Human cloud, IT staffing firms eye each other – warily

Everyone’s talking about it – the human cloud. Proponents argue the human cloud will change the world of work by allowing companies to use online platforms, to get the best talent. Others are not so convinced.

Despite the dialogue, what does the advent of the human cloud really mean for the IT staffing industry? Why does it matter? We talk to experts in the world of work — both in traditional staffing and the human cloud — to find out.

The Arena

IT is well-represented in the human cloud. Upwork, the world’s largest online staffing platform in terms of revenue, has noted that about half of the roughly $1 billion it pays freelancers annually is in IT categories. Globally, the human cloud probably processed somewhere between $1.0 billion and $1.5 billion in IT spend in 2014. By comparison, IT staffing firms accounted for $25.7 billion in IT staffing revenue during the same period in the US alone.

“As the economy is increasingly driven by technology, demand for professionals with specialized skill sets in STEM fields has vastly outpaced other industries,” says Stephane Kasriel, CEO of Upwork. “This talent shortage, along with the rise of mobile technology have helped contribute to a thriving IT freelance culture.”

But will IT staffing suffer from the rise of IT in the human cloud? We spoke with industry insiders and buyers to get their take on where the trend will go.

“The reason many people go online to find a resource is they want to avoid paying the taxes associated with employees,” says Peter Dameris, CEO of On Assignment, the second-largest IT staffing firm in the US. “Almost all large, sophisticated corporations are flat-out refusing to use non-W2 temporary labor. The more sophisticated the company, the more likely legal, HR, and even procurement have weighed in and said ‘The risks are greater than the reward.’ Customers are continuing to embrace the realization that the best way to ‘fractionalize,’ or share, human capital and avoid the legal risks of misclassifying employees is by working with a staffing firm.”

The use of independent contractors as opposed to W-2 workers in the US has been one of the most controversial talking points in the debate about human cloud platforms. (It’s the very reason Uber and Lyft are facing class-action lawsuits.) Will Weissman, partner at employment and labor law firm Littler Mendelson, thinks the US classification system itself may be outmoded. “As much as government dislikes the use of independent contractors, because of the lack of both tax revenue and the protection such status it affords the workers, this trend is not going away,” he says. “Government would be better served if it embraced this trend and learned how to deal with it, rather than merely vilify employers and seek to prevent the use of more independent contractors in the future.”

Class-action lawsuits notwithstanding, Doug Leeby, president of Beeline, an Adecco-owned VMS that processed more than $20 billion in spend in 2014, believes the human cloud has the potential to both help and harm the IT staffing community. “Companies may rely more on online staffing solutions to source IT contractors, predominantly for positions with abundant supply that are easier to fill,” he explains. “But online staffing platforms will never be able to replace IT staffing firms that focus on quality, cultural fit and customer service; there will always be the need for the human element, at least at some point within the sourcing workflow.” In fact, Leeby believes the human cloud can be a benefit to IT staffing firms. “Just as in the early days of VMS, there will be a scarce few IT staffing providers who work in earnest to leverage these new models and establish partnerships, and I think those companies will find they can keep their contractors engaged quicker and for longer periods of time, without having to lift a finger.”

Several factors are driving on-demand solutions in IT. “Right now there’s a proliferation of technology, which means it’s getting harder to find a generalist, because systems are so complex that people need to be more specialized,” says Bill Price, COO of SourcePanel, an on-demand IT service provider. “Companies also increasingly have a decentralization of IT spend — you have marketing and other departments that are getting their own IT budget, and they can use alternative avenues to get resources. Corporate still takes care of utilitarian kinds of things, but each department gets its own IT budget. And lastly you’ve got more consumerism, fragmentation among buyers; people getting more comfortable buying things online directly from the source. It started with Amazon but now it’s everywhere, even in IT services.”

Somewhat surprisingly, Kasriel says Human Cloud platforms, which are primarily technology driven, and staffing firms, which are primarily service driven, make natural allies. “We are very eager to partner with IT staffing companies. I think there’s a very big win-win here where IT staffing firms have the sales force and client relationships and we can help with technology platforms and sourcing.”

Who’s Buying?

To date, human cloud providers have had more success penetrating small to midsize businesses than large enterprises. According to Staffing Industry Analysts’ 2015 Contingent Buyer’s Survey, while an increasing majority of contingent workforce managers are aware of online staffing, only 12% of respondents noted actually using online staffing in their workforce program. Working with incumbent providers may be key for human cloud companies looking to get their foot in the door at large, established contingent workforce programs.

“We’re just in the very beginning of finding out if these platforms will even work,” says Erin Fuchs, program manager at Halliburton. “What I’m really interested in is, as everyone talks about total talent management, how do these new platforms tie into your ATS or VMS? What capabilities are there? I do think it’s something people need to find out more about.”

Incumbent suppliers might stand to gain from using these tools as well. Lois Heo, the supplemental workforce program manager for Southern California Edison, thinks these platforms can provide a number of benefits to sophisticated programs. “The traditional model doesn’t always work for the company,” Heo says. “Not that I don’t like my MSP, but who wouldn’t want to have multiple tools in their toolbox? I don’t like to be locked into one way of acquiring talent; I like having multiple channels.” She explains that the analysis also involves figuring out whether these platforms are more than just hype. “What I need to gauge is — is this a fad or a trend? Is this really here to stay? Everything tells us the landscape is changing, and if we don’t change, we could get left behind, and we don’t want to be left behind. But I also don’t want to invest in something that’s just a fad.”

Bruce Morton, head of innovation at Allegis Global Solutions (the workforce solutions arm of Allegis Group), says his company has responded to the human cloud by creating its own virtual teams to deliver on smaller SOW projects. These platforms will help organizations have a conversation about the work they want done in order to find some new way to do it, he says. “I think the human cloud is similar to job boards; those were supposed to kill temp staffing but they didn’t. That said, I think the impact of these platforms will be that staffing firms will have to find value above just finding a person. Their value-add will have to be able to attract talent to your organization versus someone else’s. I think staffing agents of the future are going to look more like sports agents.”

The perspectives vary, but it’s clear the human cloud is something that all stakeholders, especially those in IT staffing, are thinking seriously about. The conversation will continue, as the IT staffing industry evolves and becomes increasingly entwined with its newest entrant, the human cloud.