In our last blog, Casting a net for the “small fish” in the burgeoning middle market, we provided an introduction to the structure of the middle market and how it is being addressed by managed service providers (MSPs).
In this second part of a three-part series, we will focus on the scope of the mid-market. The market of U.S. mid-sized businesses—those with $100 million to $1 billion in annual revenue—is a big deal. While they comprise only 3% of total incorporated entities, they represent 1/3 of the U.S. GDP and 1/3 of all U.S. jobs. On its own, the U.S mid-market represents the third-largest global economy, greater than that of Germany. And, this is clearly not likely to change any time soon, as it has collectively grown between 6.1% and 9.2% every quarter since 2014.
Mid-market companies might be more likely to hire temp workers than their larger counterparts, given capital constraints. The U.S. Bureau of Labor Statistics (considered the most conservative estimate) broadly has 3.8% of the labor force as at temporary. This means a company of 3,000 employees likely has at least 100 temporary workers. These estimates ignore talent clouds, direct sourcing platforms and project-based workers which push the number of external workers much higher. Where contingent labor management is concerned, however, the demand is significant but the supply comes up short. And, without formal programs, mid-market companies are often saddled with significant challenges:
- Reduced talent access. In-demand contract workers often look past opportunities with mid-market companies in favor of projects with more prominent firms.
- Unnecessary costs. There is no formal process for introducing competition or negotiating rates, and no infrastructure to effectively leverage staffing firms for competitive bidding. As a result, most mid-market companies pay a significant premium for their contract talent.
- Lack of an institutionalized compliance process. While contractor classification cases may make headlines when they strike large companies, regulators have set their sights on the mid-market as well. Without a centralized program, compliance failure opportunities abound.
- Inconsistent processes. Driven by a lack of regulation and a need to get their work done quickly, managers select contingent labor suppliers inconsistently and often lean on personal relationships rather than prescribed talent repositories.
Despite these challenges—and the opportunities they create—mid-market businesses have long been relegated to band-aid solutions when trying to apply some level of discipline and structure to their contingent talent management. They commonly have to turn to staffing suppliers for help managing the supply base of other temporary labor customers, which may very well be their competitors.
While most staffing firms would be happy to respond to this call (applying their hefty mark-ups to all the transactions they manage), they frequently lack the true managed services expertise to effectively set up the processes, engagement rules, and analytics needed for a comprehensive contingent labor management solution. Further, staffing firms up-selling MSP capabilities often see this as a “loss-leader” that helps them ensure first dibs on staffing requirements—thus undercutting access to potentially better talent from other vendors.
In all, mid-market clients turning to staffing companies for contingent labor management have traditionally been forced to pay the same fees that bigger companies might pay an MSP (if not more), but get far less value in return.
To learn more about how middle market companies can benefit from actively managing contingent labor, download our white paper, Contingent Labor Management: New Players Bring Large-Company Value to Mid-Market Companies.