Staffing Industry: Headwinds of change

Anil Ethanur |

Staffing Industry: Headwinds of Change?

“I manage 40,000 payrolls a month…”

“We have offices in 40 locations and we put a lac people to work…”

“We staffed one-third of Electronic City!”

…these were just some of the Claim to Fame of Staffing Industry professionals for the longest time. The mid-2000s looked like a scale was all that mattered. Staffing USPs and valuations were all largely about superlatives on headcounts and geographic spread. Margins, Profits, DSO, Unit Economics & Cashflow, took a humble backseat as staffing companies shot for scale and speed. Overall the last decade was in reality the building phase of the Indian Staffing Industry, and some of the factors around stability and consistency may have got ignored!

This was all bound to undergo a recalibration and it would not be far fetched to say that we’ve witnesses some of it already. The calibration across the industry had begun earlier this decade and reached maturity mid-decade. The shift from the pursuit of scale to more composite metrics was evident and also a welcome shift, especially in the current unfamiliar context that staffing companies are operating in.

Metrics that Matter

As some of the conventional metrics failed to deliver, other internal metrics which may not have been apparent in the past have come into focus across the industry. Its common practice now to see Staffing Company Annual Reports and Press Releases highlighting these composite metrics and few others innovating on newer metrics.

Some of these newer metrics now in play are:

  1. Diversity of customers – Risk hedge and over-dependence on a few clients
  2. FTEs in billable roles (Front Office vs. Back Office roles)
  3. Speed to Billing per consultant, Time to fill per order (are my internal processes agile?)
  4. NPS or Net Promoter score of Contractors (is my supply chain happy?)
  5. Head vs. Tail (Do we have too many retail customers increasing servicing cost)
  6. Gross Profit per FTE & Gross Profit per Contractor (Are my Unit Economics Healthy?)

While purists debate the efficacy and relevance of some of these metrics, point remains that enterprises with healthy numbers on these metrics are facing headwinds better than their counterparts. Time may have come for Staffing CFOs to also enforce other parameters that demonstrate sustenance in tough times and slowdowns.

Staffing Product Mix

Talking about sustenance and facing headwinds, the Volume vs. Value discussion has been a long drawn debate in staffing companies’ board rooms! To add more dimensions to the debate we also coined phrases like “High Volume-Low Margins” and “Low Volume-High Margin” to describe the desirable mix!

Staffing Companies are either described as ‘General staffing’ or ‘Specialist staffing’. These differentiations are primarily based on the skills they cater to, for example, blue-collar or white-collar skills or entry-level vs mid-level or technical jobs. Beyond the apparent external positioning, the primary intent is to also have a favourable EBITDA.

‘General Staffing’ companies traditionally have a significant proportion of low salaried blue-collar jobs. In contrast, the ‘Specialist Staffing’ companies cater to high skilled jobs in IT, BFSI, Engineering to state a few. The General Staffing business mix reflects a low single-digit constitution of permanent staffing compared to ‘Specialist Staffing’ that have 20-40%. During good times well run ‘Specialist staffing’ generate an EBITDA margin of 8-10% while ‘General staffing’ has half of this figure.

What is the ideal product mix for a sustainable and profitable staffing company, remains the million dollar question across the industry. The current challenging situation, has once again put to test the staffing product mix equation. One has to wait to see the size and type of companies that come out unscathed on the other side of the pandemic, before commenting which product mix pulled them through. 

Tech Play to Rescue?

In an industry that churns out low margins, entry of every new player meant the margins becoming wafer thin. In such conditions every business lever matters and one of the definite ways to better the bottom-line was to progress on the Technology front. The need for and impact of the Tech Play has now been amplified further with the emerging challenges in the market.

The quest over the last two decades has been to adopt tech across the gamut of recruitment and staffing processes. Traditionally a combination of ATS and HRIS has been used and more recently Mobile Apps have been deployed to bring in more engagement & efficiency. And not to forget the newer promises that AI, Blockchain, Robotic Processes regularly bring in to the industry! Despite the 2 decades of HR Tech work that has gone in, what is seen on the ground are disparate pieces of technology that don’t speak a common language. Integration and usability remains a challenges forcing enterprises to go for their own proprietary builds.

We are yet to see a breakthrough in Tech, which can make the Staffing Business truly Non-Linear. If there was ever a time for tech to deliver its promises, it is Now!

Indian Staffing growth trajectory intact

Global Staffing Industry is expected to shrink by 37% due to covid and estimated to get back to 2019 levels only by 2022. The clock has been almost reset by 3 years. However, the staffing industry in India is still forecast to grow in 2021, which is great news. This optimism is not misplaced going by the countercyclical nature of the staffing businesses validated by recovery cycles in 2000 and 2008.

People-Process-Technology & Financial Resources has traditionally driven Staffing companies Success and indications are clear that these will fuel the sustenance and recovery. Staffing companies who have got this combination right will be most resilient in the current context and live through to tell the stories in their future Annual Reports and Employee Orientations!

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