Managed service providers (MSPs) are playing an increasingly important role in helping companies reduce costs and...
better manage large-scale systems ERP implementation projects. MSPs work as consultative and outsourcing partners, overseeing IT contract labor and consulting as well as other providers working under statements of work (SOWs).
Managed service providers offer two basic process models. Pure-play MSPs maintain a neutral role in the management of third-party suppliers. In the other model, the MSP not only manages outside suppliers but fulfills requested services within its own resources as well. Procurement organizations need to carefully understand the benefits and drawbacks of each model.
Neutrality is actually a strength for the pure-play MSP, allowing it to function as a true extension of the client and avoid the desire to increase profit margins by exceeding SLA expectations.
Fulfillment providers can be strong choices in that they allow for greater specialization around industries, analytics, benchmarking and so on. But one weakness within the fulfillment model is the question of whether the MSP will bid requests for proposals competitively or operate in a more self-serving manner. Companies should thoroughly investigate their individual needs and consider both types of MSP before coming to a final decision.
As far as selection and pricing go, no two companies share the exact same contingent and SOW spend profile, and selection criteria for MSP providers will be different for everyone. But there are common criteria to keep in mind.
Within procurement, the following should be considered in selecting an MSP:
- Supply risk
- Financial viability
- SLA metrics/specifications
- Liquidated damages
- Insurance coverage
- Customer data protection processes
- Technology firewalls
- Record retention/data destruction processes
- Intellectual property, etc.
An HR evaluation should include:
- Diversity program administration
- Drug policy
- EEOC policy
- Recruiting practices
- Background check approaches
- Testing processes, etc.
The organization as a whole should look at category/industry-specific requirements, geographic considerations, rules/regulation, company policy, technology/VMS solutions, and deeply defined SLA and KPI requirements metrics.
Looking beyond contingent labor spend management, SOW spending is becoming more important in relation to the broader overall services procurement portfolio. Therefore, MSPs should be able to handle contingent as well as SOW spend.
Regrettably, our analysis shows that few MSPs can handle both well, with challenges lying with methodology and process. Contingent labor MSPs will often attempt to apply their same methodology toward SOW categories without taking into consideration that the two are uniquely different and that this approach may cause mismanagement of one or the other.
After all, contingent labor is primarily about filling positions, and therefore it is easy to orient MSP SLAs and contract structures around speed and quality, assuming intrinsic price reduction. This contrasts with SOW management, which requires the consideration of product quality, project management, and resource transitions throughout the project to maximize output and resolution. In choosing an MSP, it is imperative to make considerations for both areas and to choose a system that brings a different approach to each area.
Ultimately, companies need to evaluate the individual MSP team members, making sure that they combine analytical thinking and the empathy needed to put themselves in the shoes of their business leaders.
Spend Matters and HCMWorks encourage you to read more of our analysis in this area. Learn how to define the role of MSPs within procurement, details on the MSP process models including SOW and contingent spending management, and how MSPs should interact interdepartmentally. Read a detailed analysis of selection criteria, and pricing and provider shortlists.
Please download the entire report here.
Jason Busch is Principal Analyst at Spend Matters. His contributions are based on Spend Matters Compass research which examines a range of procurement and supply chain technology solutions and trends.
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