MSP is highly useful when the firm wants to outsource its responsibilities of managing the contingent workforce, and IT services to improve operations and cut costs. The managed services market is valued at $ 185 billion dollars as of2019. MSP has its presence in recruitment, IT consulting, supply chain, and every other department of an organisation

In this article, we are going to look at how MSP helps in solving the firm’s staffing problems. Managed Service Provider(MSP) came was introduced in the staffing industry due to freelancing. The need for freelancers increased after the 2008 financial crisis. Every company was cash-strapped, and freelance became an option.

 However hiring a freelancer was a nightmare for every company. Unlike full-time employees, it became difficult for firms to keep track of freelancer’s work, schedules, and resources. The process of onboarding these temporary workers was time consuming. Hiring managers don’t want to waste their valuable time in hiring temporary staff.

Problems faced by firms that they don’t use MSP:

 Large organizations get hundreds of requirements for contingent workers every day. This makes it difficult for hiring managers to keep track of the screening and hiring process. Moreover there is a lack of trust on staffing agencies services. It becomes frustrating for hiring managers to keep track of hundreds of staffing agencies to hire temporary staff. Some common problems are

  1. Hiring managers being influenced and sending job requirements just to their favorite staffing agencies.
  2. Staffing agencies approach hiring managers even when they have no need for staffing.
  3.  Staffing agencies barging and requesting hiring managers for meetings to discuss further on their requirements.
  4. Staffing agency charging high rates, providing poor candidates, not providing candidates on time.

Hiring managers end up involved in spirals of problems and confusion, leading their resources and time wasted. Companies didn’t want this to happen and especially when hiring temporary staff.

Importance of Managed Service Providers (MSP):

Firms decided to make the hiring process for temporary workers more efficient by outsourcing the tedious task. A managed service provider will take care of onboarding and management of the freelancers. They work for companies looking for temporary staff. MSP is independent and provides an unbiased management service between the firm’s hiring manager and staffing agencies. Some of their tasks are

  1. Collecting requirements for the job from hiring managers
  2. Transmitting the collected requirement to staffing agencies
  3. Onboarding the selected candidates
  4. Collectingthe candidate’s timesheets, helping with payments
  5. Evaluating staffing agencies performance and quality of candidates provided by them.

MSP’s are run by staffing agencies or by firms that hire a lot of temporary staff. But it is very important for these MSP’s to stay neutral and not favor their parent organization or subsidiaries.

How do MSP’s provide their services?

MSP’s use Vendor Management System (VMS) to manage and procure temporary staff for companies.  VMS are software that allow MSP to run their tasks. Some of the VMS tasks are

  1. Obtaining candidate requirement from the HR
  2. Pass on the requirement to staffing agencies
  3. Track the time taken to submit a candidate by the staffing agency, rejection rate, candidate’s quality to create a scorecard for analysing staffing agency.

All these metrics are reviewed by MSP using Vendor Management System and avoid the badly performing agencies to improve the overall hiring process. Some of the common VMS are Workforce Logic, Agile-1’s.

How much does an MSP cost?

Before discussing the cost, there are two types of MSP models in the market.

  • Supplier funded model:

These are run by staffing agencies themselves. A percentage of expenses are added in the invoice by the agency to cover the service cost. So, there is no separate costs for MSP added to the firm’s invoice. Not all agencies will be interested in running the MSP, and some might hold their best talents to other clients if they are not benefitting much.

  • Client funded model:

In this, the firms pay a fee to partner with an MSP agency. Based on the negotiations, the fee can be fixed or variable. This method may appear costly, but this model ensures in receiving high quality talent to the firm. MSP is ideal for firms that are willing to spend more than $ 25 million in hiring contingent workforce. For a typical fortune 500, the charges of using MSP is 2-5% of the recruitment budget.

Future of MSP:

Ten years before, MSP was highly beneficial in cost savings. Now, they are not creating much of a value in the hiring process. Firms have found new ways to train themselves to fill the positions quickly.

Since the financial crisis in 2008, there has been a drastic change in the economies. The world GDP has increased from -4.7% to +2.5% in 2017. The GDP for the EU increased by 2% in 2019. This has created several changes in MSP with relation to

  • Labour scarcity
  • Data driven recruitment

Labour scarcity:

The decrease in unemployment has created a shortage of talent. Especially in the IT staffing industry, the unemployment rate is less than 1.5%. This has created a difficulty for MSP to target talents. Traditional sourcing methods are not enough. MSP’s need to look for alternate channels like freelance marketplace, an online platform to procure talents.

Data driven recruitment:

Recruitment via social media platforms is increasing steadily. These social media platforms like LinkedIn provide the option of targeting talents based on their skills, education level, and experience. They also provide data on these talents to calculate their talent quality. MSP’s should create a scoring system to evaluate these talents based on the available data. This will make the screening process much easier.

MSP should take necessary steps like improving their talent procurement methods. Try to make decisions data-driven and going fully digital. These new developments should add value to the firm’s hiring process. Using traditional solutions are not enough. Adopting new technological trends and integrating them to add value to the firm’s hiring process is important and the right way for MSP’s future.


Managed service providers and Vendor management systems are used by 50%-60% of Fortune 500 companies today. VMS and MSP have helped to reduce staffing costs and have improved efficiency. Many staffing agencies feel threatened by this system and often despise this method. Also, this intermediary system has made staffing agencies distant from hiring managers. Making it difficult for staffing agencies to receive feedback or clarify doubts with the HR department, and this reduces the ability of staffing agencies to procure the best candidate.