A recent providential plane ride seated me next to a procurement executive (purchasing or sourcing, if you will). After greetings and the obligatory questions related to our occupation, a fascinating dialogue ensued. As someone who regularly interacts with indirect sourcing professionals, we were able to discuss our perceptions and paradigms regarding the way staffing services are procured on a neutral field with no financial skin in the game. It was both educational, fun and friendly, something I wish happened more often in real-world negotiations.
Some obvious, fundamental factors must be understood. Sourcing professionals are tasked with saving their company money – they have quantifiable goals and sometimes personal financial incentives to do this. Staffing companies are in business to make money and as a serious steward of my responsibilities in negotiating on my employer’s behalf, I, too, have quantifiable goals and sometimes personal, financial incentives. So, our divergent responsibilities often create an adversarial relationship as much as we agreed that we wished this wasn’t so. We also agreed that often negotiations are a zero-sum game – “win-win” is frequently considered an irrelevant concept. In other words, sometimes neither party is particularly concerned that the other “wins” on any level.
Some disagreements were unexpected. Sourcing professionals often prefer the terms supplier and vendor to partner, making the person on the other side of the table more impersonal and thus attempting to remove emotions from the equation. Workforce solutions companies, on the other hand, value collaboration and partnership, seeing clients as people as much as opponents to vanquish or commodities. Surprisingly, for the sourcing professional, there was much less differentiating between price, cost and value than I presumed – it was more about hard dollars (markups or fees) as opposed to “soft costs” and ancillary benefits (decreased turnover, quality of workers, etc.). In other words, it was a commodity (a good or service widely available and interchangeable) versus an asset (a useful or valuable thing that is limited in quantity) dichotomy.
I don’t know if it’s just a procurement issue, but, as this conversation confirmed, many companies see people (or at least the staffing companies that provide them critical talent) as a commodity. Of course, I deem this type of procurement practice as both dehumanizing and hopelessly unhelpful to their organizations – no one is manufacturing quality workers and (surprise!) there is a talent quantity and quality shortage. This approach is certainly not about economics, unless the law of supply and demand have vaporized overnight. So, when thinking about the process of procuring workforce solutions, some definitions and examples are necessary.
What are you really paying?
To primitively condense 3 factors related to what a person or organization pays for a product or service, we have:
Price – This is the face value amount of the exchange. Examples:
- Product – the automobile’s sticker price is $40,000.
- Workforce Solutions – the markup is 40% over wages.
Cost – This is the total cost of ownership (TCO). Examples:
- Product – the automobile costs $40,000 plus taxes, shipping and handling, and annual fuel and maintenance costs of $4000 per year.
- Workforce Solutions – the markup is 40% but it includes numerous value-adds, leading-edge recruitment strategies, industry-leading benefits, and a history of reduced turnover. Or the markup is 30% but you get bare-bones service and benefits, and the least appealing candidates from a shrinking labor pool.
Value – These are the ancillary benefits of purchasing based on TCO as opposed to a commodity perspective. Examples:
- The $40,000 automobile has superior safety benefits, a longer road life, less maintenance downtime, and very high resale value.
- The 40% markup draws more top-tier workers, reduces employee attrition, and increases work-site production and morale.
Now I know it’s not as simple as this and there is a myriad of other factors in this equation, but automobiles and people (talent providers, too) are not commodities. But sometimes talent acquisition organizations and contingent workers are treated as such.
And here is the cold, hard truth: Most companies are in business to make a profit…even providers of staffing services. So, if a bid process (not a value proposal) rewards the lowest price, you will probably get the worst of everything else that goes into creating total cost of ownership and real value.
Stop the madness!
Please know that when it comes to the people, if you continue to practice this kind of purchasing you will eventually not be competitive. For-profit companies won’t want to work with you when they can send their best (and scarce) talent resources down the street at a greater profit, to a company that cares more about their workers and partners. The incessant squeezing of price is not a sustainable business model because, despite the procurement perversion of talent acquisition supply and demand, the free market still covertly exists in America.
Where does it end, my friends? Certainly, we need to start with treating companies, services, products and, above all else, people as more than just a number.