Plummeting unemployment rates in response to a rising number of businesses and increasing business activity have represented a boon for human resources (HR) and staffing service providers in recent years. As businesses have sought to recruit a greater number of workers to support growing operations, they have turned to these service providers for assistance in identifying, recruiting and managing a growing workforce. Notably, the employment of contingent workers (comprised of temporary, contract and all other non-permanent employees) has experienced strong growth.
As a greater number of employers have taken advantage of the ability to rapidly expand and contract their workforce through the use of non-permanent workers, temporary staffing agencies and contingent workforce management providers have experienced swelling demand. Strong demand growth in the broader staffing and HR category has presented both opportunities and challenges for buyers.
- Service prices have been rising across the vast majority of the HR and staffing category in the past three years
- Growing demand has bolstered suppliers’ pricing power
- Total cost of ownership is generally low in these markets
Key Takeaway: In light of widespread demand growth, prices are forecast to continue rising in the three years to 2021. Buyers should consider contracting services now prior to future growth.
- Specialization is moderate on average across the category
- Staffing service providers customize their candidate search to suit the particular needs of each individual client-employer
- Some staffing providers focus on specific downstream markets, such as healthcare staffing, industrial staffing or executive search
- Other HR services (e.g. health insurance, dental insurance, employee relocation, corporate wellness, background check services) customize plans to suit the needs and budget of individual buyers
Key Takeaway: Moderate specialization makes it more difficult for buyers to accurately compare service providers. Because services are customized to each individual buyer, there is no fool-proof way to know that one supplier’s offering is inherently better or more effective than another’s prior to purchasing the service. Buyers should spend extra time evaluating suppliers against set quality metrics to reduce the risk of underperformance.
- There is a moderate-to-high availability of substitutes in most staffing and HR markets
- Buyers have the ability to conduct many HR functions in-house
Key Takeaway: Buyers should weigh the costs and benefits of conducting staffing functions in-house. Other programs, such as corporate wellness, employee assistance, and health and dental insurance can be self-funded and managed, though they require significant administrative resources. Buyers should leverage the availability of alternatives to drive greater competition among suppliers in these markets.
The number of employees is anticipated to continue rising in the three years to 2021, even as the unemployment rate levels off. As such, demand for market services will remain high, but the rate of growth will be tempered slightly. The contingent workforce, however, is expected to maintain strong growth, taking up a larger portion of the overall labor market as employers continue to favor the flexibility afforded by the use of temporary employees.
In light of high and sustained demand, buyers will benefit from bundling HR and staffing services from a single multiline supplier if multiple services are needed. Many large HR and professional services firms operate across multiple markets, and higher contract values can often be leveraged for better deals.