There’s no doubt that the talent market has changed significantly over the last two years. Both the pandemic and record inflation across the world have caused many to rethink where, when and how they work. This has left hiring managers scrambling to find the right talent for their businesses.

Indeed, some of the biggest changes have occurred in the external workforce market. Individuals are choosing flexible work over full-time employment, at a time when businesses are opting for external hires over employees.

This has put existing VMS platforms under increased strain as they try to perform tasks they weren’t designed for. Businesses are trying to organize and manage their external workforce through software that cannot meet their needs.

How do you know your VMS needs updating, and what are the benefits of doing so? 

Iterations of VMS systems

VMS platforms are far from new.  Indeed, the first VMS products to land on the market have a history stretching back decades to the very beginning of the external workforce (and way before cloud computing). Many businesses still operate these early era VMS platforms, despite a third generation of cloud-native technology now coming of age. Given the talent market has changed beyond recognition over the last two years, these platforms are increasingly looking tired and outmoded.

What exactly is a Gen 2 system?

Gen 2 platforms are characterized by the shift into the cloud—the solutions that entered the industry post-cloud computing. They profited from all the advantages cloud native architecture has to offer, such as simpler integration, more frequent upgrade cycles, richer insights, faster scaling, etc.  Nevertheless, like their predecessors, their scope of use remains defined by their procurement focus.

To explain, as the external workforce was in the 80s and 90s largely the exclusive domain of procurement departments (i.e., indirect staffing), Gen 2 VMS platforms were designed around these needs.  Capabilities were concentrated on contract management, time and expense tracking, req-to-check, and payment insights, among others.

While this proved effective in the past, today it only supports the needs of ONE department, one stakeholder group.  As such, these Gen 2 VMS solutions are themselves showing signs of age, not owing to their feature redundancy, but because of broadening demands from new stakeholder audiences for features that serve them.

Business team examining VMS software

What are the biggest pains?

The inability to create an extended workforce relationship leads to some of the biggest pains organizations currently have with their VMS. As businesses increasingly look to use the external workforce as a permanent part of their operations, they will need to maintain relationships with individual workers.

Research by Korn Ferry found that the USA is predicted to be hit the hardest by the talent deficit, and is set to cost the country $435.7 billion in lost revenue, or 1.5% of the whole US economy.

HR teams have become an increasingly important stakeholder in an organization’s workforce strategy. Current procurement-based VMS systems do not support the kind of relationship management or talent engagement that large external workforces demand. These features have become increasingly important to maintain a mutually beneficial relationship between the external worker and organization. Without them, Gen 2 platforms fail to allow businesses to impose brand guidelines, policies, training. This includes adequate onboarding protocols and checks on their external workers.

Gen 3 VMS systems are becoming end-to-end talent management and engagement platforms

Maintaining an extended relationship with an external workforce falls under the umbrella of direct sourcing. Only through the creation of internal private talent pools can businesses redeploy past talent within their organization. To achieve this, Gen 3 systems have become end-to-end talent management and engagement platforms. They have developed features specifically designed to meet the needs of all stakeholders within the external workforce strategy.

Starting from the beginning of the worker life-cycle, Gen 3 platforms create and support digital onboarding journeys for workers. An example of this could be rich media digital documents. These documents combine video and other interactive elements designed to automate onboarding. This ensures that each worker is automatically trained and familiarised with your company’s values and policies. Here, automation is key. It is the only way that organizations can deploy their external workforce at scale.

The next stage in the worker life-cycle is the production of the work and deployment of their skill set. Gen 3 Systems expand on the already rich procurement-based capability set that existed in Gen 2 iterations. Here, procurement-based features such as candidate tracking, payment insights, and time and expense are enhanced by AI and predictive decisioning. This furthers the level of automation that the VMS can offer. Like onboarding, this is essential for managing an external workforce at scale.

The final stage of the work-life cycle is off boarding. Previously, this would’ve involved a ‘hard’ exit from the organization for workers. However, with the maintenance of an internal talent pool through direct sourcing, organizations can offer a ‘softer’ exit and maintain relationships. This will allow companies to redeploy previously used talent in future projects. This not only cuts the time-to-hire, but also means that workers will already be familiar with the brand. This is the crucial step in turning a minor contingent workforce into a permanent external workforce.

Do you need a Gen 3 system?  Are you sure?

To fully reap the benefits of an external workforce, executives should be looking to update the VMS to Gen 3—if that’s what your organization needs.  Like all things, it’s horses for courses!

Hiring managers discussing VMS software in the office

If it sounds like External Workforce Management is for your organization, this is what you need to think about:

1.   Re-evaluate workforce composition.

With the changes in the talent market over the last two years pushing organizations towards flexible working, businesses should be reevaluating the composition of the workforce. As a broad trend, this means that businesses should be looking to increasingly deploy and utilise an external workforce instead of full-time employees. Whilst not a direct replacement for all positions, an increasingly greater proportion of many businesses’ workforce will be external. The exact formulation of this will depend on the business size, sector and strategy. Similarly, there will be certain crucial business functions that are beneficial to remain the task of full-time employees. However, should organizations decide to increase the volume of their external workforce, they will need an update to their technology platform to accommodate this.

2.   Rethink hiring processes

Once businesses decide to hire external workers, they must rethink their hiring processes. This applies whether businesses are rethinking their entire workforce strategy, or just utilising the external workforce on an ad hoc basis. To achieve this, organizations need to evaluate the job opportunities they have on offer. They will likely be a variation in the role description between a full-time and flexible working role. This is the perfect opportunity to determine whether the workforce structure brings the most value to both the business and its customers.

3.   Update technology tools and ethos.

Once organisations have determined the new hiring processes, the final step is to update the technology and systems. The only way that businesses are going to fill flexible working positions is by competing for applicants through the right technology tools.

For those businesses that already operate a VMS, this will mean updating the platform to Gen 3. This will not only improve the efficiency of the hiring process, but also make them more attractive to potential candidates. The ethos of flexible working is moving towards career development and away from singular job opportunities. Therefore, those businesses that can offer the features required for personal career development will have access to the talent that those who don’t will miss out on. Having the right technology tools and a fully updated VMS platform is essential for success.

As the talent market has adapted and responded to various changes over the last two years, the technology platforms needed to manage it have evolved. Many businesses are currently stuck with outdated software that does not meet their needs.

Instead, businesses should update their external workforce strategy and their technology platform to eliminate the current pains. Technology is the biggest stakeholder in an external workforce strategy. Gen 3 systems allow businesses to create a complete end-to-end talent management platform. Only those organizations who embrace this evolution will be able to compete in an increasingly competitive and demanding market.