A Dozen FAQs About Direct Sourcing

As direct sourcing is still in the early adoption phase, nearly all our client engagements begin by ‘getting on the same page’. We start by getting aligned on the definition of direct sourcing, do some level setting and share general information and business drivers. 

Since there are more myths and misconceptions about direct sourcing than established facts and success stories, we hear a lot of the same questions, over, and over again. Here’s the top 12 most common (and juiciest) questions we hear about direct sourcing, and our Managed Direct Sourcing offering.

1. How are you defining direct sourcing?

This isn’t the most popular question, but it’s definitely the first thing we need to get straight on. You would think that defining direct sourcing should be relatively simple, but it’s not. 

In our best resource, The Direct Sourcing Playbook, we said that: “Direct sourcing is when a company leverages its employer brand to systematically attract and curate a private database of contractor candidates that are organized into talent pools”. 

But when we began our market research project on direct sourcing with the SIA, we spent 20 minutes debating the definition, and couldn’t all agree. The team decided to let the research survey tell us how the market is actually defining direct sourcing, and the answer was quite clear, and more nuanced than our own all-or-nothing definition. 

In the SIA’s published research report on direct sourcing it was concluded that “rather than a discrete practice with mandated elements, direct sourcing may be best thought of through its historical evolution and the levels of maturity of several interrelated practices.” In the report we defined these three “versions” of direct sourcing, which have matured over time:

  • Version 1.0: Pre-identified payroll services
  • Version 2.0: Curated, employer-branded, and technology platform driven.
  • Version 3.0: Forecasted curation of talent pools from omni-channels, and advanced practices (e.g. AI matching, SMS/texting).

2. How is direct sourcing different from typical contingent staffing?

There are three things that differentiate direct sourcing from the standard way of sourcing talent via multiple contingent staffing suppliers:

  1. Use of the employer brand in job advertising and recruiting, so you can maximize talent attraction.
  2. Building a private database of contractor candidates and organizing them into talent pools.
  3. Forecasting job needs ahead of the job requisitions, and providing a “priority window” for direct sourcing once the talent pools are full

 

3. Why does direct sourcing need to use our employer name & brand?

The use of your employer brand is the main driver of direct sourcing benefits. Without the use of the employer name you won’t be able to attract better quality candidates, and you can’t really talent pool candidates without telling them who the company is that they would be working with. In our opinion, without the use of the employer brand, it’s not direct sourcing. 

 

4. What contingent program challenges does direct sourcing solve? What sort of jobs is it best for?

Direct sourcing will improve the overall performance of your contingent workforce program but it’s not a silver bullet to help with every type of role. The following areas are best suited for direct sourcing to deliver value and cost savings:

  • Repetitive and/or high volume hiring in the same locations.
  • Jobs where there are many active job seekers (e.g. entry-level, low-skill, high unemployment locations, etc).
  • Positions where the use of the employer brand will attract more/better candidates. 
  • Roles where you have an internal database of “known” talent (e.g. Alumni, Retirees, “Silver Medallists”, Referrals, etc).
  • Positions with high supplier competition and rate imbalances.

 

5. How does direct sourcing work with our MSP and/or VMS?

In our experience the most successful direct sourcing initiatives will plug into the MSP/VMS process seamlessly, with no major changes. Our Managed Direct Sourcing (MDS) solution is designed to operate just like any other supplier in the program. We are onboarded and follow all the same workflow as the other suppliers, which makes it easy to implement and manage. The only process difference is when the talent pools are full for a particular type of role, then it’s in everyone’s best interest to start experimenting with a ‘priority window’ when the direct sourcing team receives the job order a few hours or days ahead of the other suppliers so that the cost savings can be guaranteed. 

 

6. Is direct sourcing disruptive to my suppliers or to the program?

Initially direct sourcing will not be at all disruptive to your suppliers, or to the program, especially if you don’t begin with any kind of priority window. We always recommend that you focus the direct sourcing program on the types of roles that it is best suited for (see question #4), which we sometimes call the “lowest hanging fruit”. Over time, as direct sourcing is filling an increasing % of these roles, you will see a natural supplier rationalization, as the generalist or lower performing staffing suppliers are getting beaten by direct sourcing, and won’t find the program as attractive to participate in. By implementing direct sourcing, contingent programs are encouraging their staffing suppliers to become specialized partners who earn higher markups for their value-add. As direct sourcing won’t be as successful with the hard-to-fill positions, there is no disruption for your most valued suppliers.

 

7. How much can I expect to save?

Because we’re able to get high placement volume through direct sourcing, we’re able to lower our staffing markups by up to 50%, which then eventually drives total program savings in the neighborhood of 5% to 10% once we get to scale. When you’ve got a multimillion-dollar contingent workforce program, those savings can really add up. And by the way, there are no implementation costs for our managed direct sourcing program, so every placement we make is a net cost savings.

 

8. What evidence exists that direct sourcing will lead to better and faster hiring?

With direct sourcing you’re able to be proactive instead of being reactive to the job requisitions, and that’s what leads to better and faster hiring. We’ve seen pretty dramatic results. When it comes to hiring better, we have found that you only need a third of the number of shortlisted candidates to make a hire because they’re pre-qualified. When it comes to speed, you’re able to hire up to 60% faster on average because of those candidates that are pre-identified in talent pools before the jobs come out. 

 

9. What are the critical success factors in implementing a successful direct sourcing program?

The most important metric is the percentage of total placements made, or your direct sourcing “placement rate”. You want to get as many placements as possible through the direct sourcing program, because each hire is a net cost savings with a lower markup than your average supplier markup. We see three critical success factors for maximizing the direct sourcing placement-rate: 

  1. Fully leveraging the power of your employer brand as a magnet for talent. This means putting compelling job ads everywhere where your candidates might be, and systematically mining databases of known talent such as alumni, retirees, silver medalists, etc. 
  2. Utilizing specialized direct sourcing technology and established best practices. There’s only a handful of technologies that are customized to deliver a direct sourcing program, and it’s important to use the most advanced tech and proven best practices if you want to get scale.
  3. Forecasting and then talent pooling ahead of your workforce needs, and applying a priority window for direct sourcing when the pools are full. That way you guarantee placements and cost savings. 

 

10. What is important to consider with direct sourcing technology?

Technology that is specifically built for contingent direct sourcing is much better suited to a successful program than technology that is designed for full-time-employee (FTE) hiring, which are called applicant tracking systems (ATS), or candidate relationship management (CRM) systems. The main difference is that direct sourcing software separates curated talent pools from active job requisitions as two distinct elements in the software. The best direct sourcing software also has AI matching which automatically connects the “known” candidates in the database (or talent pools) with the new jobs when they enter the system, thereby saving a lot of recruiter time, and surfacing best fit candidates that might otherwise be missed. Having the ability to engage in 2-way SMS/text messaging with candidates, and bulk invite candidates to jobs are also important features that drive success.

 

11. What’s the pros/cons of doing direct sourcing in-house (self-sourcing) vs outsourcing via Managed Direct Sourcing?

Self-sourcing— or DIY “do-it-yourself” — can potentially create the most cost savings. Because you’re doing the recruitment and curation work in-house, you can get the lowest potential payroll markups. But you also have to bet on yourself, so there’s a risk involved. To make a smart bet, companies should only try to do self-sourcing if they have all senior stakeholders on board, the budget to buy the software, and have someone in-house with experience in talent pooling to hire and manage the people to do the direct sourcing curation. If you don’t have all these things in place, then your direct sourcing program could actually end up costing you money and not getting the results that you’re looking to achieve.

Companies that don’t have those key factors in place are better off going with a managed direct sourcing solution, which is what our market survey found is the majority choice. Going the managed route means it’s faster to get started; there’s no upfront investment or any costs; there’s no major program or process changes; and most importantly, there is no risk of wasting your time and money. You also get an experienced partner that is accountable for the results, and they’ll take on all the work and any hassles of implementation.

 

12. How is direct sourcing a competitive advantage?

To be honest, we don’t really get asked this question all that much, but we should. Coming out of this pandemic there is a war for talent like we’ve never seen before. Direct sourcing is a clear competitive advantage because the vast majority of your competitors for talent aren’t using their brand for maximum recruiting effectiveness – at least not yet. SIA surveys predict that between 60-88% of your competitors will be implementing direct sourcing within the next two years. There is a competitive advantage to be had by using your employer brand to hire better, faster, and for less, but we expect that window to close quickly. 

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