Managing Contract Staff Services
"As a result of M&As, right and downsizing, restructuring
and other effects pressured by global competition, the reinvented
and rejuvenated businesses are seeking for more cost effective human
resources, whilst accelerating growth. If there is a way to hire staff
at a lesser cost and risk, that is the way the business will sway,
and pronto, contract staffing comes to the fore. Hiring staff on contract
from external service providers saves businesses permanent headcount
cost, including the associated administrative tasks. For many, this
is proving to be an effective solution and is their experience is
anything to go by, this is not a temporary fad but a fundamental shift
in the way a significant proportion of human resources are sourced
and managed. "
… P.Raj Kumar (Head, Strategies and Operations, CnetG Asia
Sdn Bhd)
Against the background of the resilient national economy and below average unemployment, the use of contract staff by businesses in Malaysia has grown over the past two years, and looks set to carry on growing at a similarly impressive rate for at least the next few years.
The emphasis in this switch from direct employment to the use of staff who are actually employed by a third party has been particularly strong in financial sectors, encouraged by factors such as the nationwide bank mergers, race tow in a bigger market share and the their drive to be financial supermarkets within this decade. Growing number of direct marketing companies is an evident of banks outsourcing the sales of bancassurance products to third parties, reducing administrative tasks and employment costs altogether. In many other sectors too, the attractions of greater flexibility and skills, which are available on demand have encouraged employers to take advantage of the contract labor alternative.
The Outsourcing Solutions
As the use of contract staff continues to grow, many organizations
are looking for better ways of managing this increasingly important
aspect of their operation, so as to control costs and retain the efficiencies
they initially achieved. One solution to this challenge, which is
being quite widely adopted here, is the established Western practice
of outsourcing the management and administration of contract labor.
For many, this is proving to be and effective solution and, and if
their experience is anything to go by, this is not a temporary fad
but a fundamental shift in the way a significant proportion of human
resources and sourced and managed.
Most companies taking the outsourcing route have opted to the preferred supplier solution. This is where and approved short list of agencies is chosen and given responsibility for recruiting and managing all contract staff. This practice is already rampant in industrial estates where foreign and local manufacturing concerns have begun to hire production operators from third parties on contract.
Usually these preferred suppliers are selected by going out to tender, a process which enables employers to 'leverage' their buying power and so reduce not only the number of agency suppliers they deal with, but also the agency margin which they pay. Although some cost savings can be achieved in this way, employers are beginning to appreciate that at 15 - 20 per cent, the agency margin is a relatively small proportion of the total cost of procuring contractors or temps, and shaving off a few percentage points actually does very little to reduce total acquisition costs.
Fundamental Questions
The more fundamental questions, which have to be faced, are whether
there are more effective ways to manage the rates paid to the contract
staff themselves, and to find ways of reducing or eliminating the
administrative costs surrounding the whole process.
Because there is a tight market, particularly for well-qualified contract staff, many human resources and project managers negotiate deals on rates under pressure and without sufficient information to backup their decisions. If they end up paying the even a couple of ringgit per hour more than they should, any reduction in the agency's margin which they may have negotiated will make very little difference to the overall cost.
The other important factor for those organizations which have not yet chosen the outsourcing solution is that they are finding that the number of purchase orders and invoices associated with contract staffing are often greater that those associated with all their other purchases combined. This is creating a considerable administrative cost in itself, but who can even say what the cost is to technical managers who are spending as much as 60-70 per cent of their time dealing with agencies or sorting through CVs when they should be managing projects or programs?
Companies that continue to procure their contract labor in this traditional manner are finding that some of their most important people are being diverted from their real tasks at a time when the need for their particular skills is at a maximum. Somehow, these organizations need to increase resources in line with their requirements, while still controlling costs and allowing key people concentrate on the real business issues.
Many of the largest users of temps/contractors are therefore choosing to outsource this aspect of their operations, choosing options that are marketed by the agencies under titles such as Managed Staffing, On-Site Staffing, Vendor on Premises or Managed Services Programs. The concept is similar to those which are applied to other areas of business that are essentially non-core to the organization's principal activity, for example where and 'industry expert' is brought in to manage the process. The goals of saving money and putting a stop to the waste of key resources are common to many companies where their security services or their manual printings are already outsourced. It seems to be, that, the outsourcing of contract labor that most of the Malaysian companies are considering.
Managed Staffing
The concept is that one agency is chosen as a 'partner' to work with
the employer to manage the procurement and administration of contract
labor. In most cases, the partner agency is paid a management fee
or given increased opportunities to generate revenue. In major managed
staffing projects, the agency assigns one or more staff as the team
leader, who is responsible for the team's human resources needs and
performance management.
Setting The Right Goals
Managed staffing operations like these have three main goals: saving
money; streamlining the process; and better management reporting.
There are three main areas to target when it comes to saving money - direct costs, indirect costs and invisible costs. The actual labor rates paid to the contractors are the obvious direct costs to focus on, along with the margin or management fee paid to the managing agency. Indirect costs which can be reduced include the considerable savings in purchasing and accounts payable, by buying through a single supplier and reducing or eliminating purchase orders and cutting invoices to one per month. The key type of invisible costs which should be targeted are those which reduce the amount of time managers spend on contract procurement and administration.
Effective management reporting is also vital if the managed staffing approach to contract labor is to be successfully implemented. Without detailed reports on expenditure by department, cost center or project, it is clearly difficult to manage this activity effectively. However, these types of reports, and others specific to the particular situation, should be produced by the partner agency. They should also provide regular updates on industry trends and/or average industry rates, so that their own performance can be objectively monitored.
Most of the companies that have made the move to managed staffing are showing significant improvements to their current processes. Managers are not only spending less time in this area but they are finding that they are filling their contractor requirements more quickly and more easily than before. Direct and indirect cost savings are varying from five per cent to 20 per cent even before savings associated with increased manager productivity are taken into account.
Established Practice
The managed staffing approach to contract labor is clearly emerging
as more than a passing fad. It appears to be a solution that is rapidly
becoming an established practice. Outsourcing gains real savings for
its users while, at the same time, giving key staff the freedom to
concentrate on core business activities. If recent trends in the Malaysian
banking sector are any indication, we will soon be seeing growth in
this area that will rival that of the last five years in the manufacturing
sector.
