Direct sourcing is not a new talent acquisition channel for hiring contingent workers, but it has been gaining significant traction over recent years.
The reason for its popularity is that this approach is able to attract higher quality talent, at the same time as reducing both the cost of talent acquisition and time to hire.
How does the magic happen? Let Stoke explain it all.
What is Direct Sourcing?
There are a greater number of channels for talent acquisition than ever before, from traditional staffing agencies to professional services, digital marketplaces, talent networks and social media platforms. However, the competition to hire top freelance talent only continues to rise.
In an effort to improve talent quality and reduce time to hire, large brands decided that they were missing a trick. They undertook a new strategy, to leverage their existing talent pool, filled with retired employees, candidates who applied for previous positions but were not hired at the time, and more, and then proactively reach out to them and offer them work as contingent workers and freelancers.
This process of searching for talent within the company’s talent directory is called direct sourcing.
It can be run in-house by the talent acquisition team or outsourced to a third party agency that will leverage the company’s talent pool on their behalf and reach out to talent in order to harness the power of the company’s brand.
The Explosion of Direct Sourcing
According to the 2021 Ardent Direct Sourcing Toolkit, 55% of companies already have a direct sourcing program in place to handle talent curation and talent pool development.
Of the remaining 45%, a further 41% have plans to implement a direct sourcing strategy during the next 12 months. That leaves just 4% of companies who have no plans to implement direct sourcing to support the expansion of their contingent workforce.
If you were a time-traveler who had arrived here from a decade ago, you’d be forgiven for being confused. Why has direct sourcing become so incredibly popular?
Why is It So Much Traction Lately?
Enterprise demand for highly experienced and expert freelance talent has never been higher, and existing talent acquisition channels are struggling to keep up both in terms of quality and time to hire.
This is exactly where direct sourcing shines.
Companies tend to see the following improvements when implementing a direct sourcing program:
- Access to top talent – companies’ talent pool of ex-employees includes higher quality talent when compared with staffing agencies, digital marketplaces and professional services. In addition, highly skilled contractors wish to work directly with companies and build long-term relationships. They aren’t looking for a middleman between them and the client. Therefore the option of ‘direct sourcing’ increases the likelihood of a talented individual accepting the position.
- Reduced time to hire – As direct sourcing cuts out the middleman it naturally speeds up the process. In most cases the talent are already familiar with the company, its culture and internal process. This can shorten hiring and onboarding, as there is less deliberation and uncertainty on the part of the candidate.
- Lowered cost of talent – By leveraging their existing talent pool, companies are able to significantly reduce the cost of talent as they can eliminate the staffing agencies cut which is roughly 25%-37%.
- Removing the reliance on staffing agencies – Top procurement challenges in 2021 included data shortages which negatively impacted risk and compliance, skills shortages, and a struggle to measure value. When staffing agencies and MSPs hold the data and the control, organizations often face these kinds of challenges. With direct sourcing, the company takes back control.
The Challenges that Comes With It
You might ask yourself, with all of these benefits, and the best independent contractors demanding direct relationships, why haven’t all companies switched their processes years ago?
Making the move from staffing agencies is challenging both for companies and the MSPs which offer direct sourcing, as staffing agencies traditionally covered the legal and tax compliance process, not to mention making payments to the talent.
Companies and MSPs that wish to start direct sourcing contingent workers need to find a way to provide these critical services.
Direct sourcing also requires defining completely new processes for finding matches within a talent directory, including interviewing and vetting candidates using this process. Not only are these processes managed by other parties these days, the concept of direct sourcing requires completely new processes from traditional procurement – after all, reaching out to an ex-employee offering them a contractor or consultant job is very different than interviewing a new candidate who is not familiar with the company at all.
Is FMS the Solution for In-House Direct Sourcing?
Freelance Management Systems (FMS) are platforms that help companies build an internal talent directory and then manage the entire interaction with them from sourcing, to onboarding, project management, budget tracking, payments and compliance.
These systems, unlike Vendor Management Systems (VMS) which look inwards at the internal processes of the Procurement team, serve both the organization and the freelancer.
As a new category, the systems’ interface is modern, and in most cases can be white labeled to the company’s brand. This supports one of the main concepts of direct sourcing – harnessing the power of the company’s brand.
FMS answer all of the challenges of implementing direct sourcing programs, while ensuring legal, tax and workforce classification compliance in place of staffing agencies
Companies have long since recognized the need to directly initiate relationships with independent contractors from an existing talent pool, in order to streamline their internal processes, reduce operational costs of working with staffing agencies, and allow them to engage with top talent.
However, until now — that white space has been too difficult to fill.
Finally, FMS is making direct sourcing easy.