What is a managed service provider (MSP)?


A managed service provider is a third-party group that manages one or several areas of an organisation’s business to help improve operational efficiency.

A managed service provider (MSP) is a strategic partner that delivers and manages a range of services and solutions for their clients, from the monitoring of IT systems to the management of human resources, recruitment and more.

In the context of recruitment, a managed service provider partners with businesses to manage and streamline their contingent workforce, which consists of temporary workers, consultants, freelancers and statement of work (SOW) contractors. They typically act as a centralised point of contact and oversee the entire contingent workforce process, including candidate sourcing, onboarding, management, strategic workforce planning and more.

After contracts and service-level agreements have been put in place, the managed service provider begins by analysing the organisation’s outsourcing process and identifying their staffing needs. Utilising their niche expertise, they then develop a customised solution and provide ongoing maintenance and end-to-end management for the organisation.

Managed service providers can be vendor neutral (utilising a wide range of suppliers to find talent), a master vendor (using a primary or preferred staffing agency or vendor to find talent) or a hybrid of the two. While managed service providers are sometimes confused with recruitment process outsourcing (RPO), the latter is mainly used for managing and hiring permanent staff. However, some organisations look to combine the two in a total talent management (TTM) structure.

History of managed service providers

Managed services providers first emerged in the IT sector in the 1990s as the range and complexity of infrastructure and tools increased. Businesses found it more cost-effective to outsource their IT processes such as maintenance, security and data warehousing. The MSP trend then spread to several other industry sectors such as HR, payroll and recruitment given the increased complexity of work patterns such as hybrid, part-time, freelance, contractual and gig.

Recent trends in managed service providers

There has been a boom in the global contingent workforce in recent years. According to a US Government Accountability report, 40% of the US workforce is contingent, with the average business having 18% employed on a contingent basis. The pandemic was a huge driver in this growth as people reassessed their lives and careers during lockdown and became more attracted to freelance and contract work and working flexibly or remotely. Because of this growth, organisations have turned to specialist MSP recruitment providers to help manage this increasing part of their workforce and their new work choices.

In an ever more competitive economy and marketplace, organisations are also having to be more agile – increasing their workforce at certain times of the year to take advantage of opportunities and new projects and pare it back during periods of lower demand. The hunt for quality talent to over-ride skills shortages in areas such as STEM and digital technology has also sharpened in recent years, with the hiring of specialist contingent workers being seen as the solution.

Master service agreements, which are typically contracts between a managed service provider and its clients, have also moved to digital. This incorporates both negotiating the provisions of the agreement online and automated electronic signatures.

Advantages of managed service providers

  • Managed service providers have access to a wide network of staffing agencies and talent pools, allowing them to source and attract qualified candidates efficiently.
  • MSPs can quickly scale up or down the contingent workforce based on the client's changing needs, providing flexibility in staffing during peak periods or project-based work.
  • Managed service providers can help reduce costs by leveraging their expertise in negotiating contracts, managing vendor relationships and optimising workforce planning.
  • By outsourcing contingent workforce management, companies can concentrate on core business activities.
  • Managed service providers ensure compliance with employment laws, regulations and industry standards, reducing the risk of legal issues or penalties for non-compliance.

Disadvantages of managed service providers

  • Working with a managed service provider means relinquishing some control over the recruitment and management process, as the MSP takes on the majority of responsibilities and decision-making power.
  • While managed service providers can help optimise costs, there may be additional fees or costs associated with engaging their services, which need to be carefully considered and managed.
  • Working with a managed service provider may create a level of dependency on their services, making it challenging to transition away from the MSP or switch to a different provider if needed.

Use case

Many STEM companies, especially those in tech, use managed service providers for their recruitment efforts. By partnering with MSPs, these companies can gain access to a larger talent pool, efficiently manage the recruitment process and ensure compliance with labour regulations. MSPs also assist in workforce planning and talent management, allowing companies to scale their workforce based on project demands and market dynamics. This strategic approach to contingent workforce management enables companies to focus on core business initiatives while ensuring a skilled and flexible workforce to support any and all technological innovations.