OUTSOURCING’S EXPENSIVE ALTERNATIVES: Why The PEO Model Is Gaining Ground
Throughout the last half of the 20th century and the first part of this one, we had the opportunity to learn the same lesson over and over: For business, “business as usual” wasn’t working – at least not as well as it needed to or should. Traditional models of ownership, management, investment, employment, marketing and distribution all underwent repeated phases of major disruption as technology, demographics, wealth distribution and market demand experienced major change. With each upheaval, the choice was stark: Adapt or perish.
Sure, you could try to stick with the way you’d always done things – but chances were that there would be a new, aggressive upstart ready and waiting to eat your lunch. The rise of the Japanese auto industry, Chinese consumer goods, and Silicon Valley tech startups were all made possible by seismic changes in old-guard industries. Smarter companies adapted, evolved, and survived; those who didn’t disappeared. RIP, Packard. RIP, Howard Johnson’s. RIP Union Carbide.
One upheaval that hasn’t been broadly addressed: The slow, steady decline of the old employment model. American business still maintains hundreds of thousands of atomized individual HR departments, doing what HR departments have always done: reviewing resumes, managing paperwork, negotiating contracts, and administering benefits. While practices have remained largely the same, though, costs have not: Estimates have shown that the average company now spends $5,000 per year per employee on HR administration expense alone. In an era of narrow margins and savage competition, such nonproductive capital expenses seem not only unjustifiable, but unsustainable.
Many companies have tried to blunt the impact of this inefficiency and expense by turning to temp agencies. Companies that once were called on to provide only short-term or ad hoc personnel now are called on to handle a significant portion, if not all, of many businesses’ staffing needs. While this can be a valuable short-term solution, it probably isn’t the best way to address all long-term needs..
Over time, cost and consistency can emerge as issues. Temp agencies depend upon the availability of a steady supply of skilled personnel willing to work in a temporary capacity. In an economic downturn, that doesn’t pose a tremendous challenge as the labor supply rises; in a tightening labor market, though, it becomes a bigger problem as temp workers find long term or permanent employment, or create their own businesses or individual consultancies. The continuing need for new recruits, and to handle the associated paperwork, adds to infrastructure costs which are passed on to clients.
Traditional employment models are becoming less suited to many of today’s efficiency-driven, stability-seeking businesses. That’s why Professional Employer Organizations (or PEO) like Trion Solutions have prospered. The ability to provide a high-quality, stable, and affordable labor pool while containing costs has become a pivotal competitive advantage—and one that more and more forward looking businesses are finding impossible to ignore. There will always be temp agencies, of course, and there will always be companies that insist upon maintaining their own extensive HR infrastructure—but as labor and administration costs rise and as a technology-empowered workforce becomes ever more mobile, these will become more challenging to sustain.