Twago’s Deep Insight into the Current and Future State of the Direct Sourcing Landscape

The below article is the conversation between TTL’s David Francis, Head of Research, and Twago’s CEO, Thomas Jajeh. In the conversation, Jajeh sheds light on what direct sourcing models will win and how the sourcing space will evolve in the next five years. The conversation also unearths the current challenges in implementing and scaling direct sourcing models. Jajeh advises on the common pitfalls that leaders should avoid when adopting a direct sourcing model. The conversation ends with Jajeh describing the impact that growth in direct sourcing will have on the staffing industry.

What is Twago, and how did the company come to be part of Randstad?

Freelancing, or gig work, has been rapidly gaining momentum in recent years. The global labor market, however, was not exceptionally efficient at connecting workers with employers. In 2009, I set out to create a public marketplace in Europe to help overcome this inefficiency. My intent at that time was to create a platform that would grow to become Europe’s largest marketplace for independent talent. Today, we have about 1 million freelance talent on the site, with more than €721 million in project volume.

Our platform is simple: organizations can post projects on the site that enrolled freelancers can bid on. The client then selects the right offer and uses the site to pay through an online escrow account.

David Francis, Head of Research at @TalentTechLabs, interviews Thomas Jajeh, CEO of Twago in their latest trends report. Find out what Jajeh thinks sources can expect from the future of #DirectSourcing: Click To Tweet

As it turned out, many others had the same idea, as we saw the rise of many well-known brands worldwide. In the U.S., for example, Elance and Odesk merged into Upwork. The freelancer marketplace is growing quickly, but at this point in the industry, the B2B segment is just a fraction of the overall market, according to Staffing Industry Analysts (SIA). In its 2020 “Global Gig Economy” report, the analyst organization reported that in 2019, the B2B segment accounted for just 5% of the global gig revenues. This means there is vast potential to grow the freelancer platform for enterprise customers.

For this reason, I felt it was important to build a second product – Twago Talent Pool. This solution specifically supports MSP and RPO providers in their mission to attract the best talent most efficiently and cost-effectively while at the same time putting the talent experience at the center. And this is also why in 2016, I decided to team up with Randstad, one of the global leaders in both HR outsourcing categories. I realized I lacked the knowledge and the network to build the large-scale model that enterprises need. Since then, we have been refining the solution and helping many businesses accelerate their access to great talent globally. Over time the solution has also matured from being a freelance talent pool solution into a holistic talent attraction and nurturing engine, covering the entire spectrum of permanent and contingent talent.

As evidenced by the vendors highlighted in the direct sourcing sub-vertical on our ecosystem, there are many “direct sourcing” business models in the market today, from temporary labor marketplace aggregators to talent pool curators to pure tech players. Which of these models do you think will “win,” and how will the space evolve over the next 5 years?

Direct sourcing is attracting a lot of interest among employers right now. We are working with several Fortune 500 companies to help them develop the most effective models for their needs. This likely means hybridizing many different solutions because I don’t believe you can easily template an approach for complex global organizations.

There is no question that direct sourcing is gaining momentum. According to SIA, 26% use direct sourcing today, and 41% plan to seriously consider it within the next two years. Since the pandemic, there has been even greater interest due to the potential for cost savings and agile access to talent. Both factors will determine the fate of companies during the recovery period.

Which model will emerge as the clear winner over the next five years? I don’t think this is a winner-takes-all scenario as the use cases are so different. Different segments of the market have different needs, and many of the platforms are currently set up to address a specific problem. For instance, large freelance marketplaces like Twago or Upwork are not the best fit for longer, on-site assignments. Their strength is centered around smaller gig work. Therefore I believe the temp marketplaces will continue to play a role in enterprise sourcing strategies.

At the same time, traditional temp staffing solutions address just one aspect of a company’s needs. When companies adopt a more holistic and integrated approach to their talent needs, they connect all of their supply chain options – whether that’s a temp agency, freelancers from Twago Talent Pool, or even internal mobility. 

CEO of Twago, Thomas Jajeh, and David Francis, Head of Research at @TalentTechLabs, breakdown #DirectSourcing and how organizations can use this strategy to better their #CandidateSourcing. Find out more in the latest Trends Report: Click To Tweet

What’s clear is that enterprises want to engage all of their talent – freelance, temp, permanent, SOW, and others – through their brand. The question is, how do they effectively nurture their permanent and contingent talent pools in a consistent way? How can they leverage various channels for sourcing to deploy the best resources for a particular role or project? 

The freelancer marketplace has a place in the supply chain, but it probably won’t address the long-term roles I mentioned earlier. What is the best solution? Again, it will depend on the organization, the skills needed, and the comfort level of using a marketplace solution.

In some cases, an organization may want the support of its recruitment process outsourcing (RPO) or managed services provider (MSP) partner to optimize direct sourcing practices. These service providers have been integrating direct sourcing into their practices for some time, and getting it right can be challenging. We have seen several direct sourcing attempts that have gone badly due to inexperience in this area – from lack of process knowledge to compliance to challenges to poor output in terms of building a robust pipeline of high-quality talent. A third-party provider typically has experience with addressing these and other challenges.

Regarding the pure technology providers, this is another example of an appropriate fit. For some organizations, acquiring a tool to help them better manage their direct sourcing program is all that is needed. Perhaps they don’t need all the bells and whistles that a full solution offers. The roles they need to fill may not require anything other than a technology platform specialized in the skills they seek (i.e., a developer community or one for graphic designers). 

For other organizations, direct sourcing may require an integrated talent pool complemented by a robust set of tools and expert guidance on attracting the best talent. Such a solution may require a talent marketing strategy, activation of their employer brand, an alumni program, and other features that a pure technology platform is incapable of delivering.

Direct sourcing, for all its promise, is still in early days in terms of market penetration/adoption. What have been the challenges with implementing and scaling this business model, and when do you expect it to become mainstream?

Like any novel workforce solution, direct sourcing requires time to be well understood and assessed by organizations. Precisely what constitutes direct sourcing, the benefits of such a model, the change management required, and other aspects of adoption remain perplexing to many organizations. The rapid development of the freelancer marketplace has also added to misunderstanding in the enterprise market, with many new vendors making unsubstantiated claims about access to talent. 

Another challenge is the inability of organizations to define the problem they hope to solve with direct sourcing. This model is often viewed as a way to reduce costs, so they rush out to implement technology and expect rapid returns. These businesses are quick to learn that it’s not that simple. They don’t understand that maybe it’s not cost control that is the priority for their company; it can be accessing high-quality talent, finding engaged candidates, or a combination of all these mandates.

This lack of awareness can lead to deploying the right solution to the wrong problem. I have seen companies having trouble sourcing highly scarce on-site professionals turn to piloting Upwork. These platforms do not work well for the skillsets they hope to acquire. 

Additionally, companies grapple with compliance and contracting issues. Whether you are in Paris, Philadelphia, or Phnom Penh, direct sourcing talent in these markets still requires knowledge about local labor regulations, contracting laws, and taxation. Failing to comply with local requirements can pose a significant risk for any company undertaking direct sourcing. 

David Francis, Head of Research at @TalentTechLabs, and CEO of Twago, Thomas Jajeh, talked through the need for a customized #CandidateSourcing strategy when it comes to attracting and retaining top talent: Click To Tweet

These issues have been amplified during the pandemic because of growing interest in borderless talent. With work-from-home arrangements demonstrated to be effective, companies are asking, “Why can’t I source talent from the other side of the world to perform my work?” You can, but many regulations must be accounted for, whether it’s for a gig worker, a short-term professional, or another labor type.

Another still-maturing aspect of the model is how companies manage their contingent employer brand. Companies that have used temporary agencies can rely on their suppliers to attract the best talent, but on their own, these businesses often neglect their brand and underestimate its importance. Just as they would build an employer brand to attract permanent hires, they need to undertake such an exercise for temporary talent.

Similarly, the candidate experience is also overlooked. It’s not enough to just offer an attractive salary; companies must ensure talent enjoys a streamlined experience when joining a talent pool, applying for a role, or is on and off-boarded. Creating a memorable journey provides a sustainable and robust talent pool.

We need more education in the market about direct sourcing and the various labor types available to an organization. Understanding precisely the kind of resources they need to get work done and how to optimize these different work arrangements will result in greater success. If this were to occur quickly over the next 18 months to two years, I believe most enterprises will be engaged in direct sourcing in some form within the next five years.

For clients that may have tried a direct sourcing approach or pilot and failed, what is typically the main cause? What “pitfalls” should folks interested in this model be aware of?

There are many challenges. Right from the beginning, pilots are often designed to fail. Why? As I mentioned above, companies don’t frame their needs exactly and don’t understand what they want to achieve. Is it cost savings? Is it acquiring in-demand skills more quickly? Is it to reduce turnover before assignments are completed? Without establishing this essential element, there is a good chance they won’t achieve their goals.

Another consideration is the volume tested in a pilot. Direct sourcing works best at scale, and if a pilot aims for too low of a number of reqs, it’s difficult to justify the investments. While not all roles can be direct sourced, the model works best with a considerable number of requisitions.

CEO of Twago, Thomas Jajeh, and David Francis, Head of Research at @TalentTechLabs, discuss the landscape of #DirectSourcing and ways organizations can improve their #candidatesourcing strategies. Find out more in the latest Trends Report: Click To Tweet

Furthermore, organizations sometimes alter the scope of their pilot after it has been launched. This makes it challenging to achieve the desired outcome as goals and expectations shift. Additionally, it makes it difficult to assess whether the effort clearly fulfills the objectives that program leaders set out. 

Another factor that can influence the outcome is whether the pilot adequately markets talent effectively and compellingly. This includes ensuring the talent experience is highly engaging and satisfactory, facilitating the application process, and managing talent’s expectations. Companies need to adopt a consumer-driven mentality around talent marketing and attract them with relevant offers and content.

Most importantly, you have to ask what does success look like? Do you benchmark against the delivery metrics of suppliers or those of internal talent acquisition teams? How do you define the quality of talent? If pursuing cost savings, what is the target for the pilot and a fully implemented program? These are all critical considerations that must be discussed before setting up the pilot.  

What impact do you think growth in direct sourcing will have on the staffing industry? Is there a way for smaller or niche players to participate in this model? How disruptive versus additive versus transformative do you think it will be for staffing firms?

We already see a genuine impact on the digital staffing industry. Many traditional vendors are rushing to develop new solutions to offset the disruptive nature of direct sourcing. If they do nothing, they risk becoming irrelevant and losing market share. Several smaller, innovative competitors are coming to market with unique offerings, so they are certainly challenging the status quo.

Even so, I don’t believe the staffing industry will be transformed overnight. For many buyers, the reliability of their trusted supply chain outweighs the risks that might accompany direct sourcing. Additionally, these organizations may lack the expertise, buy-in, and technology to facilitate this significant undertaking. Direct sourcing will be all three: disruptive, additive, and transformative. How long will all of these changes take to make a substantial impact in the overall staffing industry? 

One area of growth is the role of an RPO or MSP. These service providers will have a significant impact on a buyer’s direct sourcing journey. An MSP can accelerate the maturation of a pilot or fledgling program. At the same time, an RPO can help develop a robust talent pool from which contingent workforce managers can find great talent. An outsourced solution can also help drive more diverse talent to an organization and elevate internal mobility.

Not all companies, however, will be comfortable with a third-party service provider managing their sourcing activities. These businesses typically prefer to exert full control when sourcing talent. Others, however, will greatly value the expertise and best practices offered by their service provider, whose experience and robust toolkit are valuable assets.

One final thought is that direct sourcing is a must-have channel among an organization’s talent strategy. Companies are long overdue to leverage their employer brand for contingent talent acquisition. Now, they can fully utilize their brand power to win the flexible talent needed to boost their recovery efforts.

Want to learn more? Check out our full Trends Report to hear from more industry leaders about the benefits of Direct Sourcing and the future of the talent acquisition industry.