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The contingent workforce industry stands at a critical inflection point. Managed service providers (MSPs), once the cornerstone of temp staffing management, are evolving into integrated talent platforms to address the diversification of labor models. This transformation is driven by the rise of freelancers, gig workers, and SOW-based consultants, which now account for nearly 40 to 60% of contingent spend. 

Legacy MSP systems, optimized for traditional staff augmentation, face challenges with this growing complexity which creates urgency for digital reinvention. Below, we explore the forces reshaping MSPs and the strategic steps needed to thrive in this new era.

Scene Setting: Historical MSP Model: The Foundation Era

For decades, MSPs have provided centralized vendor management, cost control, and compliance for temp and contract staffing, primarily via vendor management systems (VMS) technology. This model professionalized contingent workforce management but focused mainly on staff augmentation - temporary agency workers who filled specific roles alongside full-time employees.

Throughout the 2000s and 2010s, MSPs became the standardized solution for large enterprises seeking to manage dozens of staffing agencies and thousands of contractors. Under the MSP/VMS model, organizations could offload the complexity of vendor relationships while ensuring legal and HR requirements were met. Traditional MSP success was measured in terms of cost savings through negotiated bill rates and supplier markups, compliance assurance, and process efficiency.

This vendor-neutral approach drove cost competition and central oversight, with MSPs growing to manage billions in contingent spend globally. By the mid-2010s, a majority of Fortune 500 companies had implemented some form of MSP or centralized program to manage their non-employee workforce. The model excelled at leveraging volume to enforce rate discipline and standardized terms while providing crucial compliance safeguards, including tracking worker tenure limits and co-employment risks.

Market Shifts: The Talent Diversification Revolution

Workforce strategies are expanding far beyond traditional temps. Companies are increasingly engaging independent contractors, freelancers, gig workers, and SOW-based consultants, with demand for these non-traditional workers reaching unprecedented levels.

The numbers tell a compelling story. 38% of the U.S. workforce freelanced in 2023,representing 64 million professionals doing some form of independent work. Globally, the gig economy generated $3.8 trillion in revenue in 2022, with independent contractors accounting for roughly half of that value. Perhaps most striking, nearly 40-60% of contingent spend is now on professional services (SOW engagements) rather than traditional staff augmentation.

Research reveals that in many companies, spend on contract-based projects (IT initiatives, marketing agencies, consulting services) equals or exceeds spending on temporary staffing. This represents a fundamental market shift where services procurement has become a key component of contingent workforce programs, growing at over 20% CAGR from 2023 to 2028.

The COVID-19 pandemic accelerated acceptance of independent talent, with 80% of organizations planning to increase contingent workforce use and 64% looking to add contractors and SOW-based talent in the next 1-2 years. A LinkedIn studyfound 72% of hiring managers now use freelance platforms to source talent, indicating that digital talent marketplaces have become mainstream supplements to traditional hiring.

The Systems That Got You Here Won’t Get You There

While traditional MSP programs and VMS tools have served companies well in the past, they now face challenges in adapting to today’s more diverse talent sources. Their structured processes and separate systems can make it harder to stay agile and meet the evolving needs of modern workforce strategies.

Vendor-heavy models don't easily support direct freelancer engagement or outcome-based SOW contracts. The legacy infrastructure was so optimized for temporary staffing that it cannot adequately handle the expansion of contingent workforce concepts that emerged in the late 2010s. Many programs have developed separate silos for freelancers versus temps, fragmenting management and visibility across the organization.

These gaps leave companies with inconsistent experiences and significant compliance risks when leveraging the broader external talent pool. The very strength that made MSPs successful – their optimization for staff augmentation – has become a limitation in addressing diverse talent engagement models.

Platformization of MSP: The Technology Integration Solution

To remain competitive, MSPs are transforming into talent platforms by leveraging technology to integrate all talent channels (agency, freelance, contractors, SOW vendors) into one unified ecosystem.

Unlike simple marketplaces that primarily match employers with talent, a platform represents comprehensive digital infrastructure. It connects buyers and talent while embedding workflows for compliance, onboarding, payment, and analytics. Leading VMS providers are evolving into open platforms, with SAP Fieldglass opening its API to integrate freelance marketplaces directly into MSP workflows, enabling users to access any talent source through a unified interface.

The aim is blending MSP service expertise with modern platform technology models, creating seamless "one-stop" talent solutions. This platformization addresses the fundamental challenge of workforce fragmentation while maintaining the compliance and cost control benefits that made MSPs valuable.

Risks of Inaction

MSPs resisting digitization face obsolescence. McKinsey projects digital talent platforms could add $2.7 trillion to global GDP by 2025, diverting spend from traditional models. Already, 90% of hiring managers prefer freelancers over agency temps for speed and cost. Firms clinging to outdated systems risk losing clients to agile competitors offering end-to-end platform experiences.

Emerging Opportunity: The Unified Total Talent Platform Vision

A unified Total Talent Platform experience represents the future opportunity. This model would enable engagement of any worker type – temporary employee, independent contractor, gig freelancer, or consulting firm under SOW – through one cohesive platform.

Imagine a system where hiring managers can requisition a software developer and be presented with multiple avenues: staffing supplier submissions, vetted freelancers from marketplaces, internal talent pool candidates, or outsourced project teams, all within one interface. Such platforms would handle end-to-end processes including talent discovery, vetting, compliance, onboarding, time tracking, deliverables, and payments - unified across all labor categories.

Data from all sources would consolidate into single analytics dashboards for total workforce insights, breaking today's silos and unlocking greater productivity and cost-efficiency. Early movers are already aligning pieces of this vision, and the value potential is enormous.

The Talent Platform & Our Mission

The MSP industry's transformation into talent platforms represents both challenge and opportunity. Organizations that embrace this evolution will deliver best-in-class, end-to-end talent experiences while continuing to thrive in the future of work. Those that resist face irrelevance in an increasingly digital, agile talent landscape where traditional boundaries no longer apply.

Bubty’s mission is a call to action for industry-wide collaboration, breaking down silos and enabling agile, user-centric contingent workforce management that is innovative, high-quality, and future-ready.

What You Can Take With You

1. Invest in Unified Tech Stacks: MSPs must build or partner to acquire AI-driven analytics, direct sourcing tools, and freelancer management systems (FMS). For example, integrating VMS with platforms like Bubty enables real-time talent curation across sources.

    

2. Modernize Compliance Infrastructure: APIs and employer-of-record (EOR) partnerships are critical to navigate evolving labor laws, particularly for global freelancers.

    

3. Prioritize Direct Sourcing: Cultivating internal talent pools reduces reliance on staffing agencies. Top MSPs now blend supplier management with proactive candidate pipelines.

Until next week,
— Team Bubty