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Are Vendor Neutral Managed Service Programmes Yesterday’s News?

Posted by: Simon Trippick

 

In the mid 90s when managed service programmes first started taking off in the UK, the key decision tended to centre around the merits of a vendor neutral proposition (VNP) versus a master vendor (MVP) approach.

Generally the vendor neutral approach won the day.  The feeling was that having a good number of agencies that were all managed by a programme operator who didn't themselves supply, provided the best chance of finding the right candidates.  It was also believed that this approach prevented any single supplier from becoming too big; the competition it was expected would drive down costs, it was considered easier to implement and perhaps it just appealed to a sense of fair play.  Many such programmes were sold and several new operators established themselves based solely on this business model.

However things have undoubtedly changed significantly during the past 20-plus years.  For starters, candidate databases are now everywhere; LinkedIn, CV Search, Monster, Facebook, Jobsite, CareerBuilder, and the list goes on and on.  The internet and social media have eliminated the challenge of finding a candidate; the trick now is in selecting the right candidate record from all the background noise.  With quick access to job boards, in-house databases and social media, candidates can be identified, sorted, qualified and contacted with a speed that was just not possible in the mid 90's. In short, you no longer need multiple suppliers to ensure access to candidates.

The economics of the recruitment industry have also changed dramatically. Before the dot-com bubble burst in early 2001, even clients with a significant spend might have routinely been paying margins in the high teens or early twenties for their labour.  This meant that a vendor neutral operator could negotiate margins down with the individual agencies, add a 3-5% transaction fee for themselves and still show a useful saving to the client.  However factors such as online auctions, cost-plus contracts and open book pricing; together with challenging economic conditions, focused supplier management and a very competitive market  mean that margins are now considerably lower that they were even 10 years ago.  There is just insufficient margin now for a vendor neutral operator to be viable based on the transaction fee alone. 

In this low-margin environment, rather than delivering cost-savings, the inevitable margin-stack arising from vendor neutral programme can actually end up increasing costs for clients.  So, alternative methods of funding vendor neutral operators are used, such as transferring contractors from the incumbent agencies to the programme operator, who then supply them back to the client on a payroll basis, or driving down pay rates and taking a share of the savings.  However, poor implementation of these techniques typically results in disenfranchising both the agencies, and more importantly, the candidates who naturally follow the higher pay rates and margins often offered elsewhere.

The legislation affecting the recruitment industry is becoming more onerous and complex; this in turn is increasing compliance costs for agencies.  As the market continues to recover and demand for skilled candidates outstrips supply, agencies are naturally revaluating their client relationships.  Of particular concern are relationships were the margin is low and they operate via a third party, restricting their ability to interact directly with the client.

Establishing a partnership with a single company that assumes responsibility for filling all positions, a master vendor programme creates a completely different dynamic.  The volume and visibility means economies of scale and efficiency gains can be fully realised.   Ownership and accountability for quality, speed, accuracy and compliance are put beyond doubt and the challenge created by margin stack disappears. The supply chain becomes simplified and streamlined. 

In this model, second-tier suppliers are still engaged, but now it is for their expertise in a specific sector, region or skillset and often they are given some level of exclusivity in this space - which increases engagement and maximises leverage.

This model also has a clear and positive impact on the recruiters themselves.  A recruiter is much more motivated if he knows he is the only person working on a requisition. Plus the candidate appreciates receiving one call, rather than fielding calls from multiple agencies about the same role, all rushing to be first to submit the candidate’s CV.

Vendor neutral programmes undoubtedly played a very important role and helped establish the market we have today, however as things have developed and the purchasing of recruitment services becomes ever more sophisticated,  I believe the new programmes awarded will increasingly be master vendor. After all you wouldn’t outsource your car rental, IT support or stationery to a vendor neutral supplier, would you?

 

by Simon Trippick, Managing Director of Anderselite Ltd  

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