This article focuses on outsourcing, which offers more flexible solutions, has been on the rise to supply enterprises with external talents, leading to how procurement can help challenge the traditional strategy in order to maximize the chances of pairing the right talent with a need
83% of respondents in a recent survey made by the US Society for Human Resource Management have had trouble recruiting the right candidates over the last 12 months. 75% of them believe it is due to a skills shortage among applicants. More and more companies report facing this talent shortage. One might ask: “how can there be a talent shortage and simultaneously somewhat concerning unemployment levels in some countries?”. Both phenomena are not exclusive. It all comes down to available skills not matching the demand.
Procurement Has A Key Role In Fighting This Talent Shortage
The same survey reports that the top reason for struggling to hire the right candidate is competition from other employers with 43% of responses. In an economy where drivers are switching from products, capital and machines to services, information, and talent, getting the relevant talent at the right time is becoming a competitive advantage. And, believe it or not, Procurement has a key role to play to enable this competitive advantage.
Talent acquisition has historically been in the hands of HR through recruiting. Nevertheless, recent years have shown that an increasing part of talent acquisition is not going through HR. Think about all the consultants, external helpdesk, freelancers and contractors that contribute to a company’s business without going through a formalized recruiting channel.
HR driven recruiting must, of course, follow a strict legal framework of labor law. Despite some smoothing reforms of labor law, this recruiting channel is often seen as too rigid to satisfy accelerating business pace and increasing uncertainty. At the same time, workers expectations are evolving. Newer generations tend to look for more flexible ways of working and are more versatile than prior generations when it comes to corporate loyalty.
Consequently, outsourcing, which offers more flexible solutions, has been on the rise to supply enterprises with external talents. This is where Procurement comes in.
Traditionally, its involvement has focused on developing lists of preferred suppliers (e.g., managed service providers or MSPs), headhunters or job boards, to improve the talent acquisition teams’ capacity, reach and efficiency. The second aspect where Procurement tends to be involved is contractor onboarding and offboarding process in order to mitigate several types of risks ranging from personnel safety to worker misclassification.
But, limiting Procurement’s value to these aspects of the issue is only addressing the tip of the iceberg. This is one step on a longer maturity journey which may begin with cost efficiency and risk management but goes far beyond that. It is about creating a competitive advantage for a company’s business. And as we have seen, in the 21st century’s economy, talent acquisition can truly differentiate and create a competitive advantage.
How Can Procurement Achieve This Goal?
First, Procurement can help challenge the traditional make or buy strategy in order to maximize the chances of pairing the right talent with a need. Let us consider “make” as recruiting an employee and “buy” as going through all the outsourcing possibilities available in the market.
“Make” As in Recruit
Usually, what lies in the “make” category are those services that are assessed as essential to a company’s core business. Yet, it is not always easy to define. One service might be deemed as core in one industry and not in another one. For instance, fleet maintenance services do not core for any corporation unless you are in the transportation or car rental business, for example. Besides, depending on each company’s strategy, we might see nuances around this rule.
On the other hand, some industries have rules they must abide by. In EMEA banking industry, the European Banking Authority (EBA) has defined some guidelines about service outsourcing. All activities that are essential to a bank functioning are deemed as vital and should not be outsourced unless they follow a specific process with an alternate plan for re-internalizing.
The direct consequence of these activities belonging to core business is that they are expected to remain within the company on the long run. Hence, recruiting is the preferred strategy.
However, when a need is not related to the core business, when it does not match labor legislation constraints or when certain talent is not available in the labor market, as it is for instance with niche language developers, the answer must be looked for in the outsourcing market. This is when the “buy” strategy comes into play.
“Buy” From the Market
To conduct any “buy” strategy, Procurement must have a deep knowledge of the outsourcing market. Possibilities are wide, vendors are plethoric and legal implications may be serious. This can be a troublesome journey if not approached correctly. However, with some planning, it may be a journey that is worthwhile.
First, one must distinguish between talent providers and technology providers, the latter being enablers to either have quicker access to talents or to more efficiently manage talent onboarding but not directly providing them. Although they certainly have value to offer, we will not focus on them for today.
Among talent providers, we could encounter three main categories.
- First, there are suppliers which provide talent in the form of individuals. This is the case of contingent labor firms, like Adecco or Randstad, who can provide a wide range of talents from low to high-level. We also find in this category independent or freelance workers and organizations that try to pool them. The number of independent workers is continuously increasing, turning this channel into a gateway to talent. In the US and Europe, they account for more than 162 million people according to a survey published by McKinsey, which is about 30% of the working-age population. Finding the right skills in this fragmented market is not always easy, that is why some specialist technology providers have created platforms to gather these talent pools and ease the search.
- In the second category, there are vendors which can provide talent in a structured way. They usually are some consulting companies that can provide a group of talent from junior to senior which altogether will fill up a need. Depending on the degree of expertise of these companies, they will only provide talent or have more added value in the form of advice and consulting services.
- Finally, there are companies that provide talent as a service, which are well-structured organizations able to take in the outsourcing of a complete activity, whether it is remotely or on-site. These managed service providers or business process outsourcing (BPO) providers with heavy talent capabilities and structure usually specialize in some areas of expertise (IT, facilities, finance).
Now that we have a thorough picture of the supplier market for services, which option do we consider? The answer is not in overestimating one solution and discarding the other ones. It is rather in finding which one responds to a certain need by using some reliable criteria.
Criteria to assess the outsourcing need
Procurement must analyze what its internal clients need according to a set of criteria.
First, the volume of talent that is needed. Is the requirement about high volumes of talents to create brand-new working groups or about limited additions to support internal teams? Second, the time frame for getting such talent is key. Is it an urgent need to reach an around-the-corner milestone or can it be planned? Moreover, the duration of the need is a significant factor to consider. Are we talking about one-hour expert advice or a several-month project? The very last criterion to consider is what I would call the “governance” of talent. Does management want and need to control: the number of profiles and their skills, work execution, the achievement and timing of results? Or does it prefer to only control results against a set of objectives and leave talent quantity, quality and work organization up to a third party? Most of the time, management’s decision will depend upon how critical the activity that is being considered is to business.
Let us tackle some scenarios
First, take the case of an IT department of a bank which is finding it increasingly more difficult to maintain its employees’ satisfaction when it comes to answering their bugs fixing queries. It is lacking resources because IT has other more critical projects to manage. Besides, the helpdesk is no longer seen as a value-added activity to the business. Outsourcing rather than hiring is therefore preferred. IT department is willing to let go of this full activity, hence does not want to keep governance of talents. However, it wants to ensure its employees’ satisfaction, thus defines the expected service level and some key indicators to measure achievement. More than just organized talent is required: it is the long-term outsourcing of a service. Among the market options previously described, only BPOs or managed service providers may respond to such a need.
Imagine now the bank needs to ensure its financial processes are compliant with IFRS16 regulation. It has identified it is a one-time project with a compliance objective. However, it has no idea about the skill set, the volume of resources and the execution that such a project implies. This is clearly a need for structured talent in the form of a consulting organization.
Finally, a traditional bank is facing increasing competition and needs to create a simple digital application to grant loans in a faster manner. It has some internal development capabilities but is missing human resources to achieve its objectives within six to eight months. Clearly, the bank wants to keep full hands on the governance of this key project. It wants to be able to act upon objectives and timing at any time, whether to accelerate or adjust depending upon new priorities. Managed service providers will therefore not be an option. Additionally, it wants to control work execution and talent organization as this project has a high business impact and security constraints. Hence, providers of talents in a structured way will not be an option either. Hiring would not be suitable as the project is temporary with no visibility about subsequent projects. Therefore, governance, duration and time frame criteria lead us towards suppliers that offer talent in the form of individuals.
Let us have a look at volume now. Imagine there is a need for a specific architect with a specific skill set. This would be a good fit for an independent worker. On the other hand, a significant number of front-end developers are required. Having access to such a volume would require to go through some intermediaries like contingent labor companies for instance. But, this kind of profile may not usually be found with these intermediaries. This is where we see that some additional criteria related to the supplier market shall be taken into account.
Two market criteria
There are two major ones: talent availability and talent acquisition channel. First, a strategy might slightly differ if we talk about niche talent or some skills that are in abundance. Second, not all talent may be acquired through a unique channel, whether a contingent labor company, a consulting group or a pool of freelancers. Sometimes, talents may be available across the whole span of the supplier market or through a channel which is not the primary one.
If we go back to our bank example which needs high volumes of front-end developers, the initial conclusion of our analysis based on the four identified criteria seemed to lead to a contingent labor company as the primary source of talent. However, market reality tells us that this is not the preferred acquisition mode of these skills which additionally, are in shortage compared to demand.
Then, it is the availability that will drive the decision. If option 1 is not possible, then option 2 must be considered. In our example, a pool of freelancers would be a more relevant option although it does not ideally match with a need for high volumes of talent.
Talent has become a scarce resource in today’s economical paradigm, to the point, it is now seen as a competitive advantage to obtain. Increasing business pace and uncertainty, as well as new worker aspirations, challenge the talent acquisition strategy. There is urgency to embrace a broader vision than simply relying on recruiting directly or contracting with a managed service provider. The supplier market is offering a wide range of talent sources. Although they may seem complex to read through, using relevant criteria, they give Procurement incomparable power to redefine make or buy decision. Procurement can ensure by choosing the most adequate talent supply source that a need is quickly and relevantly filled in against competitors.
This is how Procurement truly contributes to building a competitive advantage for its company while genuinely partnering with HR and all its internal clients.