopleclick and Allegis Group. If you would like to download your free copy, click here.]

Like it or not, contingent labor now plays a significant role in providing both organizational capacity and capability. Given statistics regarding the desires of incoming generations and the changing nature of work itself, it’s entirely possible that in the very near future a majority of all work done in your organization will be done by contingent labor.

True Labor Cost, Possibly the Most Unknown Statistic in HR

Contingent labor includes many different types of labor, and many organizations admit they do not know, nor do they have any way to identify, true labor costs.

While it is widely accepted that on-average labor costs equal 60% of an organization’s variable expenses, it’s entirely possible that unknown spend on alternate forms of labor could significantly alter that percentage.

World-Class Contingent Labor Management Essential to Strategic Talent Management

It shouldn’t require much to convince you that given the increasing role contingent labor plays in the organization, it is essential for organizations to build a world-class contingent labor management framework in order to drive strategic talent management.

If you see your organization as a complex living organism, would you trust a doctor who said you can ignore 27% of your internal systems and remain healthy? Hopefully not!

Organizations need to get out in front of this issue and recognize the need for a holistic workforce strategy that incorporates all forms of labor available to the organization and coordinates the activities of programs and processes that acquire, develop, motivate, and retain that labor.

Uses of Contingent Labor

During the 1970s, contingent labor popped up as a stop-gap solution to mitigate the impact of a position vacancy.

Today, however, contingent labor is not a temporary fix to a temporary problem; it’s a permanent mechanism that provides flexibility in how talent is deployed.

Some of the major ways your organization should plan to use contingent labor include:

• As an economic buffer. Many organizations today are in the midst of a battle to contain labor costs. They are employing reduction-in-force mechanisms that carry significant costs such as layoffs, furloughs, alternative work schedules, etc. While such mechanisms can cut costs, the long-term impacts generally end up costing organizations more than the labor-savings produced, particularly when a downturn is short-lived and resources must be re-recruited within a year of being let go. The contingent labor force, on the other hand, can flex up and down in size, often with little or no impact on variable cost. Strategic talent management organizations should leverage contingent labor to create a workforce buffer to economic oscillations.
• As a training/development resource. The research powerhouse Gartner pointed out a long time ago that the most expensive talent resources in the future would be those resources that have extreme knowledge in a special field, or that possess enough versatility to be deployed across several traditional stand-alone roles. Strategic talent management organizations should leverage contingent labor with extreme knowledge in special fields as training or development resources. Hiring such individuals for short periods and structuring knowledge transfer goals into their engagement agreement is a great way to provide a lasting augmentation to your organizational capability while containing long-term costs. This development methodology provides existing employees with on-the-job learning opportunities, day-to-day coaching/mentoring, and improved skill mastery/retention probability.
• To augment capability for a short-time (seasonal). Many organizations today need access to specialized labor for short durations. For example, an HR organization may need routine access to a web developer to build out web applications to power recruiting campaigns, but not require access full time. Whenever new requisitions for labor are being drafted, organizations should evaluate if the volume of ongoing work is sufficient to hire full-time resources, or if a contract worker should be procured either as a periodic service provider or short-term development resource.
• To support cost-containment efforts. Global competition has placed extreme pressure on product and service pricing, which has increased visibility on all variable costs that go into producing goods and services. No variable cost is more visible than labor costs, so it’s no wonder that contingent labor pools have popped up that enable organizations to accomplish low-margin activities at significant lower cost. If your organization has component work that must be delivered in order to enable your goods and services, but that would erode profit margins if completed using traditional labor, then your organization should evaluate contingent labor options.

Elements of a World-Class Contingent Labor Management Solution

Managing contingent labor in a world-class way really comes down to making sure that your talent management systems optimize the capability and capacity of the labor force to accomplish your organization’s objectives at the lowest possible cost.

It’s about identifying when contingent labor sources can and should be used in place of traditional labor, what sources of contingent labor provide the best value, and how to manage the life-cycle of contingent labor engagement to maximize ROI.

The major elements of a world-class contingent labor-management solution include:

• A comprehensive labor strategy. This should identify the mission-criticality of roles in the organization, the parameters that limit suitability of labor types, and the projected financial impact of various scenarios such as extended vacancies, bad hires, labor cost increases, etc.
• An optimal labor type assessment. With a strategy developed that identifies the criticality of positions in the organization and the parameters that limit what labor types can accomplish the work to be completed, an assessment is needed to determine what labor type and source of labor would produce the optimal ROI. This element essentially creates a universal work order for labor that can be handed off to procurement specialists.
• A holistic labor procurement system. One of the key benefits of a world-class solution is extreme visibility into true labor cost. To enable this, organizations must create a single point of control for the sourcing of all labor, regardless of type. The holistic labor procurement system is charged with maintaining an index of possible service providers, initiating sourcing activities, managing the engagement process, and coordinating with other systems for the onboarding, deployment, performance evaluation, and offboarding of contingent labor.
• A holistic engagement/development system. The business environment changes rapidly. Skills of extreme value today may become commodities tomorrow. Compensation factors may go from being highly prized to being utterly worthless overnight. To ensure that contingent labor resources are engaged and capable of delivering the quality and volume of work needed, a system must be contracted to periodically assess the resources interest in deployment options, desired terms of engagement, availability, and suitability/readiness for deployment.
• A holistic knowledge management system. It is essential that the organization develop a system that enables capture and ongoing access to knowledge or work developed during the engagement. This system could include tools to enable social interaction between resources (social networking), document capture, communication capture, context sensitive search tools, etc.
• A holistic performance management system. Organizations must invest in tools that enable a periodic snapshot of performance — at the onset, midpoint, and completion of the project at the very least. In recent years, a number of technology products and services have popped up to enable such evaluation, but organizations could also build a solution quickly using basic e-survey tools.
• A holistic talent-relationship management system. As the percentage of work deployed to contingent labor increases, so too will the volume of resources organizations need to remain in contact with. Staying on top of all of the communication timelines and delivering customized messaging in response to various triggers is a complex task. Luckily, customer service organizations long ago developed customer relationship management methodologies, many of which are now supported by automated technology solutions that can be easily borrowed and adapted to create talent relationship management systems.
• Advanced workforce management analytics. No world-class solution would be complete without a process and set of measure to periodically evaluate and report out on the performance of the solution relevant to the goals for the solution. Organizations must draft comprehensive metrics to assess their utilization of contingent labor and ensure that all component systems in the solutions are capturing the data needed to power the metrics.

Final Thoughts

Like a fast-paced chess game, strategic talent management is about making sure the right resources with the right capabilities is in the right place at the right time to capture the competition.

The fact that many organizations have developed their talent management tools and program in functional silos and continue to ignore vast populations of the labor force is a sad statement about the true capability of our profession to deliver truly strategic work.

Contingent labor management is already a mission-critical activity, one that will only continue to increase in the years to come. Now is the time to evaluate your approach, rip out the archaic systems you currently have in place, and deploy a new set of talent management practices that pay homage to the current environment.

Free Webcast on Contract Labor Management
Join Dr. John Sullivan on Tuesday, March 17 at 1pm EST for an interactive discussion on Aberdeen’s latest research report, entitled Contract Labor Management: Superior Workforce Strategies for a Demanding Market. This informative webcast will dive into the characteristics of innovative contingent workforce management solutions developed by best-in-class organizations in response to global business practice and economic pressures. It will feature examples of emerging best practices and discuss how staffing industry technology and service providers are working to support them and expand talent management capabilities. John will be joined by Ginny Gomez, SVP, Product Management & Marketing, Peopleclick, Inc., and Jay Lash, Executive Director, Human Capital Solutions & Product Development, Allegis Group Services, Inc. To learn more and register for the event, please click here.

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.”

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.

As you might expect, construction expects to continue to shed workers; 22 percent of the surveyed companies say their payrolls will shrink during the quarter. Transportation & Utilities and the two manufacturing sectors — durable and non-durable goods — all predict a net loss of jobs during the quarter.

Surprisingly, the Leisure & Hospitality industry expects hiring to pick up. Despite suffering severe losses in the last few months, 21 percent of the surveyed companies in the sector expect to be hiring. Mining companies, though, are even more optimistic about their hiring. A quarter of all the surveyed companies say they plan to hire during the next quarter. It would be better news if mining wasn’t the smallest in terms of total workers employed.

Manpower also released a list of 201 metropolitan areas in the U.S., ranking them according to their prospects for job growth. Topping the list is Lafayette, Louisiana, followed by the Beaumont-Port Arthur, Texas area, and Houston. At the bottom of the list is Barnstable, Massachusetts, out on Cape Cod, where companies shedding jobs outnumber those hiring. It’s followed by Reno and San Diego. Los Angeles also makes the bottom 10.

Globally, the picture looks similar to the U.S., even though employers in 25 countries say they expect to be hiring. The Manpower report tempers that news, saying: “Notably, employers in 21 countries and territories are reporting the weakest hiring intentions since the survey began in their respective countries and territories. Where year-over-year data is available, outlooks in 25 countries and territories have declined compared to last year at this time.”

To get a copy of the report and a listing of the outlook in the U.S. by metropolitan area, click here.

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.

Markups (% over pay rate) on contract labor are insane. Particularly in the IT market, we saw our markups sometimes upward of 110%. We began to ask questions of our contractors, like how they decided which agency to sign up with, how much they were paid, and how their interview process went. Even whether they had actually submitted references and background checks. Imagine my surprise!

What I learned is that unique databases are like snipe hunting. The cool kids know they don’t really exist, but they get a kick out of telling people they do. I, apparently, was not one of the cool kids. With a few exceptions, contractors sign up with a variety of agencies. Some contractors never even meet their agency recruiters. They are often submitted without even knowing it. They are not paid nearly as high as you might think, based on the exorbitant cost for their service. Also, for you non~agency folks like me, there is something called a “time stamp.”. When one of my vendors and I found the same candidate for a high end project-management role, he actually challenged whether I had found her “first” and asked for an email with a time stamp on it. Seriously.

Also, contractors are not like normal people. They’re contractors because they want to be contractors. They make more money than us corporate types, and they don’t like the strings attached. They are here to build their resume. Most of them aren’t really interested in full-time roles. They speak differently; they like to be kept “warm.” They need to know you care. The candidate development portion of this process is far moret hands on than it is with full-timers.

With no real guidelines, or benchmark data to use, we at Emdeon did research and used our best HR judgments. I like to stay on the good side of the OFCCP and the EEO, so we took great pains to do this correctly. We hired a payrolling firm. Payrolling firms are the contractor’s W-2 employer and cover all associated taxes.

Then, we began to source candidates, just as we would with a full-time opening.

We provided the candidates with their payrolling firm’s application, via email. Interviews are conducted by our managers. Offers are extended by the payrolling firm. The payrolling firm manages their onboarding and all communications with the contractor. The savings is recognized quickly. Payrolling services are 17% as opposed to the aforementioned 110%.

Track the savings by each open position. The savings are calculated by what the cost per hour would have been if a vendor provided the candidate.

A real example:

Java Programmer for a 200-hour project.

Agency cost 95$ per hour = $19,000.00

Vs

Insourcing Costs $52 per hour = 10,400.00

So, a savings of $8,600.00 is quickly found.

As you can see, if you multiply this by 50 contractors, this is a very effective cost-saving strategy. Using this model, in three months’ time, we saved our business $170,000. We got a lot of attention for that. An actual example (not the complete savings) of some of what we saved is shown in the graph (click to enlarge).

We did find some potholes along the way. To find ethically sound solutions, we worked with our vendors on these.

Q. How do we build a pipeline?
A. You don’t need one. They don’t stay available long enough.

Q. How long does a contractor need to be gone from our company, before we approach him to come back, thereby going “around” the agency?
A. One year.

Q. Can we recruit contractors working at other companies, for our vendors?
A. Yes. If they are on line, they are fair game.

Q. Can we ask our contractors for referrals?
A. Yes. That’s how it works.

In an environment that constantly demands improvements and savings, this is a model that can help you achieve your goals this year.

Contributing Author: Anne Wallbrech

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.

Successful organizations must develop workforce plans that allow their organizations to shift people resources rapidly from areas of low return to areas of high return, as the business environment shifts.

HR instead needs to prepare in advance and have a viable plan and strategy to ensure that any workforce reduction/adjustment is executed in such a way that it doesn’t damage their image or reduce morale of employees retained.

One approach to consider is developing a contingent workforce strategy that allows organizations to rapidly cut labor costs by releasing contingent contract or temporary workers.

Layoffs Are an Ugly Option

Most of the problems with workforce plans occur because managers consistently over-hire and under-fire.

The net result is that labor costs essentially become “fixed” rather than being variable. That problem is compounded in organizations that have grown holistically with little or no attention being paid to workforce planning or workforce productivity analysis, because they often become headcount fat very early on.

Although layoffs are a commonly used option to reduce labor costs, they are far inferior as a solution compared to the use of a contingent workforce.

Some of the many problems associated with layoffs include:

• They are highlighted in the press and as a result, they hurt your external employment brand image. When customers read about your layoffs they might also assume that these layoffs mean that the company is in trouble or that the product quality will suffer.
• Layoffs and their related severance packages are expensive and administratively time-consuming.
• Releasing talent that you fought to acquire and paid to develop is a waste of resources. In addition, your laid-off workers could end up working for your competitors.
• Even though head count is reduced the workload is often not, and as a result, employees end up taking on a larger workload and new tasks, which results in higher error rates and slower process time.
• The process of selecting who will be laid off and the reorganization after the layoff are time drains on managers who should be focusing on the product and the customer.
• They traumatize everyone including workers who remain and managers that have to let go of talent they helped develop.
• They cause employees to shift their focus toward job security and away from serving the customer.
• Even rumors related to upcoming layoffs are productivity killers. Once one has occurred, there will be a lingering fear that it won’t be the last.
• There is little evidence that they consistently produce a positive ROI.

Some organizations attempt to use performance management to resolve their surplus employee issue, but that process is slow and generally incapable of handling a large number of employees. Instead, a superior option is to require managers to maintain a significant percentage of their workers as contingent workers.

Developing a Contingent Workforce Strategy

A contingent worker is a worker who can easily be released by a firm. Most are contractors, part-timers, or “temps” but there are other variations. They are superior to permanent workers because of the fact that they are easier to “get rid of” when they are no longer needed.

A contingent workforce strategy is sometimes called a “shamrock” strategy because it splits a firm’s labor force into three distinct leafs. Each leaf of the shamrock represents a different form of labor including permanent employees, contingent labor, or outsourced labor, each of which gets a predetermined percentage of work allocated to it.

To support a shamrock strategy, HR departments must provide managers with a series of related tools that determine the appropriate balance of labor types given projected market conditions. This strategy gives managers an increased capability to cut labor costs whenever product sales decrease or conversely, to rapidly add talent when the business is growing.

Where traditionally having contingent workers meant occasionally hiring a number of “contractors” or temps, what is really needed is a more dynamic and strategic approach that provides managers with more options.

Benefits of a Contingent Workforce

Some of the many potential benefits of having contingent workers include:

• Lower expectations. When contingent workers are hired they know upfront that they are insured employment only up to their contracted date.
• Managers are less reluctant. Managers don’t have the same fear or resistance as they do when they fire a “permanent” worker because managers know contingent workers realize they may be let go at any time (managers often lack the courage to release permanent employees!) There is also less paperwork involved in releasing them.
• Easier to find. As other firms lay off and the unemployment rate rises, there are many more highly qualified individuals willing to accept contingent positions.
• Easier to add. Because they don’t count as headcount, a new contingent worker can often be added when there is an immediate need in a specific area, even when there is a headcount freeze.
• Only when you need them. Talent and skills can be added but then released quickly when they are no longer needed.
• Lower costs. Some contingent workers will work for less and sometimes with minimal or no benefits. In all cases, there are no costly pension benefits and retirement issues.
• Redeployment. Contingent workers can sometimes be designated as “floaters” and thus be available for redeployment to fill short-term needs much like a utility player does in baseball.
• Better assessment. Hiring workers on a contingent basis allows you to assess them “on-the-job,” and you can then keep only the best.
• Legal issues. There is less of a probability of legal action when you release contract workers.
• Stronger employment brand. Using contingent workers allows firms to cut labor costs without the negative brand-damaging publicity attached to large-scale layoffs. It also allows you to avoid the damage to morale that comes with formal layoffs.

9 Steps in a Contingent Workforce Strategy

There are nine critical steps in developing and implementing a contingent workforce strategy:

1. Determine when you need more contingent workers. The ratio of contingent workers to permanent workers should shift up and down as the economic situation changes. HR must identify exactly when this contingent percentage should increase or decrease. Start by examining a 5- to 15-year historical pattern in order to identify the critical periods or events that indicate that you should increase or decrease your percentage of contingent workers. For example, this could be when sales fall, when sales are growing rapidly, peak periods (summer, Christmas, etc.), prior to mergers, or if you are contemplating the sale or closure of a business unit.
2. Determine your ideal target percentage of contingent workers. Examine historical patterns to see what the highest growth rate could be, then do both a best- and worst-case scenario to estimate the maximum and minimum levels of contingent workers you will need for both scenarios. The normal range of contingent workers can be as low as 5% (in medium growth times) to a high of 25% of the total workforce. The high is set based on the maximum conceivable percentage of the workforce that could be laid off in a worst-case situation.
3. Assess who should be classified as contingent. Why wait until it’s time to actually do layoffs to determine which individuals and jobs would go? Determine in advance and use the information to begin the process of converting those positions and shifting those people into contingency jobs. By converting individuals who would likely to be laid off to contingent you “soften the blow,” giving employees an advanced warning. The transition gives them time to adjust, though some will quit when their status is changed. Incidentally, shifting current workers into contingent jobs is generally better than hiring “new” contract workers because they already know the company and its culture.
4. Develop contingent workforce metrics, rewards, and punishments. HR must proactively develop effective metric or measurement systems to report the percentage of contingent workers in each business unit or department. To further ensure compliance, managers must receive punishment and “embarrassment” when they fall below their contingency targets and rewards when they meet or exceed them.
5. Use contingent worker status as an element of performance management. Effective contingent plans are integrated with performance management programs. For example, under some contingency workforce plans, bottom performers are transferred into contingency jobs as a step before termination. If they are not in a low-priority job, or if their performance improves, they can be returned to permanent status. This interim step makes it easier for managers with less courage to begin the process of getting rid of bottom performers.
6. Develop contingent floaters to improve productivity. Contingent workers may include people designated as “permanent floaters” whose day-to-day job assignments are contingent. These contingent floaters are cross-trained in several job areas so they can be instantly redeployed when there is a sudden need for talent. Because they already know the firm, their performance will likely exceed those hired from temporary help agencies.
7. Designate overflow rollover people for peak periods. Determine which business units have occasional “spikes” (benefits enrollment, for example) that require extra short-term help. A”rollover” can handle short-term overload that can’t be handled by the normal staff. If there are “counter cycle” jobs (i.e., peaks in one department occur simultaneously with slow times in other departments), contingent rollover plans can be even more effective. Outsourcing firms (with call centers) can also be contracted to handle “over loads” in lieu of, or in addition to, internal employees.
8. Use outsourcing as an element of a contingent workforce. Outsourcing firms can be treated as a form of contingent workforce. Outsource in those areas that add little value or are likely to be reduced during a layoff. In addition, as more and more consulting firms expand their outsource business volume, the possibility of outsourcing firms actually absorbing your administrative workers (from your payroll to theirs) increases. Some firms will accept your employees as part of a long-term outsourcing contract. Your employees keep getting paid but not directly by you.
9. Shift the work to areas where the laws are more flexible. Consider shifting the little work that you need done to areas where the laws are more flexible when it comes to laying off or firing workers. Replacing workers with technology and equipment is another option to increase your flexibility.

Final Thoughts

As business times become more turbulent, it is critical for HR to increase its focus on workforce planning. One of the key elements of any successful workforce plan should be the increased use of a contingent workforce.

Unfortunately, most HR departments manage their temporary and contingent workforce almost as an afterthought. Instead, the status of this important element of the workforce strategy must be elevated in the process and redesigned to maximize its strategic impact.

The time to act is now rather than waiting for the CFO to come knocking on your door with predetermined head count management solutions that cause as many problems as they solve.

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);
• Hasn’t already been introduced to the company via the employee referral program; or
• Doesn’t already appear in one of a multitude of databases that employers have purchased access to; or
• Hasn’t already applied directly to the company sometime in the past four years; or
• Presents a background so stellar that companies don’t balk at paying search fees.

In short, the inventory of talent that contingent search providers can trade upon for permanent placement is in extremely short supply.

New Services on the Horizon

As stated earlier, those agencies embracing change are finding more ways to extend the value inside the organization. The most common extension is, of course, the move into supporting temporary labor. While many large service providers like Randstad and Kelly have the market economics to secure the largest companies in a metropolitan area, a number of small- and medium-sized firms desperately need help leveraging contingent staff. In addition to temporary staffing, a number of other potential services are on the horizon, some that many large organizations should consider taking advantage of. Those we find most interesting include:

Outsourced Referral Program Management

Employee referral programs are quickly becoming the predominate source of hire inside most organizations. Those firms that lead their industries in hires attributed to employee referral can attest that providing world-class customer service to both referees and referrals is essential to maintaining program momentum. Unfortunately, most HR organizations are not adept at even spelling world-class customer service, let alone delivering it. For years, HR organizations have focused on containing costs and enabling self-service, two objectives that don’t always drive customer satisfaction. Contingent search firms, on the other hand, have built their businesses around customer service, servicing not only the client but the candidate as well. By outsourcing the management of the employee referral program to a trusted search provider, the client organization could gain several key benefits, including:

• The search provider could more easily ramp up and down the human resources attached to the client employee referral program to maintain pre-established customer service standards.
• Under a split-type agreement, the search provider could provide referrals with additional placement services should the client organization opt not to hire, thereby creating a revenue source to self-fund the employee referral program.
• The search provider could provide more advanced analytics regarding the success or failure of the employee referral program because traditionally agencies have been more adept than HR functions have been at applying metrics internally.
• The search provider could leverage economies of scale and build internal staffing proficiencies in marketing and sales skills to support the employee referral program that would not make sense for small- and medium-sized firms to invest in.

External Brand Assessment

While most lock-out list scenarios prevent companies from using an agency to raid another employer, they don’t prevent organizations from hiring services to help identify and understand their position in the market as employers. Because contingent search providers have a proven ability to blueprint a competing talent organization, target specific talent, and establish contact with said talent, it makes sense to leverage that ability to identify and gauge an employer’s reputation in specific talent markets. Professional recruiters may be more adept at getting an honest perception than market researchers because they have a proven ability to keep talent talking. Under such a scenario, search providers would:

• Build contact lists of target talent in competing organizations.
• Establish relationships with said talent over time.
• Use the established relationship to gather research on how the client is perceived in key areas by the target talent.
• Aggregate the research and report back to the client perceptions that limit the client’s ability to attract said talent.

Competitive Landscape Mapping

Nearly every contingent staffing professional can tell stories about when it introduced a candidate to a client who came from a competitor whom the client was unaware of. While companies like to think that their marketing teams are adept at identifying potential competitors, staffing professionals often do a much better job at mapping who-competes-against-whom for customers, and especially for employees. They are more adept at recognizing industries that hire compatible talent, and much more adept at identifying new entrants to the talent market. Client organizations can use contingent staffing firms to build competitive talent landscape maps as a precursor to organizational benchmarking initiatives. Maps can help insure that organizations have a realistic picture of who is after what talent in a specific geography, and what each player’s strengths and weaknesses are.

Recruiter Training

While the visibility of candidates may have improved, the ability of the typical corporate recruiter to acquire said candidates has not. Most corporate recruiters are phone averse, and seem to think that proactively contacting any potential candidate before they have applied to you is an ethics violation! As such, a number of contingent search firms have started offering training seminars and certification programs that help prepare recruiters to be successful in the role of corporate recruiter. Some aspects of these training programs focus on sourcing techniques, while others focus on how to engage candidates and deal with the all too common objections. A number of Fortune 200 companies now rely heavily on recruiters who have undergone said training. Under this service, contingent search providers:

• Recruit entry-level recruiters onto their payroll.
• Train the recruiters in full life-cycle recruiting or a life-cycle specialty, depending on client needs.
• Provide the newly trained recruiters with on-the-job experience for a minimum period of time.
• Contract out or place the new recruiters with client organizations and guarantee their on-the-job performances for a set period of time.

Vendor Management

Another service that is growing in popularity among traditional contingent agencies is vendor management. Many corporations are horrible at managing the multitude of services that support the staffing function and could not optimize the deployment of searches or resources if the future of their staffing function depended on it. Despite years of challenges and a host of software products that have sprung up to do the job, most companies still need help. Because agencies are generally better at using metrics internally and have a profit incentive to use resources wisely, outsourcing vendor management to a contingent staffing vendor again makes sense. They can leverage the same metrics that they use internally for assigning recruiters to job orders to assign subcontractors to accounts. Because their profits are tied to helping you maximize both the efficiency and effectiveness of your staffing efforts, you build in accountability to a corporate function that traditionally hasn’t been held accountable.

Conclusion

Contingent search firms have existed for years and will continue to exist for years to come. But like all industries, the contingent staffing industry is not subject to life as we have known it forever. It too must evolve – now more than ever. The position of search firms is one that lends organizations a great deal of power to identify what does and does not make sense to do internally. In short, it gives organizations the strength needed to force trusted search providers to become mini-recruitment process outsourcers. Are you progressive enough to leverage your partners?