Given our role in the midst of the staffing ecosystem, we at Staffing Industry Analysts have a pretty good idea of both the wisdom of the crowd and the persistent misconceptions about staffing for that same crowd. OK, so it’s not exactly true that every- thing you thought you knew about staffing is wrong, but there are a few “accepted truths” that I think warrant re-examination.
Industrial Revolution?
One is the belief that industrial staffing is a bad place to be and that it is under- performing versus the rest of the US staffing market.
The fact is industrial staffing is growing along with the growth of the market, even outperforming in some cases. According to our research, the US industrial staffing market grew to $31.3 billion in 2014 from $24.3 billion in 2004 (including through the 2008 financial crisis). It actually increased slightly as a percent of the overall market (it now makes up 28.8%).
It is true that IT and professional staffing are “sexier” than industrial staffing in a number of ways. Bill and pay rates in those areas are higher, skills are more difficult to find and gross and net profit margins are typically higher.
While industrial staffing may not match IT on those metrics, it is actually the largest skill segment in the industry. Moreover, it remains quite profitable. Yes, gross margins are low, but according to data from the Staffing Industry Benchmarking Consortium, while the median industrial staffing firm in the first half of 2014 had a gross margin of 15.8%, EBITDA for those same firms was firmly in the black at 3.7% of revenue. Further, during that same period, median growth for industrial firms was 9.5% year over year, while the median IT staffing firm only grew at 4.4%. And the top quartile of industrial staffing firms achieved gross margins exceeding 17.4% and EBITDA margins of more than 5%.
The Mystique of the Match
Another topic that I think is full of misconceptions is the belief that the core value proposition for the staffing industry to its clients is the “mystical” ability of recruiters to make a great match. This often comes up in discussions about the potential impact of automation on the business and the worry that the typical staffing value chain may be automated out of business. Those that believe matching is the key to survival of staffing firms cite the ability of skilled recruiters to deeply “know” candidates and clients and intuitively make a better match than clients or artificial intelligence technology could on their own. I believe that while intuition is of value, I’ve not seen much data demonstrating that staffing firms are making any better matches for their clients than those that could be made by a smart machine or, with appropriate technology, self-serviced by the client.
For comparison, think about the rich data that is available on places like Amazon, Airbnb, eBay and other sites where buyers and sellers are self-matching. In these cases, ratings and evaluations from both sides of the trans- action help to inform the choices that users of the systems make and help ensure that buyers and sellers are well matched. And as we live through the big data revolution that we are in the midst of, I suspect that in just a few years’ time, self-serviced matches or artificial intelligence will do just as well if not better than the typical recruiter in matching.
The good news is I don’t think that matching is the secret to success for the staffing industry, though the ability to sell a less-than-perfect match to both clients and candidates just might be (and that selling of imperfection is a role unlikely to be replaced by technology). My sense is that the industry will continue to thrive because of all the classic reasons anyone outsources a non-core function. Add to that the fact that employment continues to get more complex and I’m certain there will continue to be a market for simply providing an employer of record function to clients. Neither of those value elements can easily be automated away.
This March, at the Executive Forum North America in Orlando, I will be sharing more thoughts on some common staffing industry misperceptions. I hope you will join us and participate in the conversation!
