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What is direct sourcing and how can it help your business?

Direct sourcing has revolutionised the way companies hire permanent and temporary talent. Though you likely already use direct sourcing internally, how can it work with and enhance your MSP?

What is direct sourcing?

“Direct sourcing” is a fairly straightforward concept. Most often, it’s when companies bypass third-party recruitment providers and utilise their employer brand to build proprietary talent pools.

This candidate pool can consist of current employers, former employees, retirees, freelancers, contractors, or second and third choice candidates who have passed through a company’s applicant tracking system but may not have been the right fit for previous roles.

When aligned with a data-driven talent management strategy, direct sourcing gives companies full control over the end-to-end talent acquisition process — reinforcing the employer brand and candidate journey.

Direct sourcing is very much a one-size-fits-one, bespoke solution that varies from organisation to organisation. How candidates are sourced, hired and onboarded depends on factors such as company size, the HR budget, and the organisation’s unique talent needs. In competitive talent markets, tailoring talent needs around the unique aspects of an organisation can cut through the noise and help to attract and retain the right candidates.

Direct sourcing can also be deployed in the context of an MSP, where the workforce solutions provider (or MSP) directly hires contingent talent without going through a supply chain or third-party recruitment suppliers. In such an arrangement, successful candidates are sourced, engaged, managed, re-engaged and paid by the MSP.

By taking full ownership of candidate sourcing, direct sourcing takes a highly personalised approach to recruitment.

The benefits of direct sourcing

In an increasingly volatile talent market, it’s no surprise that more and more companies are exploring the possibility of implementing their own direct sourcing strategy. Direct sourcing can help businesses to:

1) Access a pool of engaged, independent talent

Direct sourcing gives a company access to a pool of pre-vetted, specialised contingent talent. This allows human resources professionals to eliminate the complications and uncertainties associated with engaging talent sourced by a staffing agency.

Direct sourcing also enables companies to forge and nurture long-term relationships with contingent workers — contributing to increased loyalty and buy-in from external employees and expanding the network of company advocates.

With a pool of engaged contingent talent to call upon that a business knows is aligned with their culture, companies stand a better chance of attracting and retaining the right people for any given project or assignment.

2) Improve cost savings

Third-party recruiting or consulting firms can often be expensive to work with. The cost markup of using an external recruiter can often range from 20% to 40%, particularly for hard-to-fill and technical roles.

Direct sourcing tools such as online marketplaces bring flexibility to talent acquisition, giving hiring managers the means to source and self-select the right contingent talent for specific projects. By cutting out the intermediary in the recruiting process, companies save time and money and free up valuable resources for other important business ventures.

Moreover, a properly implemented direct sourcing strategy will simplify the vetting process — minimising the risk of misclassifying workers and accruing costly legal fees or penalties.

3) Enhance other aspects of the organisation

Not only can direct sourcing save a company money when hiring contingent talent, but it also has a number of softer cost savings that frequently go overlooked.

Typically, direct sourcing reduces time-to-hire, encourages faster and more effective onboarding, and creates a more effective talent pooling of contingent candidates. As a consequence, these soft savings can enhance a business’ employer brand and company culture, further strengthening its chance of hiring top talent in the future.

4) Become a “client of choice”

In recent years, gaining a reputation as an “Employer of Choice” has enabled companies to attract and retain the best talent based on the strength of their employer brand. By expanding this to become a “Client of Choice,” businesses stand to attract the best contingent and self-employed workers, even in highly competitive, skills-short industries.

The rise of contingent talent

The makeup of the workforce is undergoing a radical transformation. In 2018, the Department for Business, Energy and Industrial Strategy estimated that 3 million people in the UK were either self-employed or working in the gig economy.

In other words, just under 10% of the UK workforce are independent workers. In the US, more than 40% of workers are now employed in alternative working arrangements such as contingent, part-time or gig work. As we enter the 2020s, the contingent workforce is set to increase across the globe.

As noted by Deloitte, further research suggests that 60% of Generation Z employees do not expect to remain in the same role for more than two years.

The modern employee is mobile and nomadic. Little wonder, then, that some large companies estimate 30% of their procurement spend goes towards contingent workers. Again, this figure is set to increase as the decade unfolds, with 61% of organisations expecting to hire more freelancers or contractors in the next three years.

In response to these changes, 21st-century talent acquisition is having to think beyond traditional recruitment methods.

Third-party recruiting or consulting can be expensive. Meanwhile, an ad hoc self-sourcing approach by internal managers can pose a serious compliance risk — particularly if stringent sourcing processes are not in place. Direct sourcing through your MSP provides an agile, cost-effective and compliant solution to typical recruitment pitfalls.

So how can direct sourcing really help your business?

In most cases, direct sourcing comes into play as a managed service solution matures. But that doesn’t mean you shouldn’t be considering it now. If you’re unsure of your MSP’s capabilities in this area, you need to start asking some tough questions.

As we addressed earlier, direct sourcing has the potential to save your business money and also ensure you have the right talent to grow your business sustainably. The knock-on effect of an enhanced employer brand is the icing on the cake.

As the battle for talent intensifies — particularly for high-skilled, and highly-competitive roles — direct sourcing might well be the solution you need to ensure future success.

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