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JAMES FLANIGAN

Today's Temp Staff Industry Reflects a New Business Model

November 01, 1998|JAMES FLANIGAN

For clues to the present condition of the U.S. and world economies, and for insights into the future of the so-called new or information economies, a good place to look is the worldwide staffing industry.

"Staffing" has become more than a fancy word for "temp agency." The business of supplying employees for specialized tasks--or of providing whole departments of accounting or information systems--is now an industry of $88 billion in annual revenue in the United States and $130 billion worldwide, according to a recent report by Merrill Lynch.

Revenues of the industry have grown 18% a year in this decade, reflecting efforts of companies here and abroad to make operations more efficient through restructuring and outsourcing.

Some 2.5 million people, about 2% of the total U.S. work force and one-quarter of the total number of self-employed people, are now sent out to jobs by staffing firms. The percentage is even higher in the Netherlands, where 3.6% of the labor force now work on a temporary or project-by-project basis.

Staffing is a business of hundreds, perhaps thousands, of small firms worldwide. But the industry is led by two dozen or so sizable companies, notably Manpower, Olsten, Kelly Services and Modis Professional Services, of the U.S.; Adecco of Switzerland; and Vedior and Randstad of the Netherlands. Also, there are fast-growing newcomers such as Interim Services of Ft. Lauderdale, Fla., and Robert Half International of Menlo Park, Calif.

Stock market investors were high on the industry until this year, when fears that a slowing economy would throttle temporary staffing caused investors to sell. Staffing stocks on average lost about a third of their value, but they've come back from their lows as investors wonder a) whether there is a slowdown, and b) if so, whether it will affect staffing companies.

The answers are that there is some slowing in the business but not in all areas, says Peter Yessne, publisher of the Staffing Industry Report newsletter.

In fact, the really interesting story of this industry is the way its companies are spreading into fields that used to be called computer consulting and executive recruiting. A look at several companies illustrates what is happening.

There's no slowdown in the need for information technology specialists, reports Mary Ellen Weaver, chief executive of Data Processing Resources of Newport Beach. "We have our hands full supplying people to work on updating software to handle year 2000 problems," she says.

Weaver, a onetime temporary typist who bought into her then-small company 13 years ago, now runs a firm that has $215 million in annual sales and sends 2,700 computer specialists out on assignments. "There is a shortage of 350,000 information specialists in the United States," Weaver says.

"College graduates could walk out into $50,000-a-year jobs," she explains, but there are not enough of them. So Data Processing Resources recruits computer-skilled personnel in Britain, South Africa, Australia and the Philippines and brings them to the U.S. on special visas.

Staffing's growth stems from major companies' needing to cut costs and concentrate on what they do best, says Raymond Marcy, chairman of Interim Services. His company now deploys 400,000 people worldwide to handle legal, accounting, computing and administrative chores for corporate customers. Interim will often staff a department within a firm.

The payoff for the corporate customer might be called downsizing-by-proxy. Marcy says his firm can cut 15% of the employees in any department. Those efficiencies allow Interim an extra margin of profit on its fees. The corporate client, which pays Interim more than it paid its employees in salary, profits because it gets to eliminate long-term obligations for health and retirement benefits. The employees now work for Interim, which provides benefits and 401(k) retirement accounts.

Interim offers placement and recruiting services and plans to extend into all forms of "the human resource field," in Marcy's words.

Will large labor-service firms drive small-business people to the wall? Not really, says Robert Rollo, head of Rollo Associates, a small executive-recruitment firm in Los Angeles. "You have to recognize that all service business today is based on information and use of technology," says Rollo, who reports that smart, young job candidates now post resumes and perform job searches on the Internet.

"My small shop--nine employees--can use the Internet and provide sophisticated services as well as any company," Rollo says.

As might be expected, the advance of computers and communications plays a major role in the business. Entrepreneurs are now coming up with software programs that are the equivalent of worldwide help-wanted and positions-wanted bulletin boards, an evolution of newspaper want ads.

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