Does vendor neutrality really exist?

Over the last few years, there has been a trend to outsource Contingent Workforce Management (CWM) to “vendor neutral” companies. Vendor neutrality within CWM has become a hot button; but does it really exist, and in a tight labor market, can organizations afford to be concerned about vendor neutrality?

Characterization of vendor neutrality
According to the Human Capital Institute, vendor neutrality is a term used to describe a contingent workforce management program that has no bias towards the utilization of any particular supplier for reasons other than historically proven, superior performance. Vendor neutrality was pioneered by buying organizations that recognized the benefits of incorporating a competitive process into the sourcing of temporary labor, with multiple staffing firms given an equal opportunity to be a supplier.

“An MSP is considered vendor neutral if no preference is given to any of the participating vendors”

In simple terms a Managed Service Provider (MSP) is considered vendor neutral if no preference is given to any of the participating vendors. The final decision as to which vendors, and specifically, which contingent workers are engaged should remain with the client.

Evolution of vendor neutrality
To understand the evolution of vendor neutrality, we need to consider the concept of Vendor on Premise, first developed and marketed by the staffing industry in the early 90’s, as a way for organizations to outsource a range of administrative processes associated with the procurement of contingent labor. Key objectives for the buyers of this service included a reduction of hard and soft costs, risk mitigation, and improved service delivery.

For staffing firms, this for the first time, created the opportunity to gain control of a client’s staffing requirements, increase their revenues and neutralize or lock out competition. Despite involving “secondary sourcing” vendors, such an intensive business relationship was not welcomed by other vendors and therefore considered to be anti-competitive.

In response, the staffing industry conceived the concept of vendor neutrality; wherein they created separations within their operating structure that segregated their MSP offering from their affiliated staffing services.

Vendor neutrality is therefore a concept developed by and for the staffing industry, as way of allowing its member firms to compete in the MSP arena.

Staffing or outsourcing
Critics of staffing firm owned MSP’s have observed that the activity of an MSP is more of a business process outsourcing function as opposed to a staffing activity. As a result, they have questioned the suitability of staffing firms, vendor neutral or not, to undertake this type of service. A number of staffing firms have also been known to question whether they should be operating in what is effectively the Recruitment Process Outsourcing (RPO) space, which as well as not being a core competency of many staffing firms, also generates lower margins than they can achieve from their traditional people finding activities.

Perhaps the biggest threat to the vendor neutral model promulgated by staffing firms is direct hire, which some observers believe is set to transform the staffing industry.

Direct hire
According to the American Staffing Association, 90% of companies use some form of contingent labor. The ability to effectively manage employee resources is a constant challenge for any manager — one that becomes even more complex with the addition of contract employees into the workforce mix.

“A direct hire capability reduces staffing firm reliance, offers a reduced cost of hire and greater candidate control and ownership”

As organizations move away from requisition-driven models to proactive staffing, becoming and remaining an Employer of Choice relies on a positive brand image. Brand projection and management is essential for the success of a balanced recruitment supply chain. A direct hire capability reduces reliance on staffing firms, offers a reduced cost of hire, and greater candidate control and ownership.

With people process technology solutions becoming more sophisticated, organizations of all sizes now have the ability to optimize the processes of acquiring and deploying talent on a local and worldwide basis. Companies are now able to streamline their entire recruitment process by bringing together hiring managers, recruiters, candidates and third party suppliers via a single web platform.

Conclusion
The global talent shortage is likely to dominate and pose different challenges for organisations, governments and individuals for at least 20 years.

For corporations, the main objective will be to accumulate more talent than their competitors. Organizations will have to cast their net wider, provide more flexibility in the work place and employ more part-time and older workers, as well as spend more on training and development.

In tomorrow’s MSP world, we are going to see a bias towards direct hire. The growth in direct hire by organizations will place staffing firms at a competitive disadvantage, which by definition must challenge today’s concept of vendor neutrality.

About the author Martin Glick, Founder and CEO of Albany, has been a pioneer for more than 20 years in the international management of contract labor, and has been responsible for developing services and solutions along this vertical in more than 70 countries. Prior to founding Albany, Martin was a partner in a number of leading UK accounting firms. Under Martin’s management and guidance, Albany has grown into the only truly global provider of contingent workforce management solutions, and with offices on every continent, Albany is uniquely placed to serve global companies such as Shell, Canon, Nokia, and Siemens.

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