Why staffing agencies should fear Freelancer Management Systems

Jul 29th, 2015
Why staffing agencies should fear Freelancer Management Systems

Freelancer Management Systems (or FMS) like WorkMarket and OnForce have been in the news lately. Although not a new concept, these companies have gained media exposure and many Procurement Managers are going to be asked by their CFOs if their companies are pursuing these options to save money like their competitors might be. This is going to lead to buyer interest in this space and something staffing agencies ought to think about because while they may seem complementary to temp staffing now, they can be a Trojan horse- in that once they are inside a client site and embedded into a Procurement organization- both clients and contractors have a strong incentive to leverage these platforms while further disintermediating staffing agencies.

What are Freelancer Management System or FMS? Unlike freelance marketplaces like eLance/Freelancer.com, FMSs are online platforms used by large enterprise customers, that get contractors to create an online profile, portfolio and availability in a closed (or curated) platform so that client companies looking for skills like theirs can directly source, read reviews, engage and pay them on a per project basis. FMSs are different because they are oriented to larger companies and envisage clients returning often to use the same contractors from a semi-dedicated talent pool. FMS systems gained popularity for remote tech support jobs where it was cost prohibitive for companies to send out their service personnel. Instead they could engage local workers on a per job or per hour basis where the jobs were sporadic and didn't require too much specialization.

As an example, this would enable someone like Dell's Service Department to quickly find and send a technician to go to your Grandma's house in a remote town to replace a defective hard drive. Previously it may have required telling your grandma to ship the laptop to them and incur shipping costs both ways and a long time to repair and send back. With an FMS, Dell can post that job to several hundred qualified technicians in that town and pick the one that is the best fit and available in an instant- kind of like an Uber ride. This use case is probably the best one for an FMS, where staffing agencies may not be relevant but this model could potentially be extended to other categories of work. Think about game testers and how they are required in spurts or cafeteria workers or even software professionals that can be ordered in just as required.

The ease of availability, the reputation management and historical evidence of work by the contractors in the system, and the ability to hire them only for a short time- make this a great proposition for clients. The only downside risk from this would be the potential problems from co-employment risks and if they engage the worker as a 1099 instead of as a W2 employee. Most FMS systems promise to take care of the compliance issue but other than some checklists and paperwork, we can't imagine how they solve for this, and this is probably why most clients may still stick with staffing agencies.

The other concern for staffing agencies should be the tie-up and in some cases outright merger between FMS companies (like OnForce) and Vendor Management Systems (VMS) like Beeline. Many client companies already engage payrolling companies when they direct source or self source contractors, so it is not far-fetched that Procurement may decide that once a contractor has been hired (or god forbid even just submitted) to their VMS system, it would be OK to move that contractor into their FMS directory.  This would reduce the role of the staffing agencies to just sourcers.

VMS and MSP systems levelled the playing field for staffing agencies and took away some of the differentiators like - relationship management, sales, etc., however these systems were passive and played a supporting role for staffing agencies. FMSs are different in that they offer very similar services to clients as the staffing agencies and should therefore not be treated as a variation of VMSs or for that matter freelance marketplaces. They could potentially be the biggest disruptor of temp staffing agencies.

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