Staffing growth drivers changing from cyclical to structural
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Update employment services sector: growth drivers changing from cyclical to structural
1. A shift from permanent labor to flexible labor.
2. Improve value-added proposition
3. Disintermediation, disruption and the Clicks and Bricks sweet spot
Conclusion
Contents
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Staffing growth drivers changing from cyclical to structural
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Update employment services sector: growth drivers changing from cyclical to structural
The January staffing data reported by the Dutch branche organisation ABU were strong and made us
forget the weak (year on year) growth over the last period (13) of last year. Earlier in 2015, we already
had two consecutive periods of lower growth than the previous year. For the time being it seems the
staffing sector will benefit from a projected 2016 GDP growth of around 1 3/4%. At the same time we
know that the world no longer is the same compared to ten years ago. The outlook for the staffing
industry is more difficult to interpret. The strong dependence of the sector on macroeconomic growth
has decreased and at the same time other drivers for growth in the industry have become more
important. Let’s examine these drivers more in detail.
Year on Year growth/decline in % of staffing volume 2013 -2015
1 2 3 4 5 6 7 8 9 10 11 12 13
201320142015
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
Source: Recruitment matters, ABU
For the time being it seems the staffing sector will benefit from a projected 2016 GDP growth of around
1 3/4%. The first quarter of 2016 showed a continuation of relatively strong staffing volume growth and
gives us more confidence in the underlying strength of the economic recovery. Also, growth in the
more late-cyclical administration segment is accelerating.
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Staffing growth drivers changing from cyclical to structural
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Staffing growth drivers changing from cyclical to structural
1. A shift from permanent labor to flexible labor.
We saw earlier in the United States that employers convert permanent jobs to staffing jobs. In the
Netherlands, we see a similar development (see communication by UWV - The Dutch organisation
responsible for employee related social security). It is still unclear what the impact is of the so called
‘Work and Security’ law.
In the October 2015 UWV report: “Temporary employment, Nature, Size and Developments,” the overall
growth of the total staffing sector as well as the growth of staffing in different industries is discussed in
detail. In the picture below it is clear that measured from the crisis year 2009, five years later in 2014, in
most industries, there has been a remarkable growth in the number of temporary workers. Front
runners are the Port Authorities and Business Services sector. The biggest growth in the demand for
staffing, however, occurred after 2015.
Number of temporary staffing jobs by industry 2009-2014End of September
Source: UWV (2015) o.b.v. polisadministratie
NB: Sectors mentioned in English are (from top to bottom): Staffing companies, Port Authorities,
business services (type III) , hospitality, retail, healthcare, technical (metal), electro technical, business
services (type II). ‘Mutatie’ means ‘change’
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Staffing growth drivers changing from cyclical to structural
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One of the theories regarding the growth of the staffing sector has always been that the so called
penetration rate of temporary labour increased after every new cyclical recovery after a recession. The
penetration rate being the number of temporary workers in relation to the employed labor force.
Percentage of temporary staffing employees in the employed labour force, by industry‘Uitzendkrachten’ means temporary agency workers
Source: CBS Arbeidsrekeningen (2014)
NB: sectors mentioned in English are (from top to bottom): agriculture, Industry, construction, trade,
storage, hospitality, information and communication, financial services, other business services, public
sector, education, healthcare, culture and sports, other services.
More jobs primarily driven by the staffing industry
The UWV projects job growth again for 2016. The staffing industry is as always the engine for job growth.
This is evident from the October 2015 UWV study: Labour Market Forecast 2015-2016. The staffing sector
was responsible for the lion’s share of the job growth in 2015; according to the UWV, the number of
temporary jobs increased by 28,000 that year. For 2016, the UWV assumes further growth, with 54,000 jobs.
Of these, 23,000 are projected to be temporary jobs.
Digitization
According to the UWV, the recovery of the labor market continues, but not everyone benefits. In financial
services, healthcare, manufacturing and government thousands of jobs will disappear in the coming years.
This is partly due to digitization and government cutbacks. The predicted increase in jobs is modest
compared to the decrease in the number of jobs during the crisis. Since 2008, the number of jobs declined
by about 300,000.
Source: ANP/UWV
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Staffing growth drivers changing from cyclical to structural
The image above also shows that the penetration of temporary staffing as a percentage of the total
working population has remained stable over a ten year period and that other forms of flex (like
payrolling) grow faster.
Structural changesIn the picture below we get more detail on the penetration of staffing in the United States. We see a
relatively strong increase in the demand for temporary staffing post Q3 2009 (start of the recovery).
One consequence of this is that the traditional cyclical signal (demand for staffing increases, so
economic growth will increase as well) becomes less important because there is also a structural
component in the growth of temporary employment: employers are replacing permanent jobs with
temporary (staffing) jobs.
Structural shift to temporary staffing in current upturnUS temporary penetration rate vs. unemployment rate
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Q4 2006Adecco’s North Americarevenues peak Q3 2009
Trough US temppenetration rate
October 2006 toNovember 2007Unemployment rateremained vetween4.4% and 4.7%
1.6%5.7%
2.0%
5.1%
1.34%
US unempolyment rate s.a. inverted (lhs)US temp penetration rate s.a. (rhs)
Source: Bureau of Labor Statistics
Note: The share of temporary workers in the total working population remains almost unchanged between 2003 and 2013.
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Staffing growth drivers changing from cyclical to structural
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In the United States there are also concerns about the quality of the jobs created during the post 2009
recovery. The picture below clearly shows why this is the case.
2007 2008 2009 2010 2011 2012 2013 2014 2015
2000
1500
1000
500
0
-500
-1000
-1500
-2000
-2500
1.6 million
1.4 million
Waiters/BartendersManufacturing Workers
Source: Bureau of Labor Statistics
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Staffing growth drivers changing from cyclical to structural
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Staffing growth drivers changing from cyclical to structural
2. Improve value-added proposition
For a long time, the difference in complexity between the services flex providers deliver, has been
depicted in the manner shown in the image below. General staffing (uitzenden in the picture below))has
become a volume driven extreme commodity and many secondment companies will reluctantly admit
that they too experience margin pressure for quite some time. Also, the secondment product (generiek
detacheren) is perceived by purchase departments as a commodity as well. Specialised secondment
(specialistisch detacheren)is the next step in the value chain: margins are less sensitive to pricing
pressure here. Consultancy is the next in the value chain. The reality is that specialised secondment and
consultancy are the most logical strategic roads up in the value chain for both large general staffing
companies that offer all flex services ‘in house’ as well as big general secondment firms. Specialised
consultancy, however, is a different ball game. It is not part of the evolutionary development of the flex
sector.
Toeg
evoe
gde
waa
rde
(bru
tom
arge
)
Uitzenden Specialistischuitzenden
Generiekdetacheren
Specialistischdetacheren
Toegepaste consultancy
Specialistischeconsultancy
40%
30%
20%
10%
Source: DPA
The U.S. research firm Staffing Industry Analysts (SIA) has published a paper some time ago, with a
nice overview of the evolutionary development of staffing companies (see picture below). The ‘End
Game’, in their eyes, is Total Talent Management.
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Staffing growth drivers changing from cyclical to structural
Increasing service sophistication
Value
Time
Decentralized• Several suppliers• Procurement
done on anad-hoc basis
• Managementdone internally
Increasing service sophistication
Preferred Suppliers• Selective set of
suppliers selected• Contracts in place• Service level
agreements (SLA’s)in place
Master Vendor• One supplier (possibly
managing 2nd and3rd tier suppliers)
• One point of contact• Direct cost savings
on bill/rate and usage• Customized SLA’s and
process
Managed ServiceProvider (MSP)• Contingent workforce
spend under management
• One contact point• Direct cost savings
on bill/rate and usage• Customized SLA’s and
process• Non-compliant spend
elimination• Total cost of
ownership savings
Total Talent Management• Total workforce spend
under management• Complete workforce
visibility• Direct cost savings
on bill/rate and usage• Customized SLA’s and
process• Non-compliant spend
elimination• Increased total cost
of ownership savings• Addional productivity
and process savings• High degree of value
added services
Source: Staffing Industry Analysts
The question is whether the ‘Total Talent Management’ endgame description is the desired endgame.
The explanation in the figure almost completely focusses on volume and operational excellence-like
features that suit a low-margin situation. We see a trend within purchase departments of large
corporations (consisting more and more of integrated HR- and purchase professionals) that there is a
need for a strategic discussion on the role of flex within their organisation. The contract type (staffing,
payrolling, Independent Contactor) of hired flex workers is becoming less relevant. The staffing
company is asked to deliver talent. But that doesn’t mean talent in a temporary staffing format only.
Finding and retaining talent is far more important for staffing companies now the recruitment function is
becoming far more external in nature, both for staffing companies as well as within corporations. The
challenge for staffing companies is to position themselves differently. Away from the capacity (volume)
driven function to a provider of innovation and change. A number of staffing companies have already
successfully made this change.
seeking
very passivenot interested
knownothing
know everything
Attract Match
Source Cultivate
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Staffing growth drivers changing from cyclical to structural
3. Disintermediation, disruption and the Clicks and Bricks sweet spot
Like many other activities within business services, the staffing industry is also changing due to
technological developments. In the picture below we can see that Randstad’s revenue model changes
because of new distribution channels in which technology plays an important role. In 2005, the
Randstad offices were responsible for 79% of sales. In 2015 this was only 43%. The operating margin
of the fast growing ‘in-house’ concept has also become higher than that of traditional staffing.
2005 2010 2015 YTD
79% 69%
43%16%
16%
79% 25%
31%15%
6%
BranchInhouseCentral delivery
The equally fast growing so called MSP (Managed Service Providers) companies are cause of another
risk to traditional staffing companies: they might get disintermediated and lose the opportunity to be in
direct contact with their large clients. MSP companies often take care of the total flex-needs of large
organisations by arranging and purchasing flexibility from staffing companies and other providers of flex
workers (secondment providers and independent contractors). All major staffing companies have their
own MSP proposition in which the so-called “neutral” MSP variant tends to be the most frequent one:
assume the Randstad MSP is responsible for organizing the entire ‘flexible layer’ for Philips. Within that
construction it is entirely possible that Adecco’s staffing employees are sourced by the Randstad MSP.
The U.S. market is the most mature MSP market: 45-50% of US staffing volumes are already flowing
through MSP structures.
A more serious threat to many large companies is underway. It involves the emergence of innovative,
nimble and small businesses using the latest technology to compete on individual services of a large
player. Upwork is a good example. It offers freelancers online and is a serious threat to the traditional
office-based staffing companies. Below a summary of a trend taking place in more and more different
sectors. It shows how small companies put pressure on services within large companies by offering
better and (often) cheaper solutions.
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Staffing growth drivers changing from cyclical to structural
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Source: Randstad investor presentation
The clicks and bricks sweet spot There are traditional businesses that have matured and grown from an office based infrastructure and
are developing on-line competencies (the big staffing companies) as we speak. Alternatively, there are
companies that have grown on-line and are opening offices now (Cool Blue, Young Capital). The big
question is where the ‘sweet spot’ lies between on-line and off-line presence. What is the ideal mix of
online and outlets (clicks and bricks) ? Probably the best way to find out is to experiment. A number of
staffing companies (and retail) currently are doing just that.
Technology Another comment on technology and disruption. The question is to what extent the staffing industry is
susceptible to automation. An examination of the aforementioned Staffing Industry Analysts showed
that more than 60% of the temporary staffing jobs in the long term is lost through automation. That’s
more than the 47% which was calculated for the total U.S. workforce by Osbourne and Frey in 2013.
The question is also how many new temporary jobs are created by new technologies. In an interview
with a major national staffing company it became clear that they saw a strong increase in demand for
couriers. The reason is that the strong growth in orders over the Internet also leads to a greater demand
for people who deliver these products at home.
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Staffing growth drivers changing from cyclical to structural
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Conclusion
Not only staffing companies but all companies providing workforce flexibility related solutions are facing
the three issues mentioned in this paper. For now all providers are benefitting from economic growth.
The law Work and Security, contrary to the expectation of many, has not led to the death of staffing and
patrolling. The industry flourishes as never before and the ABU figures also show recovery in the
administrative segment, a part of the economy which has always been considered in the past as late
cyclical in its recovery. The traditional divide between permanent jobs and flexible jobs is fading rapidly
and flex jobs will grow faster than permanent jobs. These are two important structural drivers for the
growth of flex (not just staffing) in the coming years.
The current period of economic tailwind does not mean that staffing companies do not need to
innovate and invest. The expectation still is that staffing margins will not recover to the level we have
seen before 2009. Also, back office and front office technology must be top notch (payrolling and time
records) and it is certainly worth thinking about future USP’s (unique selling points). For many smaller
staffing companies their USP will be specialization (in a specific area of expertise, region or service).
Finally, non staffing related flex services are expected to continue to grow faster than staffing. The
future for payrollers and freelancers is looking bright. How will staffing companies take advantage of
this?
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Staffing growth drivers changing from cyclical to structural
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Bevindingen
Onderscheidend vermogen in de professionele zakelijk dienstverlening heeft steeds meer te maken
met creativiteit: het vermogen om voor de klant oplossingen aan te dragen die buiten de gebruikelijke
referentiekaders liggen. Nu in vele sectoren de backoffice activiteiten en grote delen van de werk-
processen geautomatiseerd zijn, valt hier nog weinig toegevoegde waarde te behalen. De Advocatuur
is hierin een uitzondering: de automatisering van werkprocessen staat nog in de kinderschoenen.
Het aanbieden van maatwerk juridische diensten door advocaten op de domeinen die voor hun klanten
het verschil maken, biedt voldoende basis voor groei. Het gaat dan om het faciliteren van wendbaar-
heid (strategische personeelsplanning), innovatie (het organiseren, borgen en bijeenbrengen van de
juiste kennis en vaardigheden) en helpen bij het ‘toekomst vast’ maken van de ICT infrastructuur. De
juridische achtergrond van de advocaat zal hierbij steeds meer een ‘hygiene’ factor worden. Een goed
bedrijfskundig referentie kader en het op de juiste wijze inzetten van zijn netwerk zullen daarentegen
het verschil gaan maken.
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Staffing growth drivers changing from cyclical to structural
Colofon
Dit rapport is een uitgave van ABN AMRO
AuteursHan MestersSector Banker Zakelijke DienstverleningABN AMRO Sector Advisory and Sustainability
BeeldmateriaalShutterstock
DistributieWebsite: www.abnamro.nl/sectoren Telefoon: 0900-0024 (0,10 per minuut)
insights.abnamro.nl
Commercieel contactHan [email protected]
DisclaimerDe in deze publicatie neergelegde opvattingen zijn gebaseerd op door ABN AMRO betrouwbaar geachte gegevens en informatie, die op zorgvuldige wijze in onze analyses en prognoses zijn verwerkt. Noch ABN AMRO, noch functionarissen van de bank kunnen aansprakelijk worden gesteld voor in deze publicatie eventueel aanwezige onjuistheden. De weergegeven opvattingen en prognoses houden niet meer in dan onze eigen visie en kunnen zonder nadere aankondiging worden gewijzigd. Het gebruik van tekst en/of cijfers uit deze publicatie is toegestaan mits de bron duidelijk wordt vermeld.
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