by Steve Knapp, Vice President, Consulting
I am frequently asked the question, “What is the ROI on an MSP?” As companies reign in their supply chain for external labor, there are typically significant cost savings to be realized immediately. An MSP eliminates the rogue spend. For companies that implement MSPs, they will leverage a smaller number of preferred suppliers and bring down costs.
I have assisted many organizations in creating a compelling business case for building a Managed Service Program to manage contingent labor. Demonstrating the first year of savings is the easy part, especially when a company hasn’t had significant controls in place before.
After the Honeymoon
The hard part can sometimes be showing year-over-year savings in years 2, 3, 4, 5. In truth, the savings you achieve in year 1 should continue, at a minimum, after you establish a new baseline. If your savings was 20% in year 1, your year 2 savings is still 20% from the original baseline. The same goes for years 3 and beyond. But businesses don’t count savings that way. It’s all about “what have you done for me, lately?”
Demonstrating Long-Term Value
So how do I articulate the year-on-year value creation of a managed service program?
Assuming you have outsourced your managed service program to a third-party (or intend to), you need a good strategic Managed Service Provider (MSP). As the saying goes, you get what you pay for. If you have squeezed the MSP’s revenue too much, invariably you end up with a tactical MSP that’s only focused on processing transactions instead of creating actual value.
Then, companies need to shift the focus from simple cost savings to creating true value. A sturdy oak desk will initially cost more than a flimsy one made of balsa wood, but the oak desk will last for ages while the balsa wood will snap in half under the slightest pressure.
Guiding Questions for Your Mature Contingent Workforce Program
Your contingent workforce program must have an idea of the path to maturity. Contingent workforce program maturity can be viewed along multiple dimensions. Ask the following:
- How comprehensive is it?
- How strategic is it?
- How is it governed?
- How sustainable is it?
- How measurable is it?
When you’re incorporating contingent labor into your talent strategy, you want to emphasize the competitive advantage that gives you. Your goals for program maturity can reflect this new leverage. Stress how your MSP aligns with business objectives across labor categories and geographies. Demonstrate how your contingent workforce helps you adapt to changing business demands. Essentially, note that many of these goals do not come to fruition in Year 1.
The Holistic View
It’s critical that you understand and maximize the performance of your program with respect to four factors:
By focusing on a holistic view of the program rather than just the cost, you can show off the value of the managed service program (if it is performing well). You get the best resources at the best price in the most efficient way, while decreasing the overall risk to your organization.
So if someone asks you what the business case is for a managed service program after year 1, remember the above. As your program gets more mature and performs more effectively, it will create the best value of all – a strategic workforce able to make your company more competitive.