Is technology lock-in by MSP and RPO service providers a risk?

In the recruitment and talent acquisition processes, we see more and more new software applications and technologies, featuring artificial intelligence, predictive analytics and machine learning. As a result MSP and RPO service providers are investing heavily in partnerships with innovative new technology providers, in building their own technology stack or in acquisitions. Recent examples are the acquisition of ProUnity by Headfirst and the ‘Services Procurement 360 tool’ that Randstad Sourceright and Deployed developed together.

Most of these new technological developments can be deployed on their own and added to existing processes. They do not require significant changes to core talent acquisition applications, like a VMS and ATS. More and more often we see that MSP and RPO providers integrate such technology into their core application stack.

Companies that have outsourced their recruitment or contingent workforce management to MSP or RPO providers run the risk of a complete lock-in as a result of these developments. But there are a number of ways to avoid that risk.

Direct contracts
Contract the technology provider(s) directly, separate from the service provider. This makes the organisation completely independent of the service provider and allows it to change service providers without affecting the technology used. This approach is usually highly dependent on the internal IT agenda and strategy.

Indirect contracts
Let the RPO or MSP service providers contract the technology provider, with the possibility to take over these contracts, at any time, under the same commercial and operational conditions (SLA’s etc.). The disadvantage of this way of contracting is that the contract with the service provider can be extensive, as the agreement between service provider and technology provider must be included in the contract. But this approach offers the same freedom to change service provider as with direct contracting

Contracts with service providers
All technology, including external contracts, are the sole responsibility of the service provider. Advantage of this approach is that the service provider is free to select the tools they need for successful service provision and added value. However, if the design of an integrated hiring manager process is complex or involves many integrations, it can be associated with significant lock-in risk and cost.

As MSP and RPO services become increasingly dependent on underpinning technologies, provided (or owned) by the service providers, the risk of lock-in increases. That is why it is important to carefully weigh the risk of a lock-in against the opportunities gained by using these technologies.

A useful method to weigh the opportunities of a technology against lock-in costs is provided by Martin Fowler, in the form of a 2×2 matrix with ‘switching costs’ (lock-in risk) on one axis and ‘unique utility’ (new opportunities) on the other axis. By plotting your decisions onto this simple 2×2 matrix, you can visualise technology choices and support decisions in the way the technology stack will be deployed and contracted.