Is it time to terminate the supplier-funded MSP model?

08/11/2021

Matt Yeager

Vice President, New Business Development

You spend more, you get more, right? When you go to a coffee shop and spend $100, you’re going to come out with a whole lot more coffee and pastry than if you spend $20. That’s just the way the world works. So, why are we still funding MSPs based on a variable that has little relation to the service delivered?

Managed Service Providers (MSPs) have been around for 25 years, and a lot has changed in that time. But one thing that has stuck fast has been the supplier-funded commercial model. Most MSPs are paid for by suppliers as a percentage of their invoices. This means that the amount paid for a program isn’t dependent on how good the service is or how innovative and supportive the provider partner is – they are based on fluctuating talent needs. There is a huge disconnect between the value delivered and the price paid, and something has got to give. Honestly, it’s a stupid equation and I think it’s past time we ripped it up and started again.

The growth of MSP

Way back when, the supplier-funded model made sense. MSP programs were designed as a hugely necessary tool to categorize contingent talent and control spend. They delivered savings by creating order from chaos and the fast, ‘free’, supplier-funded model made accessing these much-needed efficiencies possible for many organizations. Today’s MSP programs are a very different animal – complex data analytics, market insights, supply chain management – many have developed a full suite of consultative services and tools that empower organizations to elevate their contingent talent strategy. But none of these value-added solutions are free to develop or implement, and it’s tough to deliver consistent services based on a fluctuating fee.

A race to the bottom

Solutions built around a percentage fee can quickly devolve into a race to the bottom. This supplier fee often becomes the whole basis for negotiations and, as some providers rush to cut their fee to the bone, clients get worse service and worse program outcomes. Focusing on supplier spend instead of the value delivered, creates less incentive to be the smartest, fastest, or most creative MSP out there. It also puts pressure on suppliers to deliver more for less which drives service levels down across the board.

At KellyOCG, we are actively working to dispel the idea that cheaper is better by concentrating on program value and innovation. Other providers spend a lot of time talking about total talent management and strategic workforce planning, but the truth is that many of them don’t have the capability to deliver while operating inside a limiting pay structure. Talent technology has advanced lightyears in the last decade. Our organization and the industry are packed with smart, capable folks, but we are being held back by a commercial setup that is at least a decade out of date.

The age of the subscription service

How many subscriptions do you have right now? Probably quite a few. The subscription model exploded because it allows customers to pay directly for what they want and what they need – the Netflix effect. But you don’t ask filmmakers to cover your streaming bill for the privilege of watching their movie. I believe there is huge scope to bring subscription thinking into the MSP space. Client-funded models exist but they are still very much in the minority. Let’s normalize paying MSPs a monthly fee and start to drive real value and more consultative partnership in this space. This could not only transform the level of service and support organizations receive, but it will also drive competition based on capability and value.

This is a change that won’t just improve client value or open the door to greater innovation; it is essential to the evolution of our industry. It’s time to leave supplier-funded models where they belong – firmly in the past.

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