What's the Right Model for Acquiring Professional Services Contractors?

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Is acquiring a paperclip the same as acquiring an IT specialist? Many large companies acquireprofessional service contractors --- such as IT, marketing and HR --- using asimilar program as they use when buying supplies, equipment, raw materials ormerchandise.
Yet many hiring managersand contract recruiters find the hiring process is unsatisfactory due to timespent vetting candidates or removing contractors that are a poor fit.
So why is the suppliespurchasing model not as effective for professional contractors? An importantprinciple of systems thinking is to apply the right model for the environment.What fits for one context when transplanted to a different context --- evenwhen they appear similar --- may cause problems.
This article exploresthe rationale for the current model, issues and a better approach.  
Rationale for Paper Clip Purchasing ModelBusinesses noticed thatcosts escalate when individual departments acquire their own supplies. I'veseen that first hand at a company where I worked. Identical raw materials fromthe same vendor were sold to various departments at wildly different prices.One company uncovered that they were buying 424 slightly different versions ofa standard gloves used by its factory workers. Compared to the lowest cost glove,the most expensive version was 340% higher.  [1]
The solution to such amess is to consolidate the number of vendors and products, leverage the firm's buying power to negotiatevolume discounts and insert a strong centralized purchasingfunction. Often systems are implemented to manage the process. 
Given the success ofthis approach, it is natural to apply it to a similar looking mess as theacquisition of talent. The purchaser / product user is the hiring manager.The providers are the professional services contract recruiting firms. Theproduct is the IT, marketing or HR expert. The mess is created whenindividual hiring managers develop relationships with their favorite providers. 
How are Paper Clips and IT Specialists Different?Although similar on thesurface, there are important differences between the acquisition models for suppliesand talent. Let's explore where they are different and where they are thesame. 
1. Product  For a paper clip, glovesor other standard products, it is straightforward to specify objective criteriato judge the product. Mature products tend to be commodities. This is theopposite with talent.
Hiring managers providefuzzy specs. Either the specs are too vague that too many ill-suited candidatesare presented; or so narrow and specific that few candidates can be found.
Each candidate is aunique combination of experiences, skills and personality quirks. The good recruitersinterpret the fuzzy requirements to find the right talent. 
When purchasing puts awall between recruiters and hiring managers, the dynamics change fromrelationships to checking the box that the candidate meets the requisitionrequirements often leading to disappointing results.
2. Negotiations Decentralized purchasingallows the provider to exploit those product users who arepoor negotiators. This is true for both supplies and talent. 
3. Cost Structure Centralized purchasingincreases the volume to each preferred provider and more volume reduces theprovider's costs and that savings can be shared with the purchaser. Althoughtrue for standard supplies, surprisingly this is not the case for talent. 
Unlike paper clips, consolidatingto fewer providers may create less incentive for the contract recruiter.

•  Each search for a contract recruiter is a new competition, whilepaper clips are bought in bulk.
• With centralized purchasing, the contract recruiter is likely to competewith many more firms for that search. Previously the hiring manager had a fewfavorites.
• With more competition for each opening, there is less incentivefor the contract recruiter to work diligently on the opening since many otherfirms are going after the same pool of candidates. It becomes a race to presentas many candidates as possible rather than a few quality candidates.

Acquiring more talentfrom a particular contract recruiter does not reduce costs dramatically sinceeach new search incurs its own set of costs. Also the professionals have amarket rate and are not under the control of the contract recruiter.  
Contract recruiters havesome flexibility on price. They may reduce their margin. The best way to reduceprice is to remind providers that there is a competitive pool of other vendorswaiting to replace them. 
What Model Works Better for TalentRussell Ackoff, apioneering system thinker, cautioned against using mechanistic type models suchas the purchasing of paper clips to humans.  “In the long run, such mismatches produce lessdesirable results because critical aspects of the social system are omitted.”continues Ackoff “The more skilled the workers, the harder they are to replace.”[2]
A better model forcontract talent acquisition is a hybrid approach. Specifically:

• Centralized purchasing to resolve the issue where product users are on average poorer negotiators than the purchasing professionals. Centralized purchasing would define consistent contract terms / conditions and rate structure. Systems are useful to manage. 
• The hiring manager and contractor recruiters would build strong relationships to facilitate matching the best talent for an opening.  

This hybrid approachallows each group to do what they do best while eliminating weaknesses of thepaper clip model.
References      1.  The gloves example was used in the book by the Heath Brothers Switch: How to Change Things When Change is Hard.
2.  Systems thinking is highlighted in Russell Ackoff’s book Re-creating the Corporation.