June 3, 2021

Is it Time to Swap out Your MSP?

By: Steven Williams
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Corporate executives and managers tend to have strong opinions about their company’s approach to non-employee labor—by non-employee labor I mean contractors, consultants, temporary workers, service providers, etc.  

I recently joined a listening tour at a large company that is considering swapping out its Managed Service Provider (MSP).  An MSP is a company that manages other companies’ contract labor programs.  The MSP sits between the hiring managers at the company and the suppliers of contract labor and takes a fee for its support, usually paid by suppliers.

Some of the representative comments I heard from executives and hiring managers were:

• “Our MSP passes me all the resumes they get from suppliers rather than screening candidates for what I need.”

• “I’ve started to just look for workers and suppliers myself rather than use our MSP.”

• “What is the MSP’s incentive to help us reduce costs, when they are paid as a percentage of spend?”

• “I don’t see the MSP helping us become someplace that really attracts the best workers.”

• “How come every scorecard we get from our MSP shows them doing well on everything?”

Some executives at this company want to explore getting rid of MSPs altogether—a process called insourcing.  By insourcing, companies work directly with contract labor suppliers rather than indirectly through an MSP.  Interestingly, while companies debate whether to have an MSP or not, this need not necessarily be an all-or-nothing decision.

To help companies think through some key factors in this important decision, my colleague Jesse Levin and I wrote a short article entitled Don’t Blame your MSP!  Rethinking the insourcing equation.  The article covers:

1. Three questions companies should ask their MSP

2. An overview of markups in the contract labor supply chain

3. The inherent incentive misalignments between MSPs and their customers

4. New tools that help companies make better insourcing decisions

One of the main points of the article is that MSPs are valuable players in the contract labor ecosystem, especially those that provide advice and value beyond managing a staffing supply chain.  But companies should challenge their MSPs on their commitment to true economic transparency.  And companies should do their own independent analysis to determine what mix of worker types is best for them, and the optimal structures, economic models, and suppliers to deliver that mix at a reasonable cost.

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