Direct Sourcing is the Next Big Thing in Contingent Workforce Management

In this article, Edwin Jansen, Head of Corporate Development at Raise Recruiting, discusses the burgeoning trend of Direct Sourcing and declares that a Direct Sourcing Revolution is taking place now. Jansen draws upon data and an innovation adoption curve to demonstrate why contingent workforce leaders need to evaluate their implementation options and map out a game plan. By reading this article, you will learn what direct sourcing is and the elements of a successful direct sourcing program. Jansen concludes by making a case for self-sourcing vs. managed direct sourcing. 

Edwin Jansen of Raise Recruiting discusses the rise of #DirectSourcing and offers insight for successfully implementing this strategy in your current #recruitment process. Read more in @TalentTechLabs latest Trend Report: Click To Tweet

The Direct Sourcing Revolution is Here

Over the last two decades, a growing majority of large companies have counted on Managed Service Providers (MSPs) to drive competition among contingent staffing suppliers, lower staffing mark-ups, and achieve compliance with contractor workforce policies and procedures. 

Now that today’s multi-agency-centered model has reached maturity, enterprise staffing buyers are actively considering new strategies to drive next-level program improvements. Leading among those innovations is direct sourcing, which helps companies hire more qualified contractors significantly faster and at reduced staffing markups by leveraging the employer brand as a magnet to build private talent pools out of the growing legions of people pursuing contract work.

According to Staffing Industry Analysts (SIA) upcoming market research on direct sourcing, only 16% of the 158 contingent programs surveyed strongly agree that direct sourcing is effectively implemented today. Another 21% somewhat agree that direct sourcing is effectively implemented, and within two years, an additional 23% of programs either strongly or somewhat agree that direct sourcing will be in place. The survey suggests that a boom in direct sourcing is coming, with 60% of the program leaders either already direct sourcing or expecting to within two years.

However, as management consultant Geoffrey Moore notes in the landmark book “Crossing the Chasm,” the most challenging step for innovation is making the transition in the adoption curve between early adopters (visionaries) and the early majority (pragmatists).

To best navigate the next two years and create a competitive advantage, contingent workforce leaders need to evaluate their implementation options and map out a game plan to ensure they maximize the potential of direct sourcing to become an effective talent acquisition strategy. And that’s what this article is designed to help with.

Direct Sourcing Defined

Direct sourcing is when a company leverages its employer brand to systematically attract and curate a private database of contractor candidates organized into talent pools. 

Because direct sourcing is more efficient and scalable than multi-agency staffing, companies can pay contractor markups up to 50% lower than typical staffing agency rates. Direct sourcing is most often outsourced to a third party as Managed Direct Sourcing (MDS). However, it can also be administered by an in-house internal team which is called self-sourcing.

The Differences vs. Traditional Staffing:

Three hallmarks differentiate direct sourcing from the standard way of sourcing talent via multiple staffing suppliers:

• Use of the Employer Brand: Direct sourcing uses the company’s brand and employer value proposition as a magnet to attract candidates.
• Forecasting vs. Reacting: Direct sourcing collaborates with hiring managers to forecast future needs and proactively attract and pre-qualify talent ahead of upcoming requisitions.
• Building a Talent Pool Database: Direct sourcing builds and curates a private talent pool for the employer, which is an asset that grows in value over time.

The Impact on Staffing Suppliers

When fully mature, direct sourcing will typically fill 50%-to-80% of open positions, which will likely reduce generalist staffing suppliers. However, hard-to-fill and specialized positions will always be a challenge. By implementing direct sourcing, contingent programs encourage their staffing partners to become specialized suppliers who earn higher markups for their value-add.

Elements of a Successful Direct Sourcing Program

Our experience has shown that the following three factors make the difference in maximizing the success of your direct sourcing program:

1. Fully Leveraged Employer Brand

For a direct sourcing program to attract the most high-quality candidates, there must be widespread and effective communication of a strong employer value proposition (EVP) at every opportunity.

Programmatic Job Advertising — Coupling the promotion of a strong EVP with programmatic job advertising software optimizes job ad spending with all the major job sites and niche job boards can produce up to three times as many applicants for the same per-applicant cost.

Jobs Linked From Careers Site — Company career sites are a popular source of candidate traffic, with 77% of candidates going there to search for jobs. Yet, many employers miss the boat by failing to link to their contingent workforce positions. In our research of Fortune 500 career sites, only 6% of companies link to their contractor job opportunities.

Inviting FTE Applicants, Alumni & Retirees — Inviting past direct hire full-time employee (FTE) applicants and ‘silver medalists’ plus alumni and retirees to join your contract talent community is one of the best ways to jumpstart your database. Aggregate data shows that 40% of FTE applicants are open to contract roles, and 27% will join a company’s contractor talent pool if invited.

Social Marketing to Promote Referrals — Not only do 79% of applicants use social media in their job search, but they also rate current employees as the most trusted source of information about a company. Advanced programs have a regular promotion schedule on LinkedIn, other social media sites and frequently message employees, hiring managers, alumni, and contractors to generate referrals.

2. Systematized Forecasting and Talent Pool Curation

Direct sourcing is most effective when program leaders faithfully execute a regular process to forecast future contingent talent needs, and then utilize technology to attract, pre-screen and place candidates into talent pools before the job requisitions need to be filled. 

Look Back Before Looking Ahead — The best place to begin forecasting talent pools is to look back at the previous year’s contingent hiring to build a baseline. In the analysis of the job requisitions, make sure to include the location, the job description, the time of hire (for seasonality), and the time-to-hire (for difficulty). Then combine similar jobs by location and estimate for each how many placements there were in the previous year. This is your talent pool baseline to take to hiring leaders and ask for expected changes in the next year.

Mastery of Talent Sourcing & Curation — In direct sourcing, the practice of filling talent pools before jobs are posted is called “curation.” Curation specialists are a hybrid between an in-house corporate recruiter, who advertises the employer value proposition (EVP) to attract candidates and a staffing firm recruiter who cannot use the EVP and more typically does proactive sourcing to find candidates. Curation specialists use both advertising and sourcing to fill the talent pools. Then, when the job is posted, the curator will invite relevant talent pooled candidates to apply.

Ongoing Forecasting Cadence — After establishing the initial talent pools, the direct sourcing program manager should establish regular communications with HR and hiring leaders to continually tweak the forecast and required qualifications of the talent pools. In our experience, having at least 10 pre-qualified candidates for every hire guarantees a placement will come from the direct sourcing pool. At this point, the talent pool is full enough to implement an exclusive priority window for the direct sourcing team to fill the role before it is offered to the other staffing suppliers.

Proactive Talent Pooling Pays Off — Direct sourcing programs find that proactively curating and talent pooling candidates ahead of time will generate better results than job advertising. According to a LiveHire study of 15,000 contingent hires, candidates from proactively curated talent pools, in comparison to applicants from job advertising:

• Require fewer applications to process per hire (41% reduction)
• Produce better submittal to hire ratios (24% improvement)
• Result in fewer shortlisted candidates withdrawing per hire (30% reduction)
• Take less time to submit (31% reduction)

3. Using Advanced Direct Sourcing Technology

Platforms specifically built for contingent workforce direct sourcing are better suited to a successful practice than full-time-employee (FTE) applicant tracking systems (ATS). In our experience, the following features and functionality enable the rapid scalability of direct sourcing.

Talent Pooling with AI Matching — To be most effective, direct sourcing requires specialized recruitment software that separates curated talent pools from active job requisitions. The typical ATS doesn’t have talent pools as a feature. State-of-the-art direct sourcing platforms also use AI matching to automatically serve up qualified candidates from the talent pools with relevant job opportunities.

Two-Way SMS Text Messaging — Direct sourcing greatly benefits from the ability to communicate with candidates in bulk, using opt-in Short Message Service (SMS) or text messages, as well as email. SMS job invitations enjoy a significantly faster response time than email. Instead of waiting hours or even days for an email response, the average response time of talent pooled candidates to job invitations sent by text is just 17 minutes.

Exceptional Candidate Experience — The timely communication of job invitations and status updates is critical in the candidate experience. Best-in-class direct sourcing technology effectively delivers a positive experience at every stage of the recruitment, matching, and screening process, resulting in higher conversion rates throughout the hiring funnel.

Easy-to-Update Candidate Profiles — Contingent recruitment requires greater urgency than FTE hiring, with contractor availability and updated resumes being the most critical factors for improving speed-to-hire. Advanced direct sourcing solutions provide candidates with easy-to-update profiles, which allows them to keep their availability, skills, desired compensation, and work interests current.

Self-Sourcing vs. Managed Direct Sourcing

Whether it’s through an in-house self-sourcing program managed by an internal team or through an outsourced, third-party Managed Direct Sourcing (MDS) model, selecting the right approach for your program will define your success. Both options have pros and cons, so let’s look at the key elements of each.

Edwin Jansen, Head of Corporate Development at Raise Recruiting, illustrates why leaders need a solid plan in place before embracing a #DirectSourcing strategy. Read more in @TalentTechLabs latest #TrendsReport: Click To Tweet

The Case for Self-Sourcing

Despite higher start-up costs and implementation risks, self-sourcing offers potentially greater long-term cost savings for companies that have confidence in their internal abilities and the following things in place:

• Required: Experienced Senior Leadership with Budget — As with any change management initiative, direct sourcing needs leadership experienced with project management, software and process implementation, reporting & analysis, and stakeholder communications. Established relationships with talent acquisition, legal, and business users, plus having the funding to purchase software, and hire & manage the team of dedicated curation specialists, round out the must-haves for in-house self-sourcing.
• Required: Talent Pooling Curation Expertise — Talent pooling curation, a hybrid between corporate and staffing agency recruitment, requires a widely experienced talent acquisition leader with the proven ability to build and lead a team both proactively sources and nurtures relationships with candidates over time. The ability to assess, implement, and optimize specialized direct sourcing technology and lead recruitment advertising and referral campaigns are also critical for success.

The Case for Managed Direct Sourcing (MDS)

Companies that want a fast start and more guaranteed success should consider outsourcing to an MDS provider. From a structural standpoint, an MDS solution typically operates as a supplier within the contingent program, which means implementation requires no changes or friction with the program. Other advantages include:

• Limited or no up-front costs or resources required.
• Rapid launch of a pilot or full-scale program.
• Utilizes proven best practices and technology.
• More predictable results and scaling progress.
• Proven processes lead to fewer issues and less risk.
• The third-party mitigates Co-employment risks.

When choosing a managed direct sourcing partner, it is important to consider their proven experience and ability to quickly scale a program to achieve a high percentage of placements. Also, keep in mind that the curation of talent pools using the employer’s brand is different from typical staffing recruitment. The technology used should be specialized for direct sourcing.

Implementing Your Direct Sourcing Program

Preparation & Project Planning

Raise has partnered with the SIA to conduct a comprehensive direct sourcing market and best practice study, which is to be published in May 2021. In the survey results, leading practitioners of direct sourcing programs credited the following factors as most highly enhancing their “organization’s direct sourcing capabilities and performance.”

• Have clear ownership and accountability of contingent direct sourcing within the organization. (54%)
• Have a clear corporate understanding of co-employment risks and mitigation strategies related to contingent direct sourcing. (50%)
• Have visible senior-level executive sponsorship of the contingent direct sourcing program. (44%)
• Have an ROI-based business case for contingent direct sourcing. (42%)
• Maximize use of employer brand in job advertising and sourcing. (41%)

To learn from these advanced programs in effectively preparing to implement and execute a successful direct sourcing initiative, the contingent program leadership should look to:

1. Get senior stakeholders on board: with the strategy, use of employer brand, and business benefits of direct sourcing.
2. Surface barriers and fears: from program operations, legal, and talent acquisition stakeholders to surface and address potential concerns, barriers, risks, and fears.
3. Define the project plan: at a high level and assign an owner for each phase, with project timelines and deliverables.

Defining Success: Realistic First Year Expectations

Since every contingent worker sourced from direct sourcing saves money, the percentage of total placements is the key measure of your program’s performance.

In our experience, direct sourcing should fill 25%-to-70% of the job requisitions typically placed by staffing suppliers during the first year. Actual performance within this wide range is most determined by:

• How repeatable and concentrated the roles are by type and location
• How accurate the workforce hiring forecasts are for talent pooling
• How many roles can be filled by active candidates coming from job advertising

How to Achieve Direct Sourcing Success

Direct sourcing is the leading contingent talent strategy to create cost savings and improve hiring speed, quality, and candidate experience. With direct sourcing still in the early stages of adoption, there is a great opportunity for a competitive advantage for first movers. 

Taking a page from the early adopters of direct sourcing, the playbook for implementation is clear. These are the steps you can take to translate vision and strategy into concrete plans and tactics that will reap the substantial benefits that direct sourcing will deliver.

We are on the cusp of a direct sourcing revolution. We hope this article is a useful tool in navigating the opportunities ahead. If you have any questions, feedback, or would like to discuss direct sourcing with a Raise consultant, please contact us at www.raiserecruiting.com.

About Raise Recruiting

Raise Recruiting is a new division of the Ian Martin Group – a family of companies that has been transforming recruiting since 1957. Raise is our most groundbreaking venture yet, utilizing the power of direct sourcing to bring new value, efficiency, and performance to a contingent workforce marketplace hungry for fresh ideas and solutions.

The Managed Direct Sourcing solution from Raise integrates a team of dedicated curation specialists, a proven process, and advanced technology into your existing contingent workforce program, with the goal of proactively building a private talent pool of contract workers who are interested in your company.

From advertising, candidate relationship building, and screening through payroll and contractor management, Managed Direct Sourcing provides streamlined access to qualified contractor talent with no setup costs, no program changes, and no implementation headaches. 

Within the first year, you can expect more than 25% of your contingent hiring to come from direct sourcing at markups that are up to 50% lower than average agency rates. Beyond the substantial cost savings, with managed direct sourcing, you can also expect:

• Reduction in time-to-hire of up to 60%
• Improved submittal-to-hire ratio by 3-5x
• Contractor satisfaction scores of 98.9%

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.