How Staffing Companies Are Weathering the Economic Storm

By Jim Lanzalotto

May. 7, 2009

When I was asked to write this, I reached out to a few contacts in the staffing industry. I wanted to know what was new with their companies, what their near- and long-term prospects were and what was keeping them up at night.

My thought process was that companies rarely get an unvarnished perspective of how things are truly going with their staffing suppliers, and it could add perspective to a sometimes contentious buyer/supplier relationship.

Successful, long-term bonds with staffing companies go beyond price and service delivery. In my experience, best-in-class contingent workforce programs and their business owners understand the management and leadership quality of their supply chain.

And that starts with a view of what those leaders are thinking about.

Nevertheless, in this turbulent economic environment, I expected the typical sardonic responses:

  • I sleep like a baby; I wake every two hours and cry.

  • The world as we know it is ending. How do you think I sleep?

But I was wrong. I didn’t hear any comments about death’s doorstep or Stygian perspectives on the future. What I did get were stories about opportunity and commentary about growth on the horizon.

For example, an executive at a large supplier sees the upside of the market.

“This environment is painful for companies. They don’t want to cut people and knowledge and lose those skills,” the executive says. “So, the smarter companies are strategically upsizing their contract workforce so they have a large enough variable workforce to be ready for the upturn. We have several customers thinking that way.”

Another perspective comes from a white-collar staffing firm that’s adding to its ranks dozens of new recruiters and sales resources in 2009 because it believes soft markets are a great opportunity to set the stage for long-term growth.

My favorite anecdote: The Right Thing, a recruitment process outsourcing provider, is expanding its centers of excellence and pouring cash into development of a proprietary technology platform. Odd market to place bets, isn’t it?

Perm placement hiring is expected to be down in 2009 (a 30 percent projected slip for the contingent sector, which follows a 16 percent decline in 2008). That doesn’t bode well for investment.

But RPO suppliers are working with their customers to reduce the costs of talent acquisition. A quick show of hands for all readers who have been instructed to reduce operating costs in 2009? I thought so.

Seasoned vets
Now, I must point out that I stayed away from the typical industry Pollyannas who believe that everything will be just fine. My contacts are grizzled industry vets who have suffered the slings, arrows and opportunities of the staffing industry’s fortunes for years.

But wait: Isn’t every industry looking for a government handout to cover up for their bad management? And what about the publicly held firms withdrawing revenue and earnings guidance?

Isn’t this supposed to be the worst economic crisis since the 1930s?

Maybe it is for some, but not all.

Some staffing companies are taking advantage of this environment to recast their businesses–not to right-size or downsize, but to take the kind of stern looks at their companies that they should have in the past few years. But that’s tough to do when things are going well and profits are up. So, now they have their chance.

Forward-thinking C-level decision-makers are picking their spots to expand their businesses, making gutsy, strategic decisions in what they think are growth markets, hoping to offset weaknesses elsewhere in their firms. And they’re not guessing. They’re making these calls after doing their homework, listening to their customers and making hard decisions.

And don’t think it’s just big players that are making moves to be ahead when markets begin to recover. Small and midsize firms are making their mark as well.

The Delta Cos., a $41 million (in 2007 sales) Dallas-based health care and finance staffing company, projects 27 percent organic growth in 2009 by aggressively adding recruiting talent to meet customer demand.

Or take Philadelphia’s Klein Hersh International, which expects a 25 percent increase and will hire up to 10 new life-sciences recruiters. Then there’s Magic Johnson, the former NBA star and serial entrepreneur, who launched a staffing venture with Adecco to deliver diverse talent in the midst of an economic maelstrom.

By now, the average reader may wonder what staffing company cheerleader uniform I’m wearing. While I did serve as a marketing executive at a large staffing firm for most of this decade, I’m not a rah-rah kind of guy. In fact, my New York upbringing has always made me suspicious of those idealists whose idea of negative thinking is a 10 percent chance of rain.

I know staffing suppliers are in for a brutal stretch over the next year or so. And some, if not many, of the 20,000 firms in this industry will go the way of Circuit City and Lehman Bros. However, companies that make moves based on solid strategic thinking rather than hubris stand the best chance of remaining significant members of customers’ supply chains.

So let’s see what happens. In the meantime, talk to your suppliers and ask them what they’re doing to weather this tempest and how they see this playing out.

You’ll learn something about them as companies as well as something about them as people.

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