SOWs - The Half-Trillion-Dollar Opportunity for Recruitment
Updated: Apr 20
Discover why the future of Flexible Talent looks promising through Statement of Work (SOW) and Outcome-Based working and why as a Recruitment or Staffing business leader you should look to expand into this complementary, lucrative and evolving market worth more than 500 BILLION Dollars
This article seeks to introduce you to a huge and growing market, why you should genuinely consider it whilst also dispelling some common mistruths.
That market is Statement of Work…
In this article we will explore the following areas to help us understand and better determine what opportunity awaits:
It is worth pointing out that I wrote this document with the intention of addressing a specific audience. All the views and personal experience that I’ve gathered over the past decade have been built around working and operating within the recruitment, staffing and talent provision markets. Therefore, this guide is primarily aimed at businesses and individuals of these classifications who would be interested in accessing an expanding and lucrative market.
I have seen this market grow substantially over the years and it is set to follow a similar trajectory over the next decade, especially given recent global challenges.
This market is certainly not new but, in my extensive experience, due to misinformation or misunderstanding it is untapped and unaddressed. As such, my aim is to inform, educate and excite you to explore and step into a market that has numerous benefits and set to play a significant role in how the future of work evolves.
A lot of my current time is spent advising and guiding recruitment organisations (typically the founders and leaders) to recognise and execute against the exact opportunity market I am going to cover.
The services we offer, and I undertake personally, are 100% referral only. We do not advertise or run any sales campaigns, ever.
Everybody who contacts us have done so after being referred by one of our current or previous clients, who quite often are actually competitors of the business being referred.
We have a 100% success rate. Every client who has followed what we outline for them has been a success. Many of these clients have achieved aggressive growth, even during the Covid-19 pandemic.
Why do I say this?
I want you to feel comfortable with what I am about to lay out. It is not based on some idle rehash of another person’s opinion or experience. I have proven this market is accessible and valuable to recruitment providers. Not once, not twice, but over 25 times in the past two years alone. Every single business has achieved success in this market. No other person (to my knowledge) has as much repeat experience in this space. You can read more about my experience at the end of this document or by visiting my LinkedIn profile. I have also ‘ghost’ written a lot of articles around elements of what I outline in this article, some of which are used by industry advising bodies who sell “professional services”. Feel free to contact me if you would like a full list of the articles that I have written.
Finally, I have noticed first-hand an increase in the misinformation and incorrect advice being promoted by so called ‘experts’ within the industry. People who know very little about the market offering we will explore, some of whom have never even sold or worked in these areas, yet are happy to self-proclaim their expertise.
Our manifesto if you like is to revolutionise and evolve recruitment; beyond pure resourcing and talent delivery into providing their clients and candidates with more tangible outcomes, performance measured, with genuine inclusion.
THE MARKET OPPORTUNITY
What if I could tell you there is a market that exists which is easily within reach for a similar amount of effort to your traditional business offering.
A market, that once addressed and serviced, provides significant benefits – both commercial and future-proofing your business
A market that is set to continue to grow, even more so due to the COVID pandemic changing the future of working and talent delivery
A market that enables you to provide more tenured, valued and profitable services to your clients
A market that will strengthen your financial profile and acquisition attraction (if that interests you)
I am pretty confident that by this point you are saying ‘enough, just tell me already!’ But, before I do, let me just add some additional weight to our potential opportunity with some interesting stats (courtesy of SIA):
This type of engagement represents 40% of ALL workforces and is set to increase to 50% by 2030;
Up to 65% of a companies contingency resourcing spend is in this space.
The market in question, is of course the SOW space, or Statement of Work as it more formally known.
In 2019 the ‘SOW’ market was worth 523 BILLION dollars and is only set to continue to grow over the next decade. Over the coming pages we will break the opportunity down further and cement our reasoning as to why this is a market we should definitely explore and seek to operate within.
THE HUMBLE SOW
There is much more to this simple three letter acronym. A lot more than many businesses realise which is part of the reason why there is so much misinformation and misunderstanding within the recruitment/staffing industry.
Statement of Work has its roots firmly built within service provision – largely driven and used by IT and Consulting businesses as a contractual framework to deliver a set of measured outcomes against. Many more industries use SOWs for contracting and executing outcomes but the IT, Telecoms and Professional Services (including Consultancies) sectors are by far the largest, accounting for 75% of all SOW spend.
An SOW is more than just a framework though.
The SOW provides an opportunity to transform and evolve the workforce. It is an opportunity to provide more value, accuracy and accountability. SOW is an opportunity to take (and provide) more control over the work being provided.
As I briefly mentioned, I have written a lot of articles over the years which relate to the many elements that surround and envelop the SOW. My expertise lies in advising, building, and guiding businesses to effectively compete, offer and win SOW services and solutions. More common terms for these types of business offerings would include:
Professional Services (PS)
Managed Services (MS)
The aforementioned terms are different names for the same goal: to provide our customers with an outcome (not output) which is based on some defined activities and yardsticks. The actual construct of the SOW and how to properly create and manage one is beyond the scope of this article, I have written a dedicated article which is available on our website.
The focus of this article is to open your eyes to the opportunities that stepping into the SOW space presents. There are of course some factors to consider when entering any new type of offering, we will explore some of these throughout the content I introduce but the rewards far outweigh the risks. Like all things, it necessitates meticulous and thorough consideration.
HOW BIG IS THE SOW MARKET?
We already know that 40% of all workforces are provided through SOWs, which is set to increase to 50% by 2030. We also know that up to 65% of ALL contingent workforce spend is derived from SOW engagements.
Let’s segment the 500+ Billion market in more detail:
Data captured from SIA: http://cwstrategies.staffingindustry.com/global-sow-spend-exceeds-500-billion/
At the date of writing, the latest report for 2020 was not available
From this data we can now see that:
The US market is by far the largest at 251 Billion
The UK market is 14 Billion
Rest of World market is worth 180 Billion
This article will focus on the UK and US; two markets that I have personal experience with so feel best equipped to expand upon. Though I am aware that Australia has an established SOW presence too but, this is unfortunately not broken out specifically in the above data. Interestingly, Germany is by far the largest SOW market, supported no doubt by certain working legislations that accommodate this type of engagement.
If we compare the SOW market spend to Recruitment spend, figures from ‘The WEC Report’ (1) details that the global value of Recruitment was £418.9 Billion in 2018/19 (approx. $533 Billion at average exchange rate in 2018/19). The UK, the largest in Europe, accounted for 10% and US, equated to approx. 25% of global recruitment revenue (2). Additionally, 80% of the total value is derived from temporary/contract type engagements.
If we now compare our earlier stats from the SIA (40% of workforce through SOW and up to 65% of all contingent resource) against the SOW spend percentages, we can draw some trajectories against recruitment growth and SOW spend:
UK recruitment is presented with an additional addressable market of approx. £7-14 Billion in previously unrecognised revenues via offering SOW
The US is much greater, with recruitment tracking far behind SOW spend pace. A such. there is over $100 Billion addressable market revenue available in a market that has less Recruitment overall*
*The UK recruitment market comprised over 39,000 companies in 2018/19 compared to the US market having just over 20,000 for the same period. The majority (90%) in the UK were small in size with revenues of less than 10 Million.
As we can see, the market opportunity available to recruitment / staffing providers is significant. We could make similar assumptions and correlations for the RoW market but as the focus of this article is the UK and US – we will stop there.
The future of working will be a significant catalyst to the growth and further proliferation of SOW, especially as businesses will likely increase their working to more performance and outcome-based engagements for the skills they source.
THE FUTURE OF WORK & SOWs
Up until now, we have been focused on clarifying the past market performance to build a roadmap of potential opportunity. What about the future and more recent impacting events, namely COVID-19?
We are already seeing fundamental shifts in how workforces can and will be engaged in the future. Remote working, after establishing common practice throughout 2020, is set to remain prevalent post-lockdown. Several large, global industry businesses have already openly declared that complete workforces can be remote/home-based if they desire, with no return to offices unless people express interest.
Certain government legislations (namely IR35 in the UK) are starting to drive a further catalyst for behavioural change from contingent workforces. Far more oriented to procuring outcomes and not output, which is not easily measurable without the proper frameworks in place. Equally, utilisers of 1099 independent contractors in the US have similar considerations around the legitimacy of services being provided. We do not ‘need’ to use an SOW in either instance. However, the very nature of the SOW lends itself very well to establishing and enforcing accountability, behaviour and control over both the workers, outcomes and the procuring organisations adherence – ensuring there is far less of an ‘employer / employee’ relationship.
In the largest sectors (IT, Telecoms and PS/Consulting) the majority of these activities are project and outcomes oriented by their nature. There are no coincidences that SOWs are strong in these sectors as procurers and providers are more accustomed to engaging on a definitive basis, against a set of requirements to be delivered, and not so much about how it is delivered (outcomes over output).
Most organisations I have advised (75%) have been operating in these verticals and sectors as recruitment / staffing providers; they know the skill profiles very well and can more easily pivot/evolve into this way of working and servicing clients. This is not to say that other industries like engineering, construction, finance etc. are not suitable (they certainly are). Rather, the evolution is more established within IT, Telecoms and PS.
OUTCOMES NOT OUTPUTS
As we pivot and evolve into the future of working, our focus is going to shift from the volume of effort supplied towards the outcome produced.
Focussing on the outcome and not the output is a good way to view the market and services we could be servicing. Of course, the quality of output is important but by defining and measuring the outcomes against our goals and requirements we are better equipped to consider new ways of engaging and working.
SOWs offer many commercial routes of outcome vs output. Often, I come across organisations (in both recruitment and the pure-play market) who are using SOWs as avenues & vehicles to bypass spend categories or procurement requirements. These pseudo-SOWs are used to place resource more rapidly/easily without any legitimate measurement of output or defined outcome. Most often, these are done on a Time & Materials (T&M) basis.
This introduces a problem. There is nothing wrong with T&M SOWs and in some instances, they are absolutely the right commercial model for the providing party. Unfortunately, the historic over usage of SOWs in this way has now brought more scrutiny on the whole arena of SOW spend and classification.
MSP (Managed Service Providers) and VMS (Vendor Management Services) have grown in popularity over the past decade. These providers, who traditionally focussed solely on resource spend, are now increasing their scope to cover SOW categorisation and spend management. For those recruitment providers who do not currently operate in a legitimate way when using SOW, they will rapidly become exposed and, either pulled under control or expelled from the supply channel. Incidentally, both of the global recruitment organisations I worked for also had global MSP/VMS divisions who were very motivated in these areas.
Additionally, through legislation changes such as IR35, we have started to see far more definitive definitions from government on what a ‘legitimate service’. As such, it is my view that within a handful of years the contractor workforce, where operating ‘Outside’, will only be possible through a proper, robust B2B SOW framework – delivering actual outcomes and not simply outputs. The grey area will be diminished, and rightly so.
For those within the recruitment / staffing sectors, now is the ideal time to start focussing efforts and behaviours on working with clients and candidates in a more B2B manner. Global pandemic challenges and the Fourth Industrial Revolution are actively driving a change in the way people procure talent and work. If we are to keep pace and continue to offer the best talent for the best engagements, we must be equally equipped to provide the right vehicles of delivery, namely SOWs. Failing to do so is somewhat short-sighted and growth prohibiting.
THE ROUTE TO SOW SUCCESS
Every project needs talent…
This is important to keep in mind as we look to evolve our services from pure talent delivery into a ‘talent+’ model via SOWs. The simple statement I use with clients and in seminars I conduct is:
Talent + Service = OUTCOMES
What we need to define and understand is the ‘Service’ element - what this entails and how we ensure its effectiveness. As we evolve to provide outcomes, we need to be far more considering of expectations and perceptions of what the client’s outcome could entail.
Firstly, let me clarify, your role as a recruitment / staffing operator is NOT to be an expert in the technical nuances of every SOW service you provide – it is simply not practical or even feasible. This is one of the most common concerns I face when advising clients. Recruitment consultants profess to be ‘experts’ in their verticals (they really are not) so when we add additional layers of complexity, they believe they need to understand all the technical complexity. Wrong! This is a waste of their skills and time. What recruitment operators are experts at is finding the best skills for the task at hand. This is critically important and key to remember.
Rest assured, through the business and divisions I have led, we have delivered 100’s of programmes and projects over the past 20+ years, ranging from simple £25k projects through to me being personally involved in $BB outsourced deals. Whilst my formative career was very technical (more on that in my bio) every business I have gone into since then had different capabilities and verticals. It was simply impossible for me to become an expert in any of these areas, especially as a consultant where I was charged with getting a client from absolute zero to success in 3+ months.
As recruitment / staffing operators we need to build a team of experts around us, I advocate contingent workers for many reasons, not least as we will engage with our SMEs (Subject Matter Experts) through SOWs when supporting us and when they are delivering into our clients. This is another common misunderstanding; a contractor can have multiple engagements in effect at any one time. They could have an SOW in place to provide our business with pre-sales support (for example) whilst also being actively deployed into one of our clients’ projects for technical oversight. The two SOWs are discreet and separate, and in no way relate to each other.
I would urge you to consider this approach, it is proven to scale incredibly effectively. It hugely reduces start-up costs and risks too. You likely already know the key proponents who could support you.
For those of you who are largely delivering permanent recruitment services, I would advise you to build your capability in the contingent space, if for no other reason than to support your evolution into SOW. There are many articles and white papers written that support the common view that – the future of working in the Fourth Industrial Revolution will move to more flexible, contingent working too.
Our primary focus area to provide SOWs across should mirror those you are currently providing skills within, for obvious reasons. In my experience, the end procuring customer is very supportive of agencies stepping up to provide proper outcomes, provided you can convey the journey that you are taking, why you are taking that journey, and crucially, how you can help. Of paramount importance is helping the end customer become comfortable and instilling confidence that you want to help them understand their problem and provide a solution.
End customers are becoming increasingly frustrated with the main protagonists charging staggeringly higher fees to deliver what can largely be delivered by recruitment / staffing providers. There will always be instances where a high-profile brand name is required but, in many instances, it comes down to cost, agility and action. This is where recruitment has the more traditional, cumbersome providers beat. After all, where do these large brands turn when they need rapids skills or scaling? That’s right, recruitment or staffing providers. In fact, the UK Government procurement frameworks have been created specifically, to combat the monopoly large providers have amassed over the years who now seek to source and secure services from alternate vendors and channels.
Beyond identifying the areas where you should focus on providing solutions and services, there are some additional considerations. Namely, compliance and governance across the outcomes you are being hired to deliver.
This introduces some more common areas of concern for recruitment and staffing providers – risk. Almost every client and organisation I work with has this blinkered perception that they are going to be sued at every turn for anything that goes wrong, this is simply untrue. In over 25+ years across my different careers, not a single service I have been involved in delivering has ever got to the point of legal action being taken. There are many steps and processes we (and our clients) have in place to track and report on progress and adherence to plans and remediation activities should we fall off the path.
Of course, there is still commercial risk and liability to consider and how much we are ‘willing’ to accept as part of our engagement. For these areas I seriously recommend engaging with external legal & finance experts (if you don’t have in house expertise) who are proficient in assessing and advising on both contractual and commercial service-related matters. Both of these functions again are not full-time (certainly in the first 18-24 months of your journey) but should be a prominent part of your review and sign-off process.
Regarding the governance of what we are delivering, again we should utilise common best practices and individuals with the skills to ‘service manage’ (NOT project manage) these engagements. When I work with clients, I provide an established set of processes and tools they use to track, report and govern both their suppliers (the contingent workers) and their customers. I spend time clarifying that this is different to the role of project management which is focussed on driving the tasks ‘within’ the project. The role of our service management (I use the term engagement) is to govern the reporting and tracking of the supply channel against the outcomes being contracted which helps us significantly reduce our risk profile. If a project requires specific PM coverage it should be built into the solution and costed accordingly.
Over the years, I have finessed and refined all the processes and procedures I instil alongside, the frameworks we utilise and the collaboration required from all parties to ensure total alignment. Historically, this has been done through both manual and traditional communication channels (meetings, email, video/phone) and disparate technology (CRMs, finance systems, time reporting systems, email, video conferencing, file repositories etc.). Whilst these channels were relatively effective, they didn’t scale well. I always wanted more efficiency and more accuracy.
Through my journey into recruitment and the time I have served the industry, I have been striving to evolve the businesses I work with whilst seeking more expedient, cost-effective ways for my clients (and the industry) to succeed in the SOW space. Despite years of searching, I was unable to find any technology solution that could cover every step of the process seamlessly, providing an ‘out of the box’ methodology and set of tools to guide clients at every step. Some digital tools existed to cover discreet segments of the process, but never in a holistic manner and this would only lead to more disparity in the tech stack.
I realised that the only solution was to utilise everything I had tried and tested and develop something myself. After 18 months of development, we succeeded and created the world’s first, industry dedicated platform to help businesses capture, create, validate and manage EVERY step of the SOW journey, including the critically needed collaboration and authorisation activities for total success. In doing so, we have managed to reduce total costs involved to win and deliver SOWs by over 75%.
Consequently, in late 2020, despite the global pandemic challenge, SOWaaS® came into action – providing Statement of Work as a Service functionality to our clients and the industry.
ARE YOU READY?
By now you’ve hopefully recognised the huge opportunity the SOW market presents us all.
We’ve explored and demonstrated the considerable size and how as a recruitment / staffing provider you are ideally placed to springboard into providing your clients and candidates with a more inclusive, tenured and valued service via the SOW framework.
There are definitely additional factors you should consider. SOW won’t be for every business but you should at least be aware of the market, how the future is going in this direction and consider the options carefully.
Further, by simply being aware of options and by having conversations with your clients, you will become far more aware of the demand for businesses just like yours to provide these sort of options.
Should you choose to go forward, you certainly don’t need to start by providing hugely complex outsourcing projects, you can start small (I would recommend you do) and expand as you become comfortable with the process and market.
I’m quietly confident that when/if you embrace the future and step into the SOW market you will quickly wonder why you hadn’t done it sooner.
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This article was written by Stuart Juggins, industry expert and Founder & CEO of Aardent & SOWaaS®. More details about his experience or how to contact him can be found here