HR Technology: Contingency Systems

By Connie Winkler Jun 1, 2006

HR Magazine, June 2006Technology saves money and time in hiring and managing contingent labor.

Talk about a double bonus: AARP's adoption of contingent labor management services carried a zero-purchase price, but it was the half-million dollars the Washington, D.C., interest group saved this year that made the deal even sweeter.

We’ve saved almost $500,000 through the competitive bidding process as well as by having an on-site project person who can talk to suppliers and really negotiate the best price on behalf of AARP, says Laura Loffler, the HR project manager at AARP.

The need for efficiency and fiscal responsibility in handling contingent staffing initially prompted AARP to adopt the solution, the cost of which was offset by markdowns in staffing vendors bills. In 2004, AARPs top executives realized that contingent labor spending at its 50 state and three territorial offices mostly for clerical and administrative workers, including on ad hoc projects was largely unknown.

After a thorough proposal process, AARP selected a web-based services solution from Troy, Mich.-based Chimes Inc., which handles all of its contingent labor acquisitions and transactions, down to billing and payment. AARP pays just one summarized invoice to Chimes, with Chimes managing and paying all the labor suppliers.

AARP is among a growing number of organizations that are targeting contingent labor. Market research firm Staffing Industry Analysts Inc. earlier this year found that about 25 percent of companies with more than 1,000 employees had vendor-managed systems in place up from only 8 percent in 2003and another 25 percent plan to adopt them in the next two years, says analyst Barry Asin in Los Altos, Calif.

The Spending Squeeze

Contingent labor systems generally installed at organizations with at least 20,000 full-time employees and 200 to 1,000 contract laborers police spending, compliance with contracts, budgets and external requirements.

By automating with technology and having all the data collected in one place, you get the benefits of a more flexible and fluid workforce, says Christa Degnan Manning, research director at AMR Research Inc. in Boston.

Companies now realize that the use of contingent labor is a strategic decision, Manning adds.

Solutions run the gamut from the no-fee, web-delivered model to installed software to dedicated capabilities supplied by staffing providers such as Manpower Inc. Providers include Ariba Inc., Chimes, Fieldglass Inc., IQNavigator Inc., Procure Staff Ltd., Taleo, Vurv Technology (formerly Recruitmax), WorkforceLogic and many others. Several providers grew out of the tight information technology (IT) staffing market of the late 1990s.

Today, the emphasis goes beyond IT to contingent labor broadly, boosted by the uptick in the U.S. economy. This year, Staffing Industry Analysts expects a 9 percent increase in the use of contingent labor systems, beyond the $100 billion spent in the United States last year, according to Asin. The systems have proved useful at organizations that face challenges budgeting and hiring full-time employees and among professions (such as nursing and IT) that employ large numbers of people who work as independent contractors.

The spending squeeze also is acute at companies going through mergers, for example, that end up with 10 different vendor rosters and each organization doing things its own way, says Jai Shekhawat, CEO at Chicago-based Fieldglass.

The rise of a global labor supply has made contingent issues today about more than bringing in a temporary worker to cover a maternity leave, says Jason Averbrook, CEO of Knowledge Infusion, an HR technology consultancy in San Ramon, Calif. These are macroeconomic, highly political decisions as to whether to outsource or offshore. For CEOs to make that decision, they have to have visibility into what their spending is so they can justify choices to their boards. Likewise, HR managers may be laying off people but with no insight into what they’re spending on contingent labor.

Of course, these systems are also about the money. There’s more and more awareness that contract labor is one of the largest unmanaged spends within the enterprise, says Averbrook.

Streamlining Pays

Until recently, spend management efforts have been driven by procurement departments seeking the best prices for the indirect goods that organizations buy. HR is the last of the [information] silos to get the benefits from process analysis and process improvement and the systems to support it, says Alice Snell, vice president of the Taleo Research arm at San Francisco-based Taleo Corp.

Organizations especially in the service sector and in industries like financial services and health care that rely heavily on contingent workers realize the importance of tracking spending on all their employees, Snell adds.

For Equitable Resources, a natural gas supplier in Pittsburgh, this realization prompted procurement to reach out to HR to lasso in contingent labor spending. Already running Aribas spend management software, Equitable recently brought contingent labor under that umbrella.

We were conducting business with many contingent labor suppliers but not coordinating purchases with any of them, says Equitable spokeswoman Patricia Kornick. Equitable liked that Ariba provided an online reverse auction where bidders bid prices down to secure the lowest rate for defined services. Equitable now is narrowing its providers to two, gaining further streamlining improvements.

Procurement is still playing a strong part. Procurement and finance are more rapidly pursuing streamlining the process and, obviously, cost savings, says Charles Halash, marketing vice president at Chimes.

Another supplier promises a four- to six-month payback, so that even when the software (generally in the $100,000 range) is purchased and run internally, the investment is offset by the reduction in vendor contract fees.

HR departments eager to capitalize on the cost savings are really optimizing this process, says Snell. Some organizations start by division or location, but its ripe to be done and HR could step up and really be a leader.

Greater Visibility

Robert Quadracci, HR director at QuadGraphics in Sussex, Wis., was looking at a lot of spending unknowns when HR took over managing contract labor at the nations largest private printer, with nine plants that employ up to 2,000 workers each. We had little control over who was coming into our plants, how orders were given to suppliers or how the suppliers were performing. We had no visibility, recalls Quadracci. Workers, including day laborers, were often called in at the last minute.

Adding to the mess: HR staffers were handling thousands of disparate invoices, belatedly issuing purchase orders after receiving invoices, working to ascertain that checks were being cut in a timely manner and trying to reconcile the company’s processes with its internal timekeeping system.

One of QuadGraphics staffing suppliers, Staff Management, pointed the company to contingent labor management software from Denver-based IQNavigator. We wanted complete integration between the employee requisitioning process into our workforce management/timekeeping system through the billing and invoicing and back into our accounts payable, says Quadracci, adding that the software also needed to be independent of the staffing supplier.

He readily justifies the programs $100,000 to $200,000 cost because of savings on staffing supplier contracts. We renegotiated contracts [with suppliers], which allows us to reduce our rates overall, says Quadracci, adding that he now knows how suppliers to each of the dispersed plants are performing. Most important, we streamlined so many processes that it had a definite financial impact and made things easier for our managers.

Discriminating Staffing

Like it was for QuadGraphics, for data management provider Acxiom Corp., with 6,500 employees and 20 offices worldwide, knowing who was on the job was critical: Acxiom handles customer data that are extremely confidential, says Elisha Moeller, PHR, an HR information specialist at the Little Rock, Ark., services firm, which processes credit card and other financial information. We had to tighten up our processes so we could control who received system and physical access to sensitive information.

And, like at AARP, the pressure was on to lower contractor costs. Much of Acxioms contingent labor worked in valuable but expensive technical professions. Recruiting firms presented the same candidates and resumes to different Acxiom units seeking to fill similar positions that potentially bid up the cost of talent.

After centralizing the management of contingent labor to HR from the business units, accurate metrics were required. With no formal way to gather reporting data on any of the information in the [existing] tools, our metrics were always inaccurate, recalls Moeller. There was no centralized tracking of filled positions, current openings, billing rates and successful providers.

Acxiom turned to Jacksonville, Fla.-based Vurv Technology, which already provided staffing management software for its Beyond contingent labor management system with the requirement that it link to financial/performance reporting systems from Cognos of Ottawa, Canada. Other organizations also report a link-to-other-systems requirement.

As with spend management systems generally, the contingent labor components ensure that departments are using the right service providers at the right rate. And they also handle far bigger policy and compliance requirements, both internal and external.

These systems go a long way toward enforcing the process, says Christian Hagen, a principal at A.T. Kearney consultancy in Chicago.

The systems benefits also give HR greater leverage in managing large-scale, inherently complex projects. For example, A.T. Kearney recommends a fine-tuning or substitution approach to managing expensive contract labor, such as swapping out an expensive computer architect needed early for a cheaper programmer later in the project life cycle.

What’s Ahead

Given these new business models in contingent labor management systems, analysts and experts generally foresee:

  • Extension of contingent systems to handle global outsourcing and offshoring. More people want to manage their deliverables offshore using our application, says Fieldglass Shekhawat.

  • Extension to international contractors as well as full-time employees. Vendors report companies want the systems to mesh international requirements, which can be complicated, into a common system. And they want just one icon on the HR desktop for recruiting full-time employees and temporary employees.

  • Fast growth in professional services. Companies are looking for strategic consulting around compliance to ensure that temporary workers are hired and paid correctly, and that there are the proper distinctions between various categories. Paige Mazzoni, product manager at WorkforceLogic in Sonoma, Calif., says there’s also a need to plan for the skills gap predicted when baby boomers retire, perhaps to return as temporary workers.

  • More analytics or data-driven decision-making. Jason Ezratty, marketing director at ProcureStaff in New York, says the technologies and services provider consolidates anonymous data from 29 of its client companies, which it shares with its customer base.

It takes the guesswork out. We used to rely on someone with decades of experience and there’s nothing like listening to your gut level but now we can question against the data and make it empirical, says Ezratty.

Connie Winkler, who writes about technology management, is based in Seattle.

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