SI Review - 2010 Moving Up
2010 Moving Up
Staffing Business Looks to Improve in the New Year
by Julie McCoy
January 2010
Optimistic. That's how staffing company executives are feeling about 2010. Coming off the heels of an extremely tough 2009, many execs say it was the most challenging year they have ever experienced as the longest and deepest recession since the Great Depression caused revenue declines of 25% or more. The general consensus is that things can't get any worse in 2010; they can only get better. The economy won't completely recover this year, but most staffing executives expect it to improve and are starting to see some light at the end of the tunnel.
“Clearly, we believe that the worst is over," says Yonas Prising, executive VP of Manpower and president of Manpower's Americas operations. "The question now is: What does the comeback look like? There is nothing to tell us that would see a roaring comeback, but [instead] moderate growth."
Staffing execs shared with SI Review some of their plans and goals for 2010, challenges the industry will face, trends they foresee and what they plan to spend money on this year.
What's on the Radar
Bill Stoller, one of the founders of Express Employment Professionals, which is entirely franchised, says his company will focus on sales, strengthening its existing offices, opening new franchises and hiring better staff than ever before. Express plans to expand its professional staffing division by providing additional training and giving offices the opportunity to place people in positions that weren't offered in the past; for example, in the field of nursing.
"I am very optimistic about next year, especially coming off such a disastrous year as 2009," Stoller says. He adds that, "Our clients and prospects, for the most part, are much more optimistic and are looking at a better year next year as well."
Spherion CEO Roy Krause says his company plans to grow the professional staffing side of its business, which includes three divisions: The Mergis Group,
Technisource and SourceRight Solutions. Currently, professional staffing accounts for about 43% of Spherion's business, and the remainder comes from general staffing. The goal is to eventually be at 60% professional staffing and 40% general staffing, Krause says.
Another priority for Spherion will be hiring new people. "We will do it proportionally as gross profits increase," Krause explains. "We have plenty of room to expand. I hope we fill up every open seat we have over the next year. It would just be wonderful if that happened." Spherion also will concentrate on making sure it retains top talent. "We want to make sure we keep our top talent at our company," says Krause.
Kforce CEO Dave Dunkel says he expects all four of his company's divisions — including technology, finance and/accounting, healthcare/life sciences and government — to grow this year.
Mike Weinholtz, CEO of CHG Healthcare, says his company anticipates double-digit growth in its locum tenens and permanent placement divisions and will add staff in both of those divisions. "We believe we can grow again in 2010 with focused execution even in a tough environment, in particular with our favorable business mix, which is about 70% physician-focused," Weinholtz says. "We kind of like our position right now."
Weinholtz says 2009 was the most challenging year he's experienced in the 23 years he's been in the staffing industry. "We had never seen a recession of this magnitude before. We really had to change the way we looked at our business."
Bill Yoh, chairman of Philadelphia-based Yoh, says making sure customers are aware of all the services and skill sets Yoh offers will be a priority this year. "Many of our customers only know us for one line of business — for example, IT or engineering —yet they may use contingent labor providers for skill sets in other areas such as health and life sciences as well," he explains. "We have a long history in many different lines of business and are actively communicating these capabilities to our customers."
Another focus for Yoh this year will be to provide customers with a staffing solution that best fits them. "Some companies want to just receive staff augmentation services, and they have little process in place," Yoh explains. "Others may prefer an enterprise solution with technology, service level agreements, etc. Our goal is to deliver the solution that best fits the culture and desires of the customer."
Jim Humrichouse, president of Dallas-based Pinnacle Technical Services, says his company will focus on people and technology; which have always been its top priorities. He expects this year to be "a growth year" for his company. "We're going to start off with a lower base and then grow from there."
JoAnn Wagner, CEO of Salt Lake City-based SOS Staffing, says her company plans to open six to eight new locations, depending on client need. Don Stallard, CEO of The Reserves Network, based in Fairview Park OH, says his company plans to open two or three new offices and to make one or two acquisitions and expects 10% to 15% growth this year.
Scott Ragusa, president of contract businesses for Waltham MA-based Winter, Wyman Companies, says his firm will hire new staff and continue to train and develop staff. Winter, Wyman also will grow its Managed Account Program, a division focused on managed services that will service a larger VMS-driven business.
Amy Langer, a partner in Minneapolis-based SALO LLC with John Folkestad, says her company will focus on keeping its existing clients and landing new ones. SALO also will grow its new division, Lawgic, which places attorneys. "We intend that it will take off," Langer says. A growing company, SALO also plans to relocate to a new building that will provide more space. "Overall, we're really excited [about 2010]," says Langer. "We feel like there's a lot of opportunity. We're well positioned. I think we're very energized about what we see coming up."
Patti Penny, founder and owner of Springfield MO-based Penmac Staffing, says her company will begin the new year with a new Website that has a new look and feel and is more user-friendly. Penmac also will focus on growing its two new divisions, Pemed and Pentech. Additionally, Penmac plans to step up its marketing efforts with a direct mail and phone campaign, Penny says, noting that her company is trying to "blitz the Kansas City market." At the end of the year, Penmac also will move into a new corporate building in downtown Springfield that will be built from scratch. The plan is to move into the office by Dec. 1, 2010.
Gary Nelson, chairman of The Nelson Family of Companies, says his company–which anticipates 5% to 10% growth this year–will concentrate on controlling expenses and continuing to improve competitive market share. Many of the company's competitors have downsized and closed offices, which provides an opportunity to take that market share, Nelson points out. Additionally, The Nelson Family of Companies will continue to focus on expanding its compliance consulting service and payroll services. "Those are two areas we'll focus on in addition to staffing."
Amar Panchal, CEO of Akraya, a Sunnyvale CA-based information technology staffing firm, says his company received GSA certification in October 2009 and plans to start providing staffing services to the federal government this year.
The federal government is a good area to be in right now, Panchal points out. "They are definitely spending a lot of money," he says. Concludes Panchal, "We're very excited about this initiative, and we think it's very promising."
Akraya, which offers solutions that go beyond staffing, plans to do more of that this year. For example, the company, which began offering creative and marketing services to existing clients in the second quarter of 2009, expects this to grow in 2010. Akraya also offers business intelligence and quality assurance as completely managed solutions and expects to do more of that this year as well.
Additionally, Akraya has been working on revamping its Website and plans to roll out the new site early this year, Panchal says.
Rona Borre, CEO of Chicago-based technology staffing firm Instant Technology, says that like Akrya, her company also plans to start working with the federal government. "We are working on our GSA contract and learning our way around bidding for contracts and developing relationships within the federal government," she says. Instant Technology also will focus on mentorship and training of new employees. The goal is to provide new employees with clearly defined roles and goals "so that they have a clear track and picture of their future," Borre says. Instant Technology also will be making significant changes to its Website, Web-based time sheet applications and infrastructure. Instant Technology has focused on defining its core values, so another top priority for 2010 is to stand behind those core values as a company and make them part of everyone's daily lives, Borre says.
Doug Firestone, CEO of Arcus, a Hummelstown PA-based technology staffing firm, says his company will continue to focus on training and grow its Costa Rica office. "We're doing some really cool, cutting-edge things down there." Arcus also will do more video conferencing and social networking, Firestone says. In 2009 Firestone hired a social media strategist, who will assist with social media-related issues in 2010 and beyond.
Mark Weinstein, executive VP of Atlanta-based firstPRO, says his company expanded its Philadelphia office in 2009, and the plan is to further expand it in 2010. FirstPRO also is looking at opening additional offices this year–for example, in Washington DC. "It's just a hot, hot place to be right now," Weinstein says of the nation's capital.
Song Woo, CEO of Milpitas CA-based Lighthouse Management Group, says his company hopes to open another location in the Bay Area this year. Another goal for Lighthouse is to increase its client roster by 30% and to increase its rate of client retention and repeat business, Woo says.
Matt Schubert, president of Northbrook IL-based Paramount Staffing, which does strictly industrial staffing, expects his company's revenue to be up 10% to 15% in 2010 as the industrial market begins to bounce back and new clients, added by the company in 2009, bring in a full year of revenue.
Paramount Staffing also hopes to expand its on-site model with new and existing clients in secondary and tertiary markets. "We have gained valuable experience in establishing a market presence within 30 to 45 days for areas [in] which we do not have offices already," Schubert says.
Concludes Schubert: "We are optimistic [about 2010] because we have seen our clients pare down to such low levels of staffing that any type of demand will increase usage. In addition, the employment numbers continue to improve monthly, and this trend should continue."
Challenges
One challenge those in the staffing industry will face this year is that while the economy is expected to improve, it's going to be a slow process and there won't be a full recovery this year.
Says Yoh's Bill Yoh: "The recovery will likely be slow and almost 'jobless,' because even though GDP will likely grow, we expect unemployment to also grow–probably above 10% in Q1–and possibly remain in the 8% to 10% range for a year or more afterwards."
Kforce's Dunkel says, "We think of things in terms of GDP, which has the highest correlation to staffing industry performance. Our view of 2010 is we think 2010 will be a better year than 2009. We're optimistic for improvement. We are not thinking it will be what economists call a 'v recovery.' We're thinking it's probably going to be more of a `u recovery.' There are still going to be some headwinds. [But] we do expect it to be better this year."
Says CHG's Weinholtz, "I heard three economists speak recently, and they're saying that most of 2010 could look like 2009. Economic recovery may start in 2010, but it will be a slow, multiyear recovery as opposed to: OK, the recession is over and everyone is going to start growing double-digits again."
FirstPRO's Weinstein says, "I'm cautiously optimistic for the first half [of 2010] and very optimistic for the second half. I see the USA's job losses cresting and stopping the bleeding by quarter two. The second quarter of 2010 will be flat to slightly up. The back half of the year should see significant hiring."
One thing that's particularly challenging is there are so many people who are out of work right now, but their qualifications and backgrounds aren't a match for the jobs that are available, says Weinstein.
Penmac's Penny says the tight credit market will remain a challenge. Penmac has a good cash balance and no debt, so the company doesn't need to borrow money, "but if we did, we'd be in trouble," Penny says. She points out that $14 trillion has been spent on various rescue programs. "That's a huge gamble. If it doesn't work, I think that's going to be lethal for our country. That's the most damaging thing we've got going." Rising workers compensation costs are also a challenge, says Penny.
Another challenge will be the increase in unemployment taxes. "The staffing industry in general can't accept–there isn't enough room in our margins–to deal with the rise in unemployment taxes. I think it's a major issue for the industry," says Spherion's Krause.
Staffing companies will need to tell their clients about the increase and that it needs to be passed on to them, says Manpower's Prising. If it's not passed on, there could be significant re-margining of the industry, he points out. "It will be crucial for the industry to pass these cost increases on to clients. They are not a profit-generating increase. This is not a one-time event. It'll happen in 2011 and 2012. We've had this in past recessions. The industry by and large has been good about passing it along, as we should. We believe it has to be passed on."
Yet another challenge is that clients want more solutions and services but at the same time are demanding lower prices, says Joanie Ruge, SVP of Adecco Group North America. "The challenge is how do we deliver the solution at a lower price point and so that the customer is still profitable for Adecco," she says.
In light of the fact that clients are wanting more for less, making sure gross margins don't slip will be a challenge, particularly for staffing firms with Fortune 500 clients, says Pinnacle's Humrichouse. "The way to fight margin erosion is to go after mid-market clientele," he says. "Every staffing firm has to find clients that appreciate the combination of services they provide. Pinnacle focuses on larger clients where margin compression is much more of an issue."
Compliance with drug and background screening, commercial insurance, and reporting and auditing also will continue to be challenged, particularly for smaller staffing firms, Humrichouse says. "It's just harder for them to have the internal structure to be responsive."
Instant Technology's Borre says the increased use of vendor management services presents a challenge. "It makes the hiring process less personal and breeds a preference of quantity over quality," she says. "I built Instant Technology on the foundation of strong relationships and delivering quality over quantity in every aspect of the business, so we must remain true to our values and overcome the limitations of automated systems."
Another challenge will be the federal government restricting H1-B visas, says Arcus' Firestone. "We have clients that are restricting H1-B visas. It's going to become a problem. I'm not sure how we're going to overcome it. At the end of the day we're going to see more offshoring and nearshoring. Because at the end of the day, our clients are going to need resources, and we're not going to be able to provide technology resources. They're going to go overseas. I don't know where else they can go."
The uncertainty surrounding healthcare reform also will be a challenge. "It's hard to plan for the effects of healthcare reform until you know what the reform looks like," says CHG's Weinholtz. "They've narrowed it down to three different versions. Each of those versions has amendments to it. Usually you can be proactive and plan for things, but because there is so much uncertainty around healthcare reform, I believe that's a challenge."
Shane Jackson, CEO of locumtenens.com, says, "Getting any kind of finality around healthcare reform will be important to our clients and to our doctors. All of the uncertainty the healthcare reform process has created has caused a lot of people to sit on their hands and not do anything. No matter what the outcome is, just knowing will help people come out of their shells a little bit. People don't like uncertainty. Markets don't like uncertainty."
Those in staffing, of course, want to know how the different proposals on healthcare reform would affect the staffing industry in particular, and right now at least, it's not clear. "Adverse legislation is my biggest fear," says TRN's Stallard. "If not structured properly, a new healthcare plan could unduly penalize the staffing industry."
Trends
What's going to be hot this year? For one thing, social networking will continue to grow in popularity, says Adecco's Ruge. "We get a lot of candidates from Linkedln, Twitter and Facebook," she says.
At Adecco, it's mostly the recruiters who use social networking sites but people in sales and marketing also have found it to be a beneficial tool, Ruge explains. She expects more social networking sites to join the landscape. "I'm sure there will be new social networking sites that will develop," she says.
"Every day, there is a new social media type technology that is being implemented," says Arcus' Firestone. "We've got to stay ahead of the curve." Firestone sees social media replacing job boards. "Those job boards are very worried it will. I think it's going to evolve. The CareerBuilders and Monsters are very worried about it. That's why I'm trying to get ahead of it to be well positioned."
Another trend for this year will be the green industry, Ruge points out. "That's going to be a real interesting industry to watch," she says, noting that Adecco is filling more green jobs in a number of sectors, with manufacturing and engineering being the strongest. The younger generation is more focused on the environment and has a lot of interest in green jobs, she says.
Diversity-focused hiring is another trend, says firstPRO's Weinstein, noting that more and more of his company's clients are placing an emphasis on and valuing increased diversity within their workplace at every level. "An organization needs to be a reflection of its constituents and stakeholders," he says. "It's been a trend we have seen and it is continuing to expand. Clearly, those companies who are more diverse are outperforming those who are not—both in profit and in the ability to attract the best and brightest. I am thrilled that so many of our Fortune 1000 clients have become more proactive in terms of seeking out diverse talent as well as [diversity in] the vendors they employ. Many have a strong appetite for diverse candidates. That bodes well for our firm, being a diversity-centric, woman-owned firm. It bodes well for the world."
Temporary employment should do well in the first part of 2010, especially in highly skilled, high-growth job sectors like IT and professional services, and direct hire should get stronger in the second half of the year, Weinstein predicts. "Direct hire should be stronger in the second half of the year more across the board, especially for the better educated, well-skilled professionals from mid-level staff to supervisory and executive level," he says.
Yoh's Bill Yoh says many companies will use 2010 as an opportunity to begin projects they had put on the back burner for the past couple of years. "As this happens, there will be an increase in the demand for contingent workers," he points out. Also, the use of managed services will continue to grow this year as firms "monitor cost, process and quality at an expertise level," Yoh believes.
Recruitment process outsourcing (RPO) also should grow significantly in the second half of the year, Yoh predicts. "Many companies have gutted their HR operations and no longer employ the sourcing and recruiting expertise they once did," he says. As the demand for full-time hires returns, many will look to outsource these functions through an RPO solution."
Additionally, human resources will continue to play a greater role in contingent labor decisions, Yoh says. "Most HR executives are now charged with a responsibility for comprehensive workforce strategies, and contingent labor will be a key part of this going forward."
There also could be an increase in mergers and acquisitions by large staffing companies that are looking to expand their geographic footprint and/or line of business, Yoh believes.
SOS Staffing's Wagner says staffing companies are being more selective when opening offices as well as relocating. Staffing companies are recognizing that mid-sized markets can be good area to get into as long as they have two things: transportation hubs and an available workforce, she says.
Also, staffing company clients are being more sophisticated about consolidating spending on staffing, Wagner says. "The trend is toward procurement purchasing, and direct pricing with bids, which is not necessarily a good trend because a lot can be lost just putting a price on a piece of paper," she explains.
There's also a trend toward moving things online–for example more and more companies are offering training online–and pay cards and direct deposit are becoming a more popular way of getting people paid, Wagner says.
While no one knows for sure what 2010 will bring, one thing is certain: Most people in staffing expect it to be a better year than 2009. After last year's storm of unbelievable magnitude, they expect to see the sun shine again in 2010, even if it's just a little. And they're looking forward to it. "We're hopeful for a better year," says Spherion's Krause. "We're seeing some general economic recovery. ... We're seeing improvement across the country, pretty broadly. ... We're starting to reengage with clients that haven't bought services in awhile."
