Is Services Spending Down?

Services spend management is a topic that I intend to cover in much more detail this year on Spend Matters. Starting with an upcoming review of ProcureStaff (which has waited patiently for me to get my act together), I'll dig into the providers and different options/approaches in the general space. One thing I've always found insightful about services spending is how it is often a leading economic indicator of both recession and recovery. In traditional economic cycles, services spend wanes before companies cut their salaried workforce and then rises when a recovery takes hold (the logic being temporary workers are easier and quicker to hire, not to mention more disposable if and when they're not needed).

This recession is a bit different than most, however. From various discussions in the past few months with a range of providers, it appears that few saw a serious ramp down in customer volumes going into the recession, as one would expect. Perhaps these companies such as Fieldglass and ProcureStaff are not as sensitive as some because their customers might be more sophisticated than most when it comes to services spend management (i.e., they're not representative of the broader services spending environment).

But not all share the same opinion and observation. A recent Wall Street Journal article (registration and subscription required) highlights how many staffing agencies are going through tough times. In one case, the story cites the example of a CEO of a blue-collar and white-collar staffing firm who has found that his "clients' problems are rapidly becoming his own: the golf-club maker that went out of business; the ice-cream maker that owes him $150,000; the paper mill that filed for bankruptcy." This staffing firm has lost 1/3 of the 900 employees it had 12 months ago. Apparently, this decline is not an anomaly. The Journal also notes that a recent "unemployment report confirmed that temporary-help firms were among the hardest hit in the recession, with the downturn pummeling businesses that supply other businesses with workers, cleaning help, marketing assistance and dozens of other services."

With temporary jobs down 26% year over year, contingent labor spending looks to be waning. And the same could be said for many professional services types of spending as well. What will the rest of 2009 bring? As I begin to examine the provider marketplace, I'll be sure to share the anecdotes that I'm hearing from those in the trenches. But in the meantime, I'd suggest that now is a great time to re-evaluate your services contract agreements, benchmarking and re-sourcing as savings opportunities present themselves. While it might be a bad idea to reduce salaries 10% across the board, you very well might have the opportunity to lop 10% off of the hourly bill rates in a number of contingent labor and services categories.

- Jason Busch