The staffing industry is experiencing a period of profound change. A powerful combination of demographic shifts, technology advancements, and new competition leaves many incumbents facing a “disrupt or be disrupted” conundrum. These industry changes have been accelerated by the global pandemic, uncertain business, and economic outlook as well as operational efficiency imperatives.

Once seen as futuristic, technologies such as artificial intelligence (AI), robotic process automation (RPA), machine learning, chatbots, and blockchain are increasingly becoming commonplace, especially among nimble, digital-first new entrants. The emergence of the “human cloud” may be the biggest disrupter of all. Attracting $80 billion in annual investment, according to the Staffing Industry Association, the human cloud includes digital labor and staffing platforms that eliminate the need for manual intervention in the staffing process.

The rise of managed service provider (MSP) programs is also having a direct impact on staffing firm revenue and profitability. MSPs typically manage staffing processes and systems for large corporations and interact with several vendors providing staffing services. In response, some staffing firms have developed their own managed service programs.

These are among the issues explored in a new white paper jointly developed by EY and SAP. The paper highlights how tomorrow’s staffing industry leaders will be those that embrace the transformation imperative today and develop bold and creative action plans in a few key areas.

“Digital disruption comes to every industry, and staffing is no exception,” said Michael Liss, vice president, Managing Principal Services Industries, SAP. “Our view is that now is the moment to lay the foundation for future-state business models and a vision for growth. While the competitive threat from tech-driven startups is real, traditional firms can use enabling technology to build on their strong relationships and enhance their value proposition.”

“The future of work is taking shape today, and staffing firms have an opportunity to provide leadership and prioritize their innovation investments to drive future growth,” said Michael Yadgar, Americas SAP leader at EY. “From the war for talent and the rise of the human cloud to new business models and richer client and candidate experiences, there are many exciting innovation opportunities.”

Based on many engagements with staffing leaders, we believe the following megatrends are among the most powerful in redefining the industry:

  • Process automation: Technology innovations enable staffing firms to replace manual tasks, such as resumé scanning, background checks, and onboarding. While automation reduces errors and increases efficiency, it can also lay the groundwork for richer client and candidate experiences, which ultimately help build stronger relationships.
  • Digital marketplace platforms: New market entrants use these platforms to offer direct search and matching of talent. Other capabilities include candidate profiles, automated assignment matching, self-selection of assignments, availability tracking, candidate and client ratings, and automated billing and compensation. While this model works well for commoditized positions, higher-skill roles still require high-touch service and trust-based relationships.
  • An evolving workforce: Millennials and Generation Z will represent more than 75% of the global workforce by 2025. These “digital natives” want instant communication and information access via their phones. They are also open to reskilling through online learning and training, which gives staffing agencies a chance to create talent and offer more value to both clients and candidates.

In response to these and other disruptive forces, staffing companies must prioritize a number of strategic actions and challenge their thinking by addressing a range of critical questions. The paper from EY and SAP highlights the following three key areas of focus for firms that are ready to embark on a journey of transformation.

1. Digital Delivery Platforms and the Shifting Role of Finance and Operations

Finance and operations can no longer be a back-office or support function primarily focused on data entry and reporting. Rather, it should embrace AI and process automation so that it can evolve into the higher-value roles of business analyst and strategic advisor. For example, sales operations and finance leaders should work to proactively identify market trends and development that can impact profitability and growth. Beyond the bottom line, insights provided by finance can help move the needle on candidate satisfaction — by better matching candidates and opportunities — and operational efficiency — by reducing the number of touches to fill positions.

  • Critical question: If 90% of data entry were automated, how could finance and sales operations add value and provide competitive advantage?

2. Innovative Business Models and Diversified Pricing Models

A hypercompetitive market requires staffing firms to differentiate their offerings and value propositions. Ideally, a staffing firm’s sales force should be able to leverage AI to design competitive pricing structures and attractive packages. Subscription models offering on-demand access to advisory and staffing service in exchange for a set fee are likely to grow. So are outcome-based and performance-driven contracts, which will complement traditional by-the-hour pricing. Analytics and modeling tools will also help firms develop such customized pricing based on the evaluation of different criteria, including the suitability of such offers to both clients and talent.

  • Critical question: Which information about candidates and clients defines the optimal pricing and compensation models?

3. Candidate Satisfaction, Client Experience, Experience Management

Staffing firms recognize the importance of experience to relationships with both candidates and clients. A quality experience pays off in the form of increased loyalty, deeper engagement, and, ultimately, more revenue for staffing firms. These benefits will only get more important as new entrants offering intuitive experiences continue to gain traction. Incumbent firms must ensure they understand what clients and candidates are looking for and then design an experience that delivers just that.

  • Critical question: How can firms deliver an amazing user experience by applying data and AI to identify client and candidate preferences and enable automatic matching?

Profound digital-driven change is disrupting the staffing industry, just as it has for other sectors in recent years. The experience of those industries confirms that the market leaders will be those firms that think the biggest and act most boldly in embracing technology, focusing on experience, and exploring new business models.

EY and SAP Focus on the Staffing Industry

Both EY and SAP have provided solutions to the staffing industry for many years. SAP solutions have automated back-office processes, enabling streamlined operations and increased efficiency for the staffing industry. EY’s industry knowledge combined with its consulting, tax, and risk expertise has helped transform staffing firms to optimize their operations. EY has also transformed its own capability to drive staffing requirements for engagements in the marketplace.

With the amount of profound change that is taking place in the staffing industry, EY and SAP together can offer complete solutions for firms facing disruption and enable them to transform into intelligent enterprises. By combining the proficiencies of SAP solutions with machine learning, AI, and RPA, EY can help staffing firms achieve digitalization in order to transcend disruption and operate as a firm of the future.

Eric van Rossum is senior vice president and general manager of Services Industries at SAP and Dean Hansen is partner at EY.