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Part 3 of 3

The Fundamentals of Managed Service Provider (MSP) ProgramsPart 3: Business Case and Readiness

Introduction / 3

01 What is the Business Case? / 4

Increased access to talent / 5

Reduced cost/improved efficiency / 6

Reduced risk / 7

Increased visibility / 8

02 Are You Ready? / 9

03 Recommendations / 12

Conclusion / 14

About the Author / 15

Table of Contents

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IntroductionThis is the final 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 third of those three areas – Business Case and Readiness. Be sure to

read parts one and two 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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To establish the benefits of an MSP, each organization must assess its own priorities—

but in general, there are four areas that drive the business case for an MSP.

What is the Business Case?01

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What is the Business Case?01

2 Aberdeen Group, Contract Labor Management, January 2009, pg 19

Why Deploy an MSP?Because the business case is real, and the concept simple—but the execution is not!

To establish the benefits of an MSP, each organization must assess its own priorities—but in general, there are four areas that drive the business case for an MSP:

1. Increased access to talent

2. Reduced cost/improved efficiency

3. Reduced risk

4. Increased visibility

Detail on each element of the MSP business case is provided below, and in the next pages of this section.

Increased Access to TalentIn a benchmarking study by Aberdeen, MSP users reported their on-boarding time was 50 percent faster (2.9 days versus 5.7) and their time-to-fill was 20 percent faster (9.8 days versus 12.2)2. These results should not be surprising, because of the supplier management and process improvements inherent within an MSP program.

Typical components within an MSP program include:

| Requisition review with hiring managers to ensure accuracy, clarity, and compliance to policy

| Candidate pre-screening so that hiring managers only review the best candidates

| Continuous review of open positions and supplier engagement to ensure adequate submittal activity

| Process management through the interviewing and on-boarding process

| Supplier management to ensure adequate quality, quantity, and cost

| Reporting and data analytics

| Best practice sharing and benchmarking

Increasingly, companies are adopting a more holistic approach to the contingent labor talent pool. They can integrate this workgroup into their workforce planning strategy and have real-time visibility into available skill sets, globally. They also expand their view to include a wider range of labor, such as retirees, interns, project workers, independent contractors and consultants. Companies look for skill sets, and their related costs, around the world.

Cost

Visibility

Risk

Talent

Organizational Priorities

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What is the Business Case?01

3 Aberdeen Group, Contingent Labor Management, June 2010, pg 184 Ibid, pg 95 Ibid, pg 9

Reduced Cost/Improved EfficiencyA recent Aberdeen benchmarking study reports that top-performing organizations are 33 percent more likely than all other companies to utilize an MSP3, and those top-performing organizations report an average 21 percent cost savings4. Contrast this to the seven percent cost savings reported by the average-performing organization5—and it becomes obvious why many companies pursue an MSP program to deliver results.

The hard cost savings are often captured in these forms:

| Rate card benchmarking and management

| Supplier on/off boarding strategies

| Requisition and assignment length controls

| Overtime limits/billing discounts

| Markup discounts/rebates

| Redirection or elimination of headcount associated with the MSP program tasks

Add to those hard cost savings the significant soft-cost benefits, and it’s no secret why companies execute the strategy:

| Standardized contracting processes

| Standardized requisition-through-pay processes

| Vendor consolidation, where the MSP acts as the client’s agent

| Improved visibility to drive decision making

| Metrics and reporting to guide improvements

ARE You AT RISk?

• How many workers are

1099?

• Who is auditing for

compliance to IRS

regulations?

• Are all workers drug and

background screened

properly?

• How effectively do you

control their access to

confidential information?

• Did you follow a standard

on/off boarding process to

protect assets?

• Is there an enterprise-wide

strategy to hire, or reassign

the best talent?

• What systems are in place to

approve, audit, and control

this workforce?

• Are the suppliers you utilize

under contract, audited

regularly, and offering the

lowest possible rates?

• Do you compare the cost/

benefit between workforce

pools (ie: using a consultant

versus a temp)?

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What is the Business Case?01

6 Aberdeen Group, Contingent Labor Management, June 2010, pg 57 Ibid, pg 9

Reduced RiskToday’s definition of contingent labor is much broader than even a few years ago. In addition to traditional workforce classifications such as Office or IT workers, it now also includes Independent Contractors, Statement of Work (SOW), Consultants, and more. This workforce often operates invisibly to the enterprise, largely because HRIS systems don’t capture the “human” nature of the work. Instead, this human capital investment is lumped in with telecommunications, office supply, and travel invoices—and disaggregated into departmental budgets managed by hundreds of people around the world.

This is especially concerning as governments around the world turn their focus to recouping loss of tax revenues from companies that classify their labor incorrectly. In fact, in the United States, the Federal Government expects to collect an additional $385B in 2011 from these sources— which includes potential penalties from companies that do not properly classify this workforce. Is your business exposed?

Do you know if your workforce carries any co-employment risks? An MSP strategy can tighten up contingent labor definitions, contract compliance, length of stay management, and ensure consistent policy administration.

Another consideration is business continuity. Aberdeen’s latest survey indicates that nearly 20 percent of the average company’s workforce is contingent labor6. Do you know who they are? If 20 percent of your organization’s workforce disappeared tomorrow what would it mean? Do you know who these people are, and what they do?

Use the questions at right to determine if your company should be concerned.

One Final PointAberdeen reports that best-in-class programs have almost five times the regulatory compliance than straggling programs7. Experience has shown that usually five – ten percent of the client’s suppliers were under-insured, and about two percent of the workforce wouldn’t pass their screening requirements. How important is compliance to your company?

In our experience, it’s very important.

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What is the Business Case?01

Increased VisibilityAnother key feature is the flexibility to scale to business demands. More and more companies want the talent when, and only for as long as, they need it. Hiring full-time employees, only to lay them off when the business slows, is both expensive and negatively impacts the employer brand. An MSP program enables access to top talent—who join the organization understanding their role and likely tenure. Thus, costs are aligned with demand and employer brand is protected, as highlighted by the example below.

Case StudyEarly in 2009, during the global financial crisis, an MSP client came to Kelly® with an edict to reduce expenses by a significant percentage within 30 days. We later came to believe that they, like many other companies, were experiencing difficulty in securing capital to finance their sales; they often financed the capital goods they sold. Since the Kelly MSP program exceeded $50 million, there was considerable interest in lowering that cost.

Kelly took the following steps:

| Accessed VMS technology

| Pulled detailed data on all contractors working in Canada and the United States

| Included information on the type of work, length of assignment, and supervisor with contact information

| Delivered this data in a few hours

While Kelly didn’t make the decision on how to reduce the cost—we provided visibility so our client could make quick, intelligent business decisions. In this case, the client was able to take cost out very quickly and justify in other cases why cost was critical to their business—for instance, a great many of the contractors were doing design work on future products, something the company did not want to eliminate. The client reported it actually saved jobs, because it helped them to explain and rationalize the critical nature of the work.

It’s hard to put a price tag on this service—but companies with an MSP have concluded that spend visibility is very important!

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Are You Ready?02The business case to improve contingent labor utilization is almost always worthwhile—the challenge always

lies in the details. Failing to understand organizational, cultural, supply-base, end-user, and usage elements

almost always leads to a difficult implementation, with results that don’t meet expectations.

The business case to improve contingent labor utilization is almost always worthwhile—the challenge always lies in the details. Failing to understand organizational, cultural, supply-base, end-user, and usage elements almost always leads to a difficult implementation, with results that don’t meet expectations. What do you need to know to thoroughly understand your options?

Consider:

1. What volume, skills, and locations form the bulk of your needs?

2. Who are the key end-users and how receptive are they to change?

3. Are key stakeholders in HR, Procurement, Legal, Risk, Finance, IT, and the business level involved?

4. Is there agreement on the relative importance of the four major outcomes associated with improving a contingent labor strategy:

a. Access to talent – how difficult is the process of sourcing contingent resources?

i. Is the organization interested in a more flexible, scalable, or global model?

b. How critical is reducing cost and how does it align with quality expectations? Does it include:

i. Process efficiency – does standardizing processes and reducing back-office expense count?

ii. Does the concept of on-demand talent, flexing to needs, resonate with the company culture?

c. Risk/Compliance – how concerned is your organization about the quantity and types of talent they use?

i. Is there awareness to recent changes in IRS 1099 compliance activity?

ii. What about concerns with co-employment risk?

iii. How important are processes like contractor screening, security, confidential information, and vendor contract compliance?

d. Visibility – how important is business intelligence to your decision making?

i. Do you need more visibility into this area?

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Are You Ready?02

5. Assess your organization’s current readiness for change. This includes:

a. Consolidation experience in other service categories, such as travel, office supplies, and telecommunications

b. Operational alignment to work within a defined vendor base or process

c. Engagement with peer groups in other countries, if a multi-country solution is sought

d. Willingness and ability to mandate utilization of Web-based ordering or control systems

e. Experience moving to outsourced programs

f. Internal resources available to support or lead the change process

g. Urgency to change – does the strategy align with key business objectives?

The above list of considerations can seem daunting—but it doesn’t have to be. Knowing what you don’t know is half the answer. Then decide if you need to know it.

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Are You Ready?02

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Recommendations03Contingent labor programs involve people (suppliers), delivering people (contractors) to

people (managers) under the guidance of people (stakeholders). This four-way matrix is

both complex and subject to change—in direct relationship to all the people involved.

The only universal recommendation for an MSP we can make is to not make a universal recommendation.

If you think about it—contingent labor programs involve people (suppliers), delivering people (contractors) to people (managers) under the guidance of people (stakeholders). This four-way matrix is both complex and subject to change—in direct relationship to all the people involved. But we can highlight some points:

1. Moving from an environment where there are few sourcing models and fewer controls to one with many models, managed within an MSP, is significant. In many cases, the best strategy is to create the vision— but tackle the projects in priority—building upon success.

2. Consider keeping the scope of any initiative to that which you can control or are ready for. This could be a major skill area (IT), or geography (U.S.), or some combination thereof.

3. Set expectations that there is a way to lower bill rates, gain access to more talent, improve utilization, reduced risk, deploy globally—it just takes time, and the right roadmap.

4. While rate cards, improved controls, and flexibility are often the main drivers of change—most of our clients would say that longer term, it’s the access to talent, visibility, flexibility, and strategic alignment that pays the biggest dividends. Don’t limit your criteria to explicit measures—plan for the positive press that comes with this strategy, it literally changes people’s careers.

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Recommendations03

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Conclusion

In summary, there are four major reasons to consider an MSP:

1. Access to talent is improved, while reduced hiring and on-boarding time means the talent is

productive sooner. This is facilitated by improved MSP processes, hiring manager support, and

active supplier management.

2. The best-in-class contingent labor programs reduce cost by 21 percent. This comes from, pay

rate controls, rate card management, requisition and assignment management, re-allocating

internal resources, mark-up discounts, and a variety of soft cost savings as well.

3. Risk management is also improved. 20 percent of the average organization’s workforce is

considered contingent, and they carry with them many benefits, but if not managed properly,

also significant risk. They have access to confidential information, assets, employees, and

much more. And in some cases, they are critical to the enterprise’s success—yet invisible to the

business.

4. Visibility is the “quiet” driver—with information comes the ability to make better business

decisions, including flexing the workforce to better align with business demands.

Readiness also presents a complex set of considerations:

• Understanding the technical components—spend, skills, and location

• HR and Procurement must work in tandem to optimize results—but a cross-functional team

is critical

• Gain consensus on the priority of the four MSP program benefits above

• Assess your internal experience, and change your readiness with this kind of initiative

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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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