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Part 1 of 3

The Fundamentals of Managed Service Provider (MSP) ProgramsPart 1: The What, Who, and Why of MSP

Introduction / 3

01 Why Is an MSP Important? / 4

02 What Is an MSP? / 6

03 Who Does an MSP Manage? / 9

Conclusion / 12

About the Author / 13

Table of Contents

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IntroductionThis is the first of a three-part series designed to outline key components of a Managed Service

Provider (MSP) program. The papers will collectively discuss how companies today are deploying

an MSP program to help transform their human capital investment.

Two of the major stakeholders most often engaged in this strategy are Procurement and Human

Resources—Aberdeen® research indicates that when these two groups work together effectively, an

MSP delivers significantly higher cost savings than MSPs without this vital collaboration between

HR and Procurement1.

The approach taken in this series will be to address common questions about MSP programs, and

to provide a framework that allows for informed decision making. Regrettably, the complexity of

available solutions, confusing messages from the marketplace, and an array of strange acronyms

can make this process exceedingly difficult for organizations just beginning this journey.

As such, each of these papers will incorporate perspectives from the staffing and workforce

solutions outsourcing industry as related topics are presented and discussed. Numerous references

throughout each paper are attributed to three well-respected sources: Staffing Industry Analysts®

(staffingindustry.com), Forrester Research® (forrester.com), and Aberdeen (aberdeen.com).

The series will explore three key areas:

• Part 1 – Explains what an MSP can do for your company—and why it’s important

• Part 2 – Demonstrates how your sourcing model can integrate with MSP strategy

• Part 3 – Articulates the business case for MSP and helps to determine your readiness

The following covers the first of those three areas – Fundamentals of the MSP. Be sure to read

parts two and three for additional observations on achieving effective talent management through

MSP solutions.

One final caveatThis information should prove valuable to procurement and human resources personnel as they

plan and prepare for the future. However, it also presents real value to stakeholders, whose

operations may be impacted by the MSP program and leadership from many other areas,

including finance, IT, or operational functions that may ask:

“What strategies can we deploy to manage the cost, technical competency, and risk inherent in

utilizing external labor?

1 Aberdeen Group, Contract Labor Management – January 2009, page 17

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Today the landscape has changed—now firms seek a more holistic external labor solution

that goes well beyond managing temporary labor transactions.

Why Is an MSP Important?01

For years, companies have approached their staffing providers to help reduce temporary labor costs. They knew that leading staffing firms had developed the capability to leverage their global footprints, to consolidate suppliers and improve pricing. But today, Managed Service Provider discussions have supplanted that dialog. In fact, 57 percent of best-in-class programs now utilize an MSP2. And the results are impressive—yielding over 76 percent higher cost savings, 45 percent better regulatory compliance, and 21 percent better contingent worker quality3.

This topic is exceptionally important to the survival of companies in the 21st century.

Consider how manufacturing businesses were forced to transform themselves in the 20th century:

These capital-equipment intensive industries were revolutionized by an ability to deploy zero-defect products using just-in-time processes. Their success or failure depended upon their ability to increase quality and, breaking an old paradigm, lower cost. The winners transformed their manufacturing plants into Six-Sigma, Lean, high-quality, low-cost, flexible environments that delivered superior profitability.

Industry is transforming again—but this time the capital being optimized is Human Capital, not equipment. While many companies lowered their production labor costs by moving work to low-cost countries (LCCs), they continue to rely upon highly skilled labor in developed countries. This workforce represents a significant investment in human capital that leading organizations are now optimizing. Companies are deploying new approaches to bring Six Sigma and Lean thinking to their talent pool.

Consider this comparison between capital-equipment intensive and human-capital intensive companies:

| A world-class MSP reduces time-to-fill4, enabling companies to find the talent they need faster

Comparative to capital equipment: just-in-time

| The talent delivered in an MSP is of higher quality5

Comparative to capital equipment: zero defects

| The talent delivered is more flexible (contingent) Comparative to capital equipment: reduced inventory

Thus today, companies are transforming their human capital investment. The leaders use their MSP to run highly efficient operations that develop new ideas faster, less expensively, and with higher quality than their competition.

Are you transforming your human capital investment?

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Why Is an MSP Important?01

2 Aberdeen Group, Contingent Labor Management, June 2010, page 17 3 Ibid, page 94 Aberdeen Group, Contract Labor Management, January 2009, page 195 Aberdeen Group, Contingent Labor Management, June 2010, page 18

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What Is an MSP?02From a practical perspective, deploying an MSP has become synonymous with deploying

a contingent labor utilization strategy. But there are actually three components to a

contingent labor utilization strategy—and selecting an MSP is just one.

As the American philosopher John Dewey once declared, a problem well defined is half solved6. While an MSP program is less of a problem than an opportunity, for some organizations, the challenge with MSP programs lies in just trying to understand what they are. Thus in this section, we’ll provide an overview of common terminology and use that information to answer three of the most common questions related to an MSP program:

| What is an MSP?

| How is an MSP different than a VMS?

| What does it mean to be vendor neutral?

OverviewFrom a practical perspective, deploying an MSP program has become synonymous with deploying a contingent labor utilization strategy. There are, however, actually three key components to a contingent labor utilization strategy and selecting an MSP is just one. The three components are:

| MSP Program Management – delivered by MSP firms

| VMS (Vendor Management System) Technology – delivered by technology firms

| Sourcing Models – which outline the supplier engagement strategy

At right is a graphic illustrating how the three elements Of an MSP, VMS, and Sourcing Models interrelate. An MSP firm deploys VMS technology to execute the client’s sourcing models, which are used to interface with suppliers—optimizing the search for talent.

Given this reality—why is it sometimes called an MSP strategy, when MSP is just one component of a contingent labor utilization strategy? Partly, this misnomer is due to the lack of definition in the space7, and quite simply, because MSP is descriptive of the strategy AND much easier to say than contingent labor utilization strategy!

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What Is an MSP?02

6 John Dewey, The Essential Dewey Volume 2 Ethics, Logic and Psychology, 19987 Staffing Industry Analysts, VMS Marketplace SIA June 07, pg 1

VMS Firms

MSP Firms

Sourcing Models(Suppliers)

External Labor Utilization Strategy

Vendor Management Systems (VMS)Vendor Management Systems enable companies to automate workflow. According to Staffing Industry analysts, VMS technology is an Internet-enabled contingent labor sourcing and billing application that enables an organization to procure and manage a wide range of contingent workers and services in accordance with the client’s business rules. Typical features of a VMS include supplier profiling, requisition/order creation and distribution, candidate submission, on/off boarding, time, and expense keeping, vouchering, consolidated billing, and reporting8.

This definition may be confusing, because some organizations incorrectly use the term VMS to describe their MSP, and vice versa. When describing a contingent labor strategy, statements like “we have a VMS in place” are quite common—but seldom is the person making the statement thinking “software.” As we explain in the section below on Sourcing Models, this may be attributed to the software firms who first entered this space, which acted as both the VMS technology provider and the MSP. How to select a VMS is much too complex a decision for this paper—but a good place to start is exploring the work done by Forrester Research9.

Sourcing ModelsStaffing Industry Analysts describe a sourcing model as the method with which a company identifies, selects, receives, and pays for contingent workers and related services10. Below is a list of the four most frequent sourcing models deployed to manage contingent labor11:

| Sole Source (Master Vendor) – requirements are serviced via a single Supplier that may subcontract some jobs

| Primary Suppliers – requirements are distributed to a select handful of pre-identified staffing agencies

| Structured Tiers – requirements are distributed to a specific group of staffing agencies in a formalized order

| Open Bidding – also called a Vendor Neutral model, staffing agencies bid on individual requirements based on quality, price, and availability

Note that Vendor Neutral is a sourcing strategy that an MSP can execute, and has nothing to do with the attributes of the actual MSP provider. An MSP strategy can be delivered by many firms, or managed by the client, and can execute any combination of the sourcing models listed above.

MSP ProgramsAccording to Staffing Industry Analysts, the MSP is a firm that takes on primary responsibility for managing an organization’s contingent labor program. An MSP may or may not be independent of a staffing supplier. Typical responsibilities include overall program management, reporting and tracking, supplier selection and management, order distribution, and consolidated billing12.

What exactly does the MSP do?The MSP is an outsourced provider who measures their performance against a Service Level Agreement (SLA), typically consisting of time-to-fill, fill rate, rate card compliance, and quality metrics. The MSP leverages their knowledge of the staffing industry and interfaces with three key stakeholder communities—Suppliers, Temporary Employees, and Hiring Managers—to optimize the client’s processes and sourcing models in the most effective manner.

What makes today’s MSP programs different than earlier staffing programs is its ability to be independent of any staffing supplier commitment, comprehensive enough to include a much broader range of skills, geographies, and services—and robust enough to include all applicable sourcing models.

WhaT MakES ThE MSP

different than earlier

programs is its ability to be

independent of any staffing

supplier commitment,

comprehensive enough to

include a much broader

range of skills, geographies,

and services—and robust

enough to include all

applicable sourcing models.

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What Is an MSP?02

8 Staffing Industry Analysts 2010 VMS and MSP Supplier Competitive Landscape, pg 59 Forrester Research, Selecting Vendor Management Systems: Differentiating Criteria - April 200910 Staffing Industry analysts, Contingent Workforce Sourcing Model Benchmarks - 2007, pg iii11 Ibid, pg 112 Staffing Industry Analysts 2009 VMS and MSP Supplier Competitive Landscape, pg 2

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Who Does an MSP Manage?03External labor that is not part of an HRIS system can generate limited information—in fact

it makes them invisible. To really understand who an MSP can manage, consider the

makeup of today’s external labor workforce.

“If it has a heartbeat, works in our facility, and doesn’t wear an employee badge, it’s contingent and needs to be in the MSP.”

The above words were spoken by the CEO of a life sciences organization considering an MSP program.

He had just been told the company had several thousand people working within their facilities, but they were not employees. Because this external labor was not part of their HRIS system the company had limited information—in fact they were virtually invisible. To really understand who an MSP can manage, consider the makeup of today’s external labor workforce:

| Office and Industrial temporary employees

| IT, Finance, Engineering, and Marketing contractors

| Statement of Work/Project workers (SOW)

| Independent Contractors (IC)

| Professional Services (e.g. consultants, outside counsel)

| Outsourced Services (e.g. cafeteria, security)

| Interns and Retirees

| Payrolled Employees

The MSP strategy brings visibility to this hidden workforce, and a wealth of opportunity to optimize it.

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Who Does an MSP Manage?03

MSP STraTEgy

enables firms today to cut

out the middle man. MSP is

much more than managing

temporary employees—it

is a holistic approach to

managing external labor.

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Who Does an MSP Manage?03

Below is a diagram illustrating who is managed in an MSP program and the resulting paradigm shift brought by MSP programs. Most companies start their search for external labor assuming a workforce classification, such as: “I need a temp,” or “I know a consultant who can do this job.”

With an MSP, companies think differently. MSP clients start by asking: “What is the skill we need,” then ask their MSP to recommend one or more workforce classifications to source the skill—sometimes shopping several at the same time. At times it makes sense to pay for that expensive consultant, but some are stunned to discover the consultant was actually a temporary employee of the consulting firm!

They have learned that their MSP strategy enables them to cut out the middle man. MSP is much more than managing temporary employees—it is a holistic approach to managing external labor.

Future Human Capital Procurement Process

single global management single global technology

LID Technical EngineeringAdmin. Marketing Finance ScientificProfessional (Legal/HR)Skill

Workforce Classification

Sourcing Strategy

Management Method & Processes

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Conclusion

MSP is a strategy that can deliver visibility to the hidden workforce, and offer a wealth of

opportunity to optimize it. Some key points in the fundamentals of the MSP solution include:

1. Collaboration between HR and Procurement to build an MSP strategy will likely deliver a best

in class program yielding significantly greater cost savings.

2. 57 percent of best-In-class organizations have an MSP program which delivers significantly

higher savings, regulatory compliance, and contingent labor quality.

3. A contingent labor strategy consists of three components: MSP + VMS + Sourcing Models.

For practical purposes, a contingent labor strategy and MSP have become synonymous.

4. VMS is software that enables the efficient operation of an MSP program. It automates the

process workflow while providing effective internal controls, visibility, and program integrity.

5. There are four common sourcing models to procure labor: Sole – Source, Primary Supplier,

Structured Tier, and Vendor Neutral.

6. An MSP deploys VMS technology to optimize the client’s processes and sourcing models,

gaining control over a wide range of services—from temporary labor to contractor, consulting,

and services spend.

7. Who an MSP manages is much broader than most realize. Just remember: “If it has a

heartbeat and doesn’t wear a company badge, it should be in the MSP.”

8. The combination of just-in-time talent, improved candidate quality, and lower “inventory” costs

is transforming the way companies utilize Human Capital to drive innovation in the 21st century.

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about the authorTim Meehan, Vice President, Global Solutions and Services

Tim Meehan is vice president, global solutions and services, at Kelly Services®, a leading workforce

solutions provider. He currently leads a team of people that consult with Americas-based

firms interested in enhancing their contingent labor workforce strategy. Mr. Meehan recently

returned from assignment in Asia where he held a similar capacity, working with Kelly® clients

headquartered in APAC to develop their workforce strategies. Prior to that, he led a regional sales

team tasked with developing new client relationships in the southeastern United States.

Mr. Meehan joined Kelly in 2002 with nearly 10 years of staffing industry experience. During his

time with Kelly he has deployed innovative workforce models to Fortune 100® firms, many in

the banking, finance, transportation, and automotive industries. Prior to his work in the staffing

industry he held significant leadership roles within the printing industry.

Mr. Meehan was born in New Jersey and earned a Bachelor’s degree in Political Science from

Seton Hall University. Upon graduation he moved to California and earned a Master’s degree in

Business Administration from the University of Southern California. Mr. Meehan moved to Dallas

in the early 1990s and, along with his wife and two grown daughters, calls Texas home today.

about kelly Services

Kelly Services, Inc. (NASDAQ: KELYA, KELYB) is a leader in providing workforce solutions. Kelly offers a comprehensive array of outsourcing and consulting services as well as world-class staffing on a temporary, temporary-to-hire, and direct-hire basis. Serving clients around the globe, Kelly provides employment to 530,000 employees annually. Revenue in 2010 was $5.0 billion.

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