Staffing firms are being buffeted by change: new technology, a limited supply of talent — and economic uncertainty that could include a future recession. Successful staffing firms are crafting strategies to manage these issues. Advance Partners, a wholly owned subsidiary of Paychex that provides funding, technology and support services to the contingent workforce industry, gains insight from its clients — about 500 staffing firms that will collectively bill $3 billion this year. Adam Stern, senior director and general manager of Advance Partners, offers his thoughts on the challenges facing the staffing industry this year.
Q: What are two major trends for the new year? In talking to our clients, we see two related trends.
First, this is absolutely a candidate-driven market. It’s pure supply and demand: There are fewer candidates available. We see it from high-end engineering or technology staffing firms to those filling blue-collar jobs. There just aren’t enough folks with the right skills.
The second part of this double-whammy is all the new technology that is enabling would-be employees to connect with potential jobs. This includes online marketplaces, human cloud work and the tools that facilitate communication between the traditional staffing firms and their database of candidates. All of these things are putting the leverage in the hands of the candidate, which is a change from the past.
Q: What issues do your clients think will have the most impact in the coming year?
Staffing firm owners need to spend their time this year figuring out which of the new technologies can help them make more placements that are going to stick. It’s an overwhelming challenge.
Most of our clients are small to midsize firms: They bill between $5 million and $100 million per year. They grew up as traditional staffing firms and now they’re trying to figure out how to use online sources of candidates such as Indeed or LinkedIn. It’s like everyone has a database of 2 million candidates — but now they need the ability to query and qualify the candidates for the right fit.
Another issue we are hearing about is more employee no-shows, or “ghosting” — people starting assignments and then leaving after a day or two. Why is that? They know there are other jobs waiting for them. It’s very costly for the staffing firm; it hurts your relationship with your client, and you lose the investment you made finding, recruiting and training the worker.
We are also hearing about what may be the leading edge of another trend: The pendulum may be swinging away from MSPs while unemployment remains low and few local employees are available. Some of our midsize clients have told us that a large client that used to depend solely on an MSP has approached them directly. Namely because of their expertise in the local market and specialized ability to be feet on the street with good contacts in the area. So independent owners should capitalize on this strength in the market right now and reach out to larger clients who may be feeling the pain of shortage of employees. They should sell this as a unique advantage they can offer over a more generalized MSP approach to win business they have been shut out of in the past.
Q: In this tough recruiting climate, what can be done to reduce the burden for staffing firms on the back end so they can focus on running their business?
Staffing firms owners can easily become bogged down by the guts of the business — spending time on back-office functions such as invoicing, payroll and tax, or pulling information from various systems to get basic metrics such as fill rate and time to fill for recruiters. It’s painful and can take hours.
What staffing firms can do is find partners or invest in systems that are more efficient. Owners’ time is better spent with the recruiters and salespeople — coaching, developing and measuring — than on back-office work.
For our clients, we host and preconfigure a platform that puts all the back-office functions in one database. None of those functions drives your revenue — what drives revenue is getting to candidates faster, making sure your recruiters are effective, and driving relationships with your clients. That’s important any time, but it’s that much more important today, where it’s incredibly difficult to find candidates.
Q: Streamlining tasks and data inputs into one central location is the holy grail for staffing firms. What are the most important points of data to consolidate?
Many owners, when they sit down and look at it, are spending a lot more resources than they realize on their back-office functions by having separate tools for work like taxes, one for payroll, invoicing and financial statement preparation. It makes generating meaningful business analytics very difficult. Having one tool that can do all of these functions is the holy grail.
Q: What are your predictions regarding the profitability of the industry? How can staffing firms improve their bottom line?
There is good news and bad news for independent staffing firms in these trends.
With the limited candidate pool, the good news is that, in theory, wages should rise. Many staffing firms work on a percentage markup basis, so as wages creep up, you’re generating more profit.
On the other hand, some of the newer firms that were born online, or the larger firms that have been able to make significant technology investments, have a lower cost of recruiting, allowing them to get ahead.
We think the answer is investing in technology — not necessarily making a seven-figure hardware and software investment, but investing the time to understand how the solutions work and how you can hook into these tools to make your operations more efficient. Improving back-office functions can help with the bottom line.
Q: What pressures do you see for staffing firms today?
The biggest pressures are the need to increase speed to candidate and the lack of candidates.
One thing staffing firms can do to help themselves is to specialize. If you have a specialized niche, what gives you speed is your expertise, not necessarily the technology you’re using. Although technology can help everyone, specialty players have more leeway.
If you have the best database for a very specific sort of NICU nurse, let’s say, you are likely to be able to survive even if you don’t have every hot, new tool. You know how to find these people and qualify them, and the hospitals that need those folks are going to call you. At the other end of the spectrum, if you’re placing semi-skilled labor, it’s more about how fast you can get them to show up and get the drug tests completed. That’s hard to do when you’re leaving voice mails. When firms look at upgrading technology, a mobile strategy is important. You need to be able to communicate with your candidates — when and where they want to be communicated with. That could mean texting, or giving them a way to log in and see your openings on a mobile device.
In the event of a recession, what should staffing firms do differently?
A big part of surviving a recession is doing what you would always do — but doing it better.
For example, analytics are more crucial during a recession. You need to know which recruiters, which offices, and which vertical lines are generating the most profit. You may need to tighten your belt, and you need to know when and where to tighten.
Focusing on a specialty is also important. It inherently gives you that speed to candidate. Clients with a niche do better both in growth environments and in tougher environments. Having a specialty works — in terms of driving high profitability and in terms of fighting a recessionary environment.
Advance Partners is a sponsor of Staffing Industry Analysts’ Executive Forum in Austin, Texas. Find them at booth #310, Feb 26-28.
