Four macro trends that will reshape the staffing industry

It’s been business as usual in the staffing industry since the recovery began in 2009, as companies enjoyed the customary rebound in staffing services. But the industry has recovered only about half of what it lost, which was about a third of its workforce.

A convergence of four macro trends is responsible for the slowdown and this disruptive quartet may wield enough power to transform the entire industry before the year is over.

“The staffing industry is like a sports team that had to go on a winning streak just to get back to 500,” notes Tom Erb, president of Tallann Resources, an Ohio-based consulting firm. “But this time, many of the changes are permanent so owners will have to develop new strategies and exert greater effort to get back to the top.”

We give you the four trends.

No. 1: Structural Changes

There’s no doubt that fear, uncertainty and tepid economic growth are keeping employers from rehiring regular employees. Instead, 34.3 percent of the 2,000 employers recently surveyed by McKinsey Global Institute say they plan to use more temporary and contract workers over the next five years. But staffing owners can’t afford to read the headlines and rest on their laurels, because the short-term economic conditions are not conducive to growth and most employers lack a plan or viable strategy to achieve their flexible workforce goals.

“The economy is structurally changing in ways that favor the staffing industry in the long-term,” says Steve Berchem vice president and analyst for the American Staffing Association. “But all the data suggests that short-term growth will be hard to come by, especially in 2012.”

Dan Campbell, CEO and owner of Atlanta-based Hire Dynamics, says that staffing firms offer clients consulting services, education and strategic workforce planning if they want to capitalize on the economic conditions that are pushing clients toward the use of contingent staffing. He also notes that the industry’s current training programs are inadequate for today’s environment, because they tend to focus on tactics like closing the sale or presenting candidates instead of finding hidden problems and developing strategic solutions.

If staffing firms don’t step up to the plate and assist customers with strategic planning, they risk losing them to competitors or even [managed service providers], since providers plan to aggressively market outsourced contingent workforce management services to midsize companies this year, after saturating the large employer segment.

Historically, the staffing industry has performed well during times of economic expansion and job growth, but the University of Michigan predicts gross domestic product growth of just 2.5 percent and limited job creation in 2012, with the national unemployment rate declining slightly to 8.8 percent.

And just in case you’re looking for more economic challenges, unemployment taxes will probably rise.

Finally, the U.S. Supreme Court is expected to rule on healthcare reform by June, which could force staffing owners to deal with the biggest game-changer of them all in the second half of the year.

No. 2: Workforce Variations

Middle-skill jobs have been declining due to offshoring and advances in technology, but the recession hastened the process. Now, firms offering traditional clerical and light industrial staffing may have to restructure or consider mergers and strategic acquisitions to offset the falling demand for middle-skill workers, and many experts expect a flurry of merger & acquisition activity later this year.

“Owner-operators who focus on either highly skilled or unskilled jobs will have greater success going forward, because the middle-skill jobs continue to disappear and it’s hard for independent firms to service both ends of the spectrum,” says Berchem.

Job opportunities are declining in white collar clerical, administrative and sales occupations and in middle-skill, blue-collar production, craft and operative jobs. However, high-skill, high-wage jobs are growing. In fact, the U.S. Bureau of Labor Statistics projects a shortage of 1.2 million workers with bachelor’s degrees or higher by 2020, which means professional staffing firms will have to compete for professional contractors, but they will be able to charge a premium for their services.

Workforce polarization isn’t the only structural change that will impact the staffing industry — the depressed housing market and tight budgets are causing companies to shun relocation allowances and travel per diems by allowing employees and contractors to work from home.

Some 25 percent of companies plan to increase telecommuting over the next five years, according to McKinsey, while a forecast from TechCast at George Washington University predicts that the amount of telecommuters within the workforce could reach as high as 30 percent by 2019.

“The migration of applications to the cloud and the growth of information-based jobs make it easy for contractors to telecommute,” says Jim Ware, executive director of The Future of Work Unlimited, based in Berkeley, Calif. “The advent of new software even allows companies to measure the performance of remote call center agents and customer service reps, so staffing firms need to start gearing their services toward the needs of distributed workforces.”

Indeed, most staffing firms cannot afford to ignore 30 percent of the labor market, so they’ll need to develop new screening and onboarding tools to select and orient remote workers and consider offering a stipend, virtual office functionality or communication tools like Skype to improve the efficiency of remote contingent workers.

Professional contractors will increasingly operate like today’s construction workers, according to Ware. They’ll furnish their own tools — like smart phones and laptops — while the client provides passwords to the organization’s Web-based programs and mobile apps.

No. 3: Client Expectations

After downsizing, companies consolidated job descriptions and created new hiring profiles for full-time employees and contingent workers, which often extends the average placement time from days to months. And given the current pressure for immediate productivity and a reduction in corporate training budgets, staffing firms can no longer meet burgeoning client expectations by delivering an unprepared temporary employee to a worksite.

“Companies are taking a long time to make hiring decisions and they’re being selective to a fault, because they’re looking for the perfect candidate, who doesn’t even exist,” according to John Kreiss, president of J.P. Kreiss, a consulting and research firm based in Marlborough, Mass. “They’ve become so risk averse they’ll sit on an open requisition for months, for fear of making a hiring mistake.”

Kreiss says recruiters need to keep plying clients with facts and data about the realities of the workforce, until they realize their expectations are unrealistic. At the same time, they need to introduce more precise job matching protocols and offer only a few well-matched candidates, so line managers don’t get frustrated and shut down the selection process without making a decision.

Campbell has taken steps to overcome his clients’ growing fears by partnering with local trade schools to create certification programs for middle-skill positions in call centers and logistics. He notes that professional certifications help clients feel more comfortable hiring highly skilled workers like information technology contractors because the curriculums cover standard practices and require workers to pass a rigorous exam, so he hopes to see similar success with his new certification programs.

“Managers expect contingent workers to be engaged from the outset and assimilate quickly,” Campbell says. “So we’ve streamlined our hiring process and reallocated the time savings toward onboarding and preparing temps for their assignments.”

No. 4: Social Media Avalanche

Some experts insist that social media poses an immediate threat to the staffing industry by providing corporate recruiters with access to active and passive candidates and a platform for soliciting referrals. Others say rumors of the industry’s impending demise are based on hype rather than substance, but no matter which side of the fence you’re on, staffing owners can’t ignore social media’s enormous user base or its recent introduction of recruiting functionality designed to usurp the power of Internet job boards.

Since 2005, the percentage of new hires identified through social media has more than doubled, according to Michael Gregoire, CEO of Taleo, who recently spoke at the Human Capital Metrics Conference in New York City. He further estimates that 10 percent of full-time positions are now filled through professional networking sites.

Some 44 percent of HR departments are using social media to source or connect with candidates, according to a recent survey from the Society of Human Resources Management (SHRM). And a new study by Pew Research suggests that half of all American adults are now on social networks. LinkedIn alone has more than 100 million users.

The fear is that social media will not only impact direct hire and RPO, but slowly invade temp-to-hire and the market for highly skilled contracting services.

Because freelancers can land assignments by hanging out a shingle on the Internet, companies may try to save money by sourcing their own independent workers and substituting low cost payrolling for full-service staffing services.

At the very least, social media negates some of the recruiting advantages of local branch offices and provides outside competitors access to new markets. Borderless recruiting could cause staffing firms to reduce staff or consolidate offices in 2012 and structurally alter the basic foundation of the staffing industry.

“Staffing firms have to be better at using social media than their clients,” cautions Erb, “Otherwise, they could easily be replaced if companies become more adept at recruiting full-time workers, temps and contractors.”