Vendor Managed Services: Volume vs. Best Practices

Vendor Managed Services (VMS) providers have recently enjoyed increased popularity with some organizations. Human Resources (HR) staff members appreciate the way a VMS provider takes over the tedious administrative tasks associated with hiring new employees. But the VMS approach to managing the hiring process isn't popular with everyone.

How VMS Works

When an organization works through a VMS provider, the provider takes over all of the HR department's administrative functions associated with hiring. The VMS provider processes all job postings and broadcasts openings to a large number of staffing vendors, collects and logs a set number of resumés, and passes those resumés on to the hiring manager, who must screen and evaluate the candidates. When the manager selects candidates to interview, the VMS provider schedules those meetings, along with any follow-up interviews. Once the manager selects a candidate to hire, the VMS provider negotiates with the supplier to make the offer, schedules a start date, and completes all the paperwork needed for the position. In addition, VMS controls costs by tracking spending and creating flat pay rates for positions. HR departments love them. Especially when you consider the fact that the VMS is funded by the firms providing the services, and they pay as much as .05% of the billing rate to the VMS firm. Usually, it is in the $1 to $2 per hour range that goes to the VMS to support this activity. Often this leads to higher rates to begin with, to enable the supplier to recapture the monies paid to the VMS.

However, most managers don't like this system. When a VMS provider broadcasts a job posting (sometimes to as many as 70 staffing vendors simultaneously), the vendors know that the VMS will take only the first 20 resumes submitted to them. So, the vendors race to provide as many candidates as they can, as quickly as they can. The VMS providers typically don't screen candidates for suitability — they don't have time to screen because their hiring strategy relies on getting as many resumés as possible to the hiring manager. The VMS will typically submit at least two to three candidates taken directly from the job boards to the hiring manager, who must then do the work of reviewing and screening the candidates. Typically, VMS suppliers need to submit at least 20 resumes in order to make a placement. Well-run contract services firms submit two to three resumes to make a placement.

In addition, the candidates in a given set often aren't a good fit for the job. Candidates' resumés may have keywords that fit a job profile, but they may not have viable skills for the position, may not be able to perform all the requirements of a position or may not fit well with the established team or corporate culture. Managers whose HR departments work through VMS providers report that they frequently have to go through multiple rounds of resumé screening, interviewing and re-interviewing before they end up with a candidate who is truly suited for a given position. Repeating this process is time-consuming and expensive, especially for IT managers, who typically don't have the luxury of extra time for "hiring projects."

Most IT professionals don't love VMS either. They know that all people and all workers are not equal. The VMS "cattle-call" style treats job candidates as a commodity, and artificially flattened pay rates that devalue candidates who know they can contribute more than an average IT professional. Those candidates who know the value of their higher quality skills and might ask for a higher salary typically won't consider working through a VMS organization.

IT managers know this too, but their hands are tied when their organization's management decides to employ VMS providers. Savvy hiring managers sometimes realize that they need to go outside the system to get the best person to work on their project. A manager might bring in a person to do a project, classify the work as project work, pay them on a time and material basis while the person is in fact a contractor. When these situations occur, the very system intended to streamline staffing actually complicates it.

Targeting Your Search

In contrast to the VMS style of staffing management, which limits staffing vendors’ effectiveness by preventing them from talking directly to hiring managers, a professional staffing firm works directly with your organization to learn about your particular business needs. Such firms have in-depth knowledge of the particular industries they serve, they also have knowledge of the candidates who can do the job. so they can discern whether a particular candidate's skill set is truly relevant to the position. They can easily tell you if your likelihood of hiring someone with the talents that you want can be achieved. In addition, a good staffing firm takes the time to understand the culture of your organization and will pre-screen candidates to be sure they will be a good fit.

Say you need a Java programmer who also has a financial background and experience leading teams. Finding a candidate with such a combination of diverse skills might be impossible if the resumés for that position are simply run through a keyword match. But a staffing firm works within a pool of pre-screened candidates, then further evaluates each individual to create a short list of about three highly qualified candidates — significantly fewer than the stack of resumés you'd get from a VMS provider.

That means that when you work with a well-qualified staffing firm, you'll typically find the right person to hire within three interviews. When you work through a VMS, the best you can hope for is hiring once every 15 to 20 interviews. That is the average amount of interviews conducted to fill a job when using a VMS system. Thus, when your HR department works through a VMS provider, your hiring managers will spend significantly more time recruiting — time they would rather spend doing their IT jobs and managing their projects. That is where many dollars are wasted — the cost doesn't show up in higher rates for contractors or higher salaries.

When you work directly with a professional staffing firm, you'll end up with the highly skilled people your organization needs, resulting in reduced turnover and training costs. Consider this scenario: You hire two people who, on paper, have the same skills, but one outperforms the other by a great margin. What is the high performer's motivation? If all your searches come from job boards and the Internet, you're less likely to be able to find the gem employee who performs at a high level. In order to satisfy the time requirements and forced competition of 10 or more firms working the same job. Staffing firms that supply candidates to the VMS provider cannot afford to really take the time to search for a highly qualified candidate. There is no pay back for that service. They need to utilize the people listing their resumes on the internet. Granted that at times you will find a gem on the Internet, but that is the exception and not the rule.

Staffing firms who follow the careers of their candidates can find these people for their clients. But such careful screening and discernment isn't typically part of the VMS process. There is no reward for finding the right person through a painful search, only to find out the wrong person was hired yesterday. Interestingly enough, executives of organizations that utilize a VMS type of firm, would never allow themselves to be in a cattle call scenario when they are looking to fill a senior level job or they themselves are searching for a job. When they look for a job or for a top level performer for their firm, they are most likely to use a search firm who gets close to the hiring manager and may take up to three months or more to find the right person for their opening. At this time, the price to hire a person is rarely the main consideration. Why do these executives feel that finding the right IT professional needs any less care?

In addition, a highly skilled person who is well-suited to the position will be more productive than a lesser candidate. And because staffing firms are continually updating their network of IT professionals, you can still expect a quick result.