Consulting, MSP, and Independence

consultationI’d like to share a couple quotes with you that I find particularly meaningful in the world of contingent workforce management and the managed service provider relationships:

“We stay independent and able to disagree, regardless of the popularity of our views or their effect on our fees. We have the courage to invent and champion unconventional solutions to problems.”  — McKinsey & Company, About Us | Our Values

and:

“The Deloitte U.S. Firms are deeply committed to acting with integrity. One of the most visible demonstrations of our integrity is our ability to be independent and objective in providing services and advice to our clients. In order to render such unbiased (or independent) judgments, we must each be free of perceived or actual conflicts of interest with our clients.” — Deloitte LLP, Professionalism and You: A Commitment to Excellence

These are the values of two of the most recognized consulting firms in the world. I could easily repeat these types of quotes from nearly any consulting firm of any reputation – the commitment to independence, the removal of any conflict of interest from a relationship. Managed Service Providers are supposed to be workforce and contingent labor supply chain consultants. But why do we, the staffing industry, remain alone in allowing consultant MSPs to claim vendor neutrality when they have an easily identifiable conflict of interest?

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Conflicts of interest, by definition, alter the decision-making priorities of the consultant away from client benefit toward their own financial gain (thus the conflict). When have you seen an organization hire SAP to provide neutral advice on their Oracle application? Is it common to hire UPS to optimize your FedEx relationship? If you did, what would you anticipate the result to be?  Would you expect honest, agnostic advice? Probably not.

True strategic buyers understand that conflicts of interest stifle innovation. In our industry, these conflicts prevent the introduction of alternative sourcing channels (e.g., crowdsourcing), or lowest-cost channels (e.g., private talent pools). These innovative solutions tend to either introduce competition or cannibalize the MSPs staffing parent or sister company.

But what if the staffing division of the “independent” MSP isn’t allowed to fill positions? Doesn’t that eliminate the conflict? No. It turns out, the client (perhaps you) is but one of many staffing clients, and an innovation introduced at one client could potentially spread to others, reducing profits across the board and threatening their “core” business.

McKinsey, in its statement of independence, has it nailed. Follow the money, and you’ll find the conflict. Typically, for every $1 of spend acquired through an MSP model, the staffing-affiliated firm earns 83 percent less gross profit than on a dollar acquired through its core staffing.  So a company that states: “Our MSP operates separately and independently from our staffing division” is saying, in essence “We place equal priority on a revenue stream that adds less than 20 percent of the value to our business.” I don’t believe the Boards of Directors (or shareholders) of these firms would agree.

MORE: MSP Neutrality Not an Unprofitable Illusion

Harold Mills
Harold Mills is CEO of ZeroChaos.

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3 comments
Matt Rivera
Matt Rivera

Colleen,

Sounds like you may be working with the wrong MSPs. Associate suppliers are a key part of an MSP program and should be partners. Many of the problems with the MSP model have been compounded by procurement's "cost reduction only" strategy and the MSPs willingness to operate under this mandate. You also point out many of the problems created by staffing company MSPs who horde job orders and don't give associate suppliers a level playing field. Both of these spell failure for the MSP and ultimately the client.

Real MSPs (with or without a staffing company affiliation) understand the need to work with all the suppliers and how important they are; No matter what anyone says, no MSP can adequately and efficiently fill all the jobs on their own or without strong associate supply chains.

I disagree that MSPs are not the answer. For many companies they save money, improve quality, reduce risk, and allow hiring managers to focus on their jobs. HOW it is done is another matter.

Lastly - independence is choice. One model does not fit all and not all MSPs are bad. Clients want a choice and it's contradictory to say that an MSP model doesn't work or that vendor neutral MSPs are the only way to go - while at the same time saying clients should be open to "innovation". Not very innovative to limit choices. You can read my follow up post, "Real MSP Independence is Choice" for more of my thoughts on Mr. Mills' article. In any case, I think the dialogue on this is good and contributes to open and thoughtful competition and areas for improvement in the staffing industry.

colleenmills
colleenmills

Interesting perspective Mr. Mills (no relation) and spot on!  Values...... now there is a word.  Values play a preeminent role in the small and independent healthcare staffing agencies since most of those owners answer to their personal reputations, staff and local clients, not to far away stockholders and financial officers removed from day to day clinical issues.

Independence  should enhance the liberty to explore innovative ideas and to be creative in problem solving. Along with that comes a responsibility to be responsive to clients, staff and the bottom line.  MSP's change those responsibilities to joining the herd and be like everyone else with very little opportunity to distinguish your company from others.   MSP's make the agency a partner in wage suppression and putting staff  at risk for things like identity theft instead of being in control of protecting and rewarding them.  MSP's prevent the sub agencies from seeking a role in client's quality care initiatives and even being silenced when they know the client may be experiencing increased risk exposure.

You pose exactly the right question in wondering why they get a pass on claims of vendor neutrality and the subsequent conflict of interest.  The sub agencies deserve some of the blame for their acceptance but I believe the true client base deserves more of the blame.  Failure to do the due diligence on the effects of agencies that have served them well over the years,  Failure to invite those agencies to the table for discussion to get their perspective at least.  Failure to realize that the CFO's prime interest is in cutting costs, not quality initiatives, and the CFO's are often making the decision to use MSP.   Failure to set benchmarks to measure the effectiveness of the MSP, and more.

You stated that "True strategic buyers understand that conflicts of interest stifle innovation", and this is especially critical as clients are faced with ever increasing challenges in decreasing revenue streams like cuts in Medicare and Medicaid.  Innovation is precisely what the client needs, and MSP is NOT the innovative answer.

Newtonomics
Newtonomics

Traditionally, the last 3 decades of experience, purchasing power is shifted to Procurement when the talent pool can be viewed as commodity, ie. X job = Y price/hour.  When the available talent pool shrinks to a competitive pricing model, Procurement is left out of the mix, the "commodity" model fails to produce and the enterprises that move with agility, thrive!

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