Overview:
Corporations are eagerly adopting Vendor Management Services (VMS) as a means to reduce costs and bring order to the system of procuring and managing their contingent IT workforces. However, recent research of the VMS vendor community uncovered widespread dissatisfaction that, if not addressed, could diminish the quality and timeliness of talent delivered. These findings call into question whether companies are currently deriving the utmost benefit from their VMS implementations. |
VMS: Threat to Vendor Livelihood
Few topics in recent memory have generated more interest and inspired more passion (mostly negative) from IT staffing vendors than Vendor Management Services (VMS). Listening to panel discussions, reading publication articles, or just candidly conversing with staffing vendors, it is clear that most staffing companies are highly dissatisfied with the status quo. They feel that the introduction of VMS is threatening their ability to effectively service clients and, in some cases, the viability of their business models.
Research was conducted recently to probe deeper into the relationship dynamics between early adopter Managed Service Providers and vendors, and the under- lying reasons for these feelings of dissatisfaction. While not altogether surprising, the research suggests that all parties would do well to address the issues to derive the optimum results from their VMS implementations.
Defining the Terms
Some definitions are in order because a number of different terminologies have emerged to describe the different components of VMS:
- “Vendor Management Systems” refers to the e-procurement applications used to facilitate the process of securing and managing contract labor.
- “Vendor Management Services” is used to include both software and services supporting this process.
- “Managed Service Providers” (MSPs) or “Vendor Management Service Providers,” refers to the third- party firms that are engaged by a company to manage the outsourcing of the procurement and management of contract labor.
- “Vendor” refers to the companies that provide staffing services to companies and MSPs.
No matter what the terminology, VMS is here to stay for a number of reasons, but primarily because companies are increasingly driven by immense cost control pressures. Analyst Robert W. Baird & Co. estimates that “about 30 percent of the Fortune 100 already use, or are in the midst of assessing proposals regarding VMS solutions.” It is clear that many more will be analyzing and planning to implement VMS as a cost saving tool over the next few years.
The central premise behind a VMS offer is the ability for a company to eliminate how many contacts it uses to find, procure, and manage contract personnel. Instead of a company having to organize the efforts of tens or hundreds of vendors, it deals with one organization and, often more importantly, one invoice.
In addition, most believe that they will derive from VMS at least one, if not all of the following benefits:
There are several VMS models that are evolving.
- Lower bill rates resulting from standardized rates and leveraged discounts.
- Improved quality resulting from better talent matches and faster fill times.
- Reduced internal costs through automation of previously manual processes.
- Better management of outside staff via a heightened ability to track performance data.
Probably the most common model is the MSP/VMS model depicted in Figure 1 below, in which the MSP manages the entire VMS program and assumes responsibility for the VMS tool.
As Figure 1 shows, the MSP is responsible for releasing job requests to its Tier 1 vendors. If they are unable to fill the request after a period of time (2-3 days on average), then Tier 2 vendors are given the opportunity to do so.
 | Figure 1 | |
Another model that has emerged is the Application Service Provider (ASP) solution, in which the responsibility for the hosting, implementation and ongoing support for the VMS tool is outsourced to a third-party provider, while the company serves as its own MSP. The focus of this paper is on the MSP/VMS model described above.
The Evolution of VMS
How did VMS become so prevalent? According to Staffing Industry Analysts VMS Decision Guide:
“It began when communication via computer began to really take hold. As businesses recognized the potential for better managing their purchases through real-time information made possible because of the Internet, e-procurement networks grew. As businesses started to appreciate e-procurement, they demanded to be able to buy more through it. Eventually the ability to purchase, manage, and evaluate outside labor was added to the technology.
“The staffing industry was proceeding along a similar path to improve the delivery of its service under vendor-on-premise (VOP) relationships. Because staffing needs were being supplied by a single source, customers could see the aggregate cost of outside labor. They also demanded better accountability. Staffing services readily responded in the form of more sophisticated technology that could track productivity gains and rate different subcontracting staffing companies against specific metrics or against each other. So VOP remains a viable business process, transformed into its next generation as VMS.”
Major Change to Vendor World
As companies seek to adopt VMS, the nature of their relationships with staffing firms has also evolved. How has this changed the landscape for vendors? How has it impacted the way they run their businesses?
To put it succinctly, their world was totally rocked. Not only has the declining economy put the squeeze on price and margins, but now with VMS, the model has shifted from relationship to commodity-based selling.
Then:
Just consider, in the late 90’s the market looked very attractive for vendors:
- Large projects were numerous.
- Margins were generous.
- The shortage of IT workers created a “pay whatever it costs” mentality among client managers.
- Client managers were in control of staffing.
- Vendors marketed themselves through trusted relationships with hiring managers.
- There was adequate time to properly search and screen qualified candidates.
Now:
Today is a totally different story:
- Projects are smaller in size and fewer in frequency.
- Vendors are required to be on approved vendor lists.
- They are restricted from going directly to hiring managers, formerly their best source for placements and leads.
- Requisitions are provided in an automated fashion.
- There are additional administration issues associated with having to learn new systems.
- In many cases, the information is too sketchy for vendors to effectively produce viable candidates.
- There are limited opportunities for vendors to ask questions to obtain more detail.
- Required deadlines to submit candidates are often only 72 hours.
- Margins are reduced as MSPs take over a share of the business and clients leverage volume discounts.
To survive, vendors realize they must lower their cost structures. Cost reduction measures include hiring more temporary workers, shifting top quality talent to more profitable accounts, moving into lower-quality office space, reducing employee benefits, not investing in training and career programs, and many other belt-tightening tactics.
Some have tried to work around the system by directly contacting the hiring managers. Others have gone into niche areas like high-end project work, which VMS doesn’t touch—though this too may be changing soon. Some have entered the VMS space themselves, with varying degrees of success.
Though it’s still too early to determine the long-term effects of these tactics, it is clear that staffing firms will have trouble supplying the same level of talent at reduced margins in the time required. The fallout might take the form of projects that fail to meet budgets or miss deadlines because of reduced quality in the talent hired. Clearly some vendors will not survive, reducing the staffing source options available to companies.
VMS Providers Scorecard Survey
To obtain more knowledge about these issues, Jordan Group, Inc. (www.JordanGroupInc.com) conducted a comprehensive survey entitled, “VMS Providers Scorecard.” This survey was designed to gather feedback on MSPs from IT services and staffing companies for three purposes:
- For vendor firms—to help in selecting the MSPs they wish to partner with or support.
- For MSPs—to offer information on how vendors view their services.
- For companies—to provide information on the issues and barriers to receiving exceptional service from their IT staffing suppliers.
Survey questions were focused to gauge IT staffing vendors’ level of satisfaction with respect to certain key performance metrics involved with communications, processes, and policies. These included the quality of requisitions, timeliness, and quality of feedback from the MSP; contact with the hiring manager; performance feedback; and knowledge of the IT services industry. A total of 119 scorecards on 25 MSPs were received. Participants provided a critical mass of data on eight MSPs—Analysts International, Chimes, Fieldglass, Kelly Services, Manpower, MSXI, ProcureStaff, and White Amber.
One of the significant underlying themes that emerged was the serious lack of communication between IT staffing firms, the VMS providers or MSPs, and the companies they serve.
A summary of the results follows:
Overall Rating
At the end of each Scorecard, respondents were asked to provide an overall rating of their MSP. An analysis of these ratings showed that the overall level of satisfaction for all MSPs was quite low, with 40 percent of respondents rating them “Poor” and only 3 percent rating them “Excellent.” These ratings reflect the responses throughout the survey questions, which were skewed toward the negative for most questions.
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Overall Rating:
How do you rate (the MSP) as an MSP overall?
Source: Jordan Group, Inc.
Figure 2 |
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Quality of Requisitions
When asked about the quality and completeness of the requisitions received from the MSPs, 12 percent of all respondents indicated they are “Extremely Dissatisfied”, 26 percent are “Very Dissatisfied,” and 38 percent are “Neither Satisfied nor Dissatisfied.” Thus, more than three-fourths of all respondents gave a negative to neutral response.
Respondents reported that their ability to meet the clients’ needs would be significantly improved if greater detail and specificity beyond technical requirements were included in the requirements gathering, if access were provided to a knowledgeable individual to answer questions, and if not, contact with the hiring manager for clarification was possible.
One respondent suggested, “Less reliance on generic job descriptions and more detail about work environment and project ... More information from which to qualify or disqualify candidates ... Job descriptions were so broad so it was hard to identify the best candidate.”
“… generic job descriptions …”
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Requisitions Rating:
How do you rate the quality and completemenss of the requisitions for candidates that you received from (the MSP)?
Source: Jordan Group, Inc.
Figure 3 |
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Timeliness and Quality of Feedback
When asked about the timeliness and quality of the feedback provided from the MSPs on the status of candidates they have submitted, 71 percent provided a rating of “Fair” to “Poor.” Many cited they do not receive any feedback whatsoever, and others discussed receiving insufficient feedback. Respondents reported they believe quality feedback positively impacts their ability to produce better candidates, ultimately benefiting the client.
One respondent put it thusly, “The client suffers—no feedback results in a de-motivated recruiter who will not go the extra mile to locate an outstanding candidate for the client. Suggestion—prioritize feedback to the max.” Another echoed this sentiment, “There is no feedback and the entire program is considered a black hole.”
Contact with the Hiring Manager
Sixty-three percent of respondents reported that the MSPs do not allow access to the hiring manager; 22 percent reported they allow this contact “sometimes.” Once a consultant is on assignment, 43 percent of respondents reported that the MSPs allow contact for purposes of feedback on the performance of the consultant; 33 percent reported it is prohibited. Ninety-two percent reported that this limitation affects their ability to respond to the clients and to maintain quality.
One said, “Like most VMS programs, the requisitions are skimpy.” Another added, “If they are going to be the gatekeeper, they must do a better job gathering information from the manager so we can get a better picture of what the client wants. Allow the vendors to speak to the hiring managers to clarify them.”
“… do a better job gathering information …”
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Meetings to Facilitate Communications
When asked if the MSPs hold regular meetings to facilitate communications between the MSP, the client, and the vendors, 67 percent of respondents reported they do not. Twenty-two percent reported they do. Most respondents felt that the meetings that do occur could be better structured. One said, “Meetings should be more relevant to ongoing program/delivery/ expectation issues.”
“… meetings more relevant …”
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Feedback on Performance (Vendor Performance)
Seventy-two percent of respondents reported they do not receive regular feedback from the MSPs on their performance as it compared to their competition; 22 percent reported they do. Many emphasized the importance of such feedback in continuing to improve the service they provide.
One respondent put it bluntly, “We are a very competitive firm and strongly desire to know how we are better able to serve the client. If we are not informed this only harms the client we share with the MSP.”
“… better able to serve the client …”
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VMS Software
Respondents were asked to rate their overall level of satisfaction with the VMS software used by the MSPs. Forty-six percent rated their satisfaction from “Fair” to “Poor,” while only 18 percent gave ratings from “Good” to “Excellent.”
One respondent summed it up succinctly, “Very similar to software offered by other vendors. No differentiators.”
Knowledge of IT Services and Staffing Industry
Forty-three percent of respondents rated the MSPs’ knowledge of the IT services and staffing industry “Fair” to “Poor,” in contrast to 26 percent for “Good” to “Excellent.” They reported that having an experienced IT consulting industry professional managing the effort at the client makes a significant difference by providing quality information and an understanding of vendor perspective and issues.
One said, “Our customer is now an $8.00 per hour clerk and has no idea what IT skill sets are actually being requested by the customer, yet they make the decision as to what resumes get in front of the hiring manager.”
“… no idea what IT skill sets are requested …”
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Continuous Improvement
Respondents were asked to rate the MSPs’ performance in attempting to continuously improve the VMS program (assessing and acting upon feedback from the client, the suppliers of services, etc). Sixty-nine percent responded with a rating of “Fair” to “Poor.” Many respondents commented they have not observed any attempt at continuous improvement on the part of the MSPs.
One said, “Listening to your vendors and making process improvements that help the vendors become more efficient reaps big rewards for the MSP and client. Why don't more do this?”
“… process improvement reaps big rewards …”
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Vendor Neutrality
When asked if they believe the MSPs to be vendor neutral (that is, are they a facilitator of the procurement process, but not making or influencing placements), 45 percent of respondents reported they do not believe the MSPs are vendor neutral, 38 percent believe they are, and 17 percent reported they don’t know. In a similar question, participants were asked if the MSPs offer a level playing field, that is, the opportunity to fill a requirement is the same for all vendors. Forty-four percent reported they do not believe the MSPs provide a level playing field, 35 percent said they do, and 21 percent said they don’t know.
In general, vendors would like to believe that MSPs are vendor neutral, but they would like to see tangible evidence that proves this point. One respondent said, “The information to us is not an open book … we have no comparative data on our competition’s performance. They do not disclose who filled the order. It shouldn’t matter to them if they are truly vendor neutral.”
Key Takeaways
The good news is that respondents were quite clear about what they believe MSPs can do to improve the service they receive from the IT services and staffing companies, and ultimately enhance the value of their service to the companies they serve. Improved communications and respect for vendor issues are at the head of the list. Most felt that they would be able to perform their jobs more effectively with more frequent meetings or other methods of communicating, improved feedback mechanisms, and more experienced MSP personnel in place to answer their questions. Treating vendors as partners would help encourage enthusiastic participation.
Companies, too, should play an active role in helping to derive maximum benefits from their VMS implementation. Resultant cost savings from a VMS tool is just one piece to the puzzle. If they have not done so already, companies should install procedures to continuously evaluate the effectiveness of the VMS—examining criteria such as turnover on projects due to sub-standard performance of consultants, project overruns, and overall quality.
As part of the process of continuous improvement, a company should insert itself into the process to facilitate dialogue and help uncover solutions. To do so, it should understand completely the interplay between the MSP and vendors. And it should encourage vendors to be proactive and creative in coming up with solutions themselves. Only then can a consensus be reached that is amenable to each participating party—and truly leverages the full range of benefits VMS can deliver.
 About the Author
Susan M. Jordan, president of Jordan Group, Inc., has more than 25 years experience in human capital management. Her management consulting firm, founded in 1995 in New Mexico, specializes in human capital management with a focus on VMS issues and trends.
Susan is a frequent speaker at seminars and conferences on the VMS subject. The Jordan Group also conducts research and publishes surveys on other current business topics of interest.
Prior to founding the Jordan Group, for 11 years Susan was vice president, human resources for a $250 million Information Technology services firm headquartered in New York City.
Susan can be reached for comment at Sjordan@JordanGroupInc.com or 505-867-8440. |