Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

{audio:0:00:08} Can you describe the industry when you joined Manpower in the early 90s?

{audio:0:00:12} I joined Manpower in the late 80s when they bought part of my family firm to get me, first of all, to coordinate and run Europe, then global marketing and finally President. It was a strange world in those days; recruitment was not what you see today. It was like the Wild West. I joined this company that had operations in 100 countries and every country reported direct to the CEO and founder of the company. It was an odd structure which I explain to my doctoral students as purely transactional; the customer wants something which you provide at the best price. We went through an amazing 26-year journey of both changing the recruitment industry and the way workers are treated worldwide through many initiatives. I was learning as I went along and was Mr Bottom Line for a $9 billion revenue US company.

{audio:0:02:13} I worked for Hewlett Packard so I understood what American corporations wanted which was returns on shareholder value. We have changed the industry slightly from being transactional and shareholder/owner centric to focusing on the people you work with to help and engage them.

{audio:0:02:57} What philosophical or cultural change enabled the switch from shareholder value focus to a more holistic focus on employees that deliver value?

{audio:0:03:11} I made the first global deals in the industry with organizations like IBM and Hewlett Packard. The very first global deal was with a company which nobody remembers today, but it was in the top three at the time, called DEC or Digital Equipment Corporation; Digital, who were later bought by Compaq and then Hewlett Packard, anyway it was an amazing company at the time.

{audio:0:04:28} Big corporations realized they could scale more efficiently with multinational relationships with companies such as Manpower Inc, Adecco and Randstad and put in place global agreements to source people better. Globalization of the concept of recruitment and supply to big corporations started the change and grew from there. We started doing amazing things in terms of taking a global role in protecting workers, advising governments and being the key players at places like the World Economic Forum and the United Nations.

{audio:0:06:18} What did a global agreement look like for a Fortune 100 using Manpower?

{audio:0:06:30} The very first global one between Manpower Inc and Digital Equipment Company basically said the following: for all of our joint 100 countries we will put in place a commercial agreement that we will supply you with temporary workers at a market cost plus markup; with contractors at a market rate plus a hiring fee, so that you can employ them. Temporaries were always on our contracts and permanent recruits were hired at a given percentage of annual salary.

{audio:0:07:30} I call those kinds of deals from those days essentially hunting licenses. We made a deal with DEC which gives permission for their local companies to work with our local companies at or within a specific pricing framework. It is not rocket science but nobody had done it before.

{audio:0:08:15} Would they commit to certain volumes?

{audio:0:08:19} No, customers will never and should never commit to a given volume because it comes from the value and efficiency in the delivery process, which when you get right, happens. The secret was not to sign a global deal but it was down to the local provider, Manpower and later my colleagues in the industry, to provide the best-in-class service at the best price, because it was still an open market.

{audio:0:09:46} So the local prices could still change when the market changed?

{audio:0:09:53} Yes, there was no global pricing. It was a relationship deal that said you and you will work together because we believe in each other and will put together the best supply deal.

{audio:0:10:17} There was no binding agreement, exclusivity or volume targets but rather we like you, we believe in you and this relationship and this is the pricing architecture?

{audio:0:10:33} What formed the trust in those relationships with big enterprises?

{audio:0:10:39} In the early days, it was about delivering the goods. We had one contract with IBM where we had to deliver over 100,000 temporary workers annually on given terms. When you deliver that it builds trust. We started with Hewlett Packard in 50 locations, then built a global contract relationship and at one point, IBM were a quarter of a billion US dollar customer annually.

That was all through the trust we had built by building the relationship first then delivering.

{audio:0:11:55} Once you hit that 100,000 mark, would a certain price then be charged?

{audio:0:12:15} There was never a price to volume relationship in any of our global contracts. Pricing was always done multilaterally, multi-nationally and locally, and there is the beauty of it. When you go out to the market and deliver exactly what you promised to a customer, they deliver on their commitment to buy from you. In the 90s and still often in the industry today, the way pricing happens on any deal is company X comes to provider Y and requests Z temporary staff to start at a new call center.

{audio:0:13:38} We provide them to you, show you what their market benchmark salary rate is, and take the markups or multipliers as we used to call them, which varied from 5% to 190% if we provided a specialist research engineer for the CERN accelerator in Geneva for example.

{audio:0:14:36} Back in those days and still today, there is a fragmented pricing relationship with customers because you make a relationship with a customer that gives you whatever you want. It depends on the uniqueness of supply, individual, people, geography and how you help configure it. Over the past 20 years, we developed so many complex pricing mechanisms which all focused on a trusted customer and supplier and the right person, place, price and time.

{audio:0:15:52} Has the structure of global agreements changed from the 90s to today?

{audio:0:16:00} Yes, because the industry has fundamentally changed. When I joined it was a transactional supplier of labor with big agreements and supply. Today, you partner with customers globally and nationally, and take over parts of what they do and how they work and operate. Pricing models have dramatically changed. The first global managed service outsourcing deal in the IT industry was between Manpower Inc and IBM and we provided them with all their staff in Brazil.

{audio:0:16:58} It was a multilingual call center, and we did not know where to place it, whether to make it Spanish, English or Portuguese. There were too many people to know what to do with and I basically just said, too much hard work, let us take it over. We created an outsourced operation for IBM consolidating 70 IBM call centers in Central and South America, and then ran it. When I made that deal, I thought, what have I done?

{audio:0:17:55} I needed a facilities provider and a telecoms partner. We discovered customers sometimes wanted you to do it because they trusted you to find the right people and handle it. The industry in the 90s fundamentally changed from big accounts with frame agreements to handling their entire operation via outsourcing or offshoring. We were expected to make efficiency improvements. We entered into it thinking there was a huge industry opportunity and a big part of the industry today has developed sophisticated offerings in that area.

{audio:0:19:16} All of that impacted the pricing where you go from a markup for an individual worker or a percentage fee for a permanent person you place in a company, to take this bit of work and run it at 10 million a year and the efficiencies are your problem.

{audio:0:19:48} You evolved from a recruitment agency to an outsource partner, effectively bonding the two offerings. Did you become stickier or a more important partner for that customer which makes it harder for other competitors to enter that relationship?

{audio:0:20:18} That is a classic question; how do you get a customer to not be able to leave you? You provide a global, national or sometimes even local service which is impossible to unbundle unless they go bankrupt. It is a great way of getting what we called customer intimacy.

{audio:0:21:04} The transition from transactional placement of individuals to running parts of their business was the transition in the industry which made a difference to customer stickiness. When you get inside a customer organization and help them work on their strategy and business process, it is sticky and you end up moving up the value chain of human capital management services.

{audio:0:22:04} We started on a purely transactional basis; can you provide this person tomorrow at a 6% markup on their salary as a temporary? When I joined Manpower, they were like the others – a grubby temporary service company – which we tried to evolve over years. The first bit was close customer relationships and the second was proving we operated like a proper business, by running their human resource departments.

{audio:0:23:04} The next industry shift was to go from transaction to partnership to business trust. You trust us to transform your business, which is a little bit more complicated. A practical example is that we were global suppliers for organizations operating in China, who needed our services but we were not allowed under certain laws and restrictions. What I had to do was change that game by not only providing complex solutions such as managed services, outsourcing or offshoring but structuring the industry worldwide. We had to work with global governments to optimize labor and social strategies to allow us, and afterwards our global competitors, to work in these countries to the benefit of global customers.

{audio:0:24:55} We were the first company and I was the first person to partner with the Chinese Government initially and then with many others. We showed them how to make their labor market work better and how to do it ethically, which ultimately benefited us and our customers. One of the last evolutions of this industry has been influencing governments and international organizations to provide the right infrastructure for skilling and treating workers correctly. That is an amazing journey in 20 years.

{audio:0:26:14} It sure is. What could break the customer intimacy those larger incumbent companies have with their big enterprise clients?

{audio:0:26:30} It is dead simple these days. In the end, small, medium or large customers do not care who or where you are, as long as you provide them the person they need at a competitive price at the right time. They do not care for global relationships. None of the 78 global relationship partnership deals I did with major corporations had exclusivity. There are two reasons for that; none of them would have signed up if there was exclusivity and no countries would have allowed it to go ahead.

{audio:0:27:34} Ultimately, it is about quality of service in the right place at the right time, with the vision and implementation to provide national and international structure to your customer. The work which all of us have done on ethical recruitment in some of the most challenged countries in the world has taken us to an amazing place where we are truly making an impact.

{audio:0:28:32} Yesterday, I had a call with the UN General Assembly, which sounds interesting but I have done it 50 times, about how to improve ethical recruitment and to stop human trafficking and cross-border abuse of workers. That is one area I am ashamed of. Over the past 20 years I have consistently worked on these issues but we have not made enough progress. The UN is hosting the fifth global annual conference on stopping child labor. It has taken five conferences; why can we not fix the recruitment portion of that? I have worked with many organizations on supply chain, hiring processes and fair wages – Nike and a bunch of others. We are all trying to get this global recruitment thing right so it does not abuse workers and treats people fairly without abusing women and children or trafficking people.

{audio:0:30:07} So Manpower has become an outsourced provider to big enterprise without exclusive agreements. What stops them from using Upwork to recruit their labor?

{audio:0:30:55} In the outsourcing or offshoring world, we become the employer and are responsible for providing the right people at the right place and time. A secret of the industry is that nobody ever unilaterally provided staff to a customer by themselves; there are always relationships with secondary providers. The answer is straightforward. Nothing stops an HR department or a customer or the head of procurement or a call center business stipulating that Manpower provide that call center with Upwork employees. It is all about the efficacy of the delivery. Today, the industry is focused on stopping the use of child labor. The final evolution I wanted to get through was to use the industry as a mechanism to help stop some of the bad things which happen in global recruitment.

{audio:0:33:01} We are asked to do most of the legal cross-border contracting and temporary hires on this planet. The industry has a huge responsibility which is why I served as Vice President of the global federation of the industry for several years. This was a part time job I never got paid for. But to your interesting question, there is nothing stopping a customer going to any supplier but we are trying to ensure they understand those consequences and what happens in the delivery.

{audio:0:34:05} I was one of the architects of the Modern Slavery Act in the United Kingdom, but despite the act, which has tried to stamp out the use of illegally immigrated slaves, women and children into work and prostitution, you can still find someone within 10 minutes.

{audio:0:34:45} Is that a top priority for the big brands and do they trust Manpower?

{audio:0:34:59} Big companies want to protect their brand and themselves from being called out for having child labor in Indonesia. The industry is in what I call the fifth era, which is working with governments and international organizations to protect workers and do it in the right way while still making money from it because that is what we do.

{audio:0:35:57} The risk of a company like Nike using a smaller up start player could hurt their brand more than saving them money or being quicker at hiring. So it’s almost not enough to be cheaper and quicker for startups versus the incumbents?

{audio:0:36:19} You nailed it and are absolutely right. Most of the executives and company leaders I have talked to want to do the right thing and the industry needs to provide them, not just with brand protection, which is, oh no, oh Marks and Spencer, oh shoot, we've been called out again for illegal garment worker production in Dhaka.

{audio:0:36:59} But that is what those businesses do; they are brand protectors, effectively.

{audio:0:37:04} No, maybe I am a corporate evangelist but most corporations want to do two things: make a shed load of money and do the right thing. There are loads of incentives or disincentives to force them to do that, as long as we do the right thing with people and work. I am supposedly retired now, except I am doing many Zoom calls daily with not-for-profits, international organizations, the UN, foundations and corporate organizations in the industry, and all of the calls I have are about how to keep the industry supplied with correctly trained and treated individuals who need them and can give them a great living.

{audio:0:38:31} That is how the industry has transformed and I could not be more proud of my old company, ManpowerGroup, as well as Adecco, Randstad and others, in signing up to do the right thing to stop unethical recruitment which does not treat workers correctly.

{audio:0:39:20} Upwork and Fiverr are looking to get into the enterprise game. If you were their leader, what would your strategy be to start serving more enterprise clients?

{audio:0:39:37} They better send me a fee for giving them strategic advice, but in the spirit of our discussion, I would say it is simple. My Bangalore analytics team recently calculated there are 65,000 digital recruitment aggregators including Upwork, so there are loads of them out there. They need to go from being purely transactional, which is all they are, to making a difference.

{audio:0:40:39} They need to ensure their aggregation process from many sites and individuals is absolutely ethical. They have to ensure that nobody is abused, misrepresented or put into a situation where they could be embarrassed. This happens often with digital recruitment media, where company X has a deal with company Y, the customer that they provide five candidates for a job.

{audio:0:41:39} Some people have been so embarrassed at being provided as a candidate because of the numbers that digital aggregator have agreed to. We started the only world digital ethical recruiter in Saudi Arabia, Nepal and the United Arab Emirates, working with their governments. We need to encourage both our friends in the digital part of the industry, as well as others, to get it right and ethical, as opposed to self-serving.

{audio:0:43:02} Even if they do that, they still need to compete with Manpower and others, so it must be quite hard to encroach on that relationship?

{audio:0:43:18} That is a vital schism in the industry; you must have some PhD person creating your questions. It is important to realize there is a difference in the industry and the future between trust of customers. That is why Adecco, Randstad and ManpowerGroup still exist. They want intimacy with a physical provider who has a presence in many countries. Digital providers can provide someone in Dhaka at the right price and at the right time. But they are not there and do not represent the individual or customer to ensure they deliver the performance at an agreed cost, while remaining ethical. This bifurcation is a huge opportunity for digital providers to somehow meld the old with the new, which is what the old are currently trying to do. I am working with the top five organizations in recruitment in the world to figure out how they can make their digital offering as good, fast, efficient and correct as Upwork.

{audio:0:45:30} What is stopping the incumbents from doing that?

{audio:0:45:33} They have a great site but big customers want somebody on the ground. They want a relationship and people to talk to. Digital firms offer something in the middle of the two, but if they want to know more, they will have to give me a consulting fee.

{audio:0:46:06} In other industries, the physical incumbents are rapidly shifting to digital but I don’t seem the same intensity from a Randstad or Adecco offering something similar to Upwork for example? They have tried in the past but they seemed to have failed miserably each time.

{audio:0:46:35} Big corporations who have operated traditionally for 50 years do not know how to. It really is straightforward; how do they evolve their traditional business model to digital? Several of them I am currently working with might get there, but it will depend on some of the big players. They are turning over $20 - 30 billion so they are huge companies.

{audio:0:47:44} They realize the need for online recruitment and put together an IT team to build it and in five years they might have a model, but that does not work. The real future for the big players, which I have been telling them, is to acquire or partner with the smart digital players and morph their business model between the traditional one and themselves.

{audio:0:48:42} There are many investors currently trying to get into this industry. I have 10 high net worth individuals asking me what they should invest in. The secret sauce is a big company who realizes they are no longer great but still has a high turnover, working with these smart digital guys.

{audio:0:49:21} I am surprised someone has not bought Upwork or Fiverr and integrated it.

{audio:0:49:37} You have a problem with corporate strategy; you speak too much common sense. When you run a $20 - 30 billion company there is an inertia in the organization. The President cannot decide one day to initiate all these initiatives; that does not happen. One needs to understand that it is the incumbent inertia of corporations which causes them to fail.

{audio:0:50:33} In 1989, Digital Equipment Corporation was the second most important IT company in the world and biggest money earner next to IBM, but by 1995 it no longer existed. I tell my MBA and doctoral students to never stop looking over their shoulder or forward. Over the past year, the world has fundamentally changed and I question those who manage big companies how they have transformed their business models to what is now virtually a digital business model worldwide. You cannot interview anyone or tell them which location they will go to as they will work online. Instead, you have to describe how you add value to your customer in that process. You mentioned Upwork but there are another 20 organizations who are making hay out of the current situation.

{audio:0:53:33} How do you manage the ebb and flow of the varying volume requirements or demand when running a business such as Manpower?

{audio:0:54:04} It is the core question of running a big global business. I have worked with some people who have driven me nuts over the past 20 years, but they are called operations people and they know how to get this job done. In the big firm model, you need to scale the capability of an organization to go from hiring 1,000 to 70,000 people in two weeks.

{audio:0:55:10} Our operations people taught me to have a mixture of the right people running that process and the right IT system to get the whole thing done. Scaling something from five to 29,000 people in three days was all about having the right person running that process, but giving them back up in the form of IT process experts to get that job done.

{audio:0:56:30} How do you optimize the gross margins of the business?

{audio:0:56:47} For temporary, contract or permanent placement, price drives the market. The secret sauce is the ability to regionally analyze market rates and markups which customers accept. When they are desperate, they will accept anything. For the particle physicist we placed at CERN in Geneva, our hiring fee was 297% of his annual salary. Customers should understand the relationship between verified market rates for individual skills or talents, your business process to find that person and what they are willing to pay.

{audio:0:58:39} Do those market rates change almost monthly in real time?

{audio:0:58:44} ManpowerGroup has daily wage rate reviews for all skills globally. One must go into that detail in order to make money and do the right thing for the customer at the right price.

{audio:0:59:18} So your margin depend on the specific hire?

{audio:0:59:25} Yes. Temp to perm is where you are placed in a company for six months and they are so delighted with you they want you. We never stated in any contract that we were placing someone as a contractor. If after six months a company wants them permanently, we asked them to tell us what they thought that hire was worth. If they hired from outside the permanent hiring fee would be 15% of annual salary. That is what I call a smart customer relationship.

{audio:1:01:03} That increases your gross margin as a supplier but relies on the employer's willingness to employ fixed rather than temporary labor. In this new remote world is there a potential transition for employers to prefer temporary over permanent?

{audio:1:01:29} I see a huge move to employing people in what young people call the gig economy, but I call the transitional digital economy. Currently, organizations with contractors are extending their fixed term contracts because they have no idea what their business model will be next year. We are in a wait-and-see period but the industry will change when things become more certain. I do not foresee a huge shift from the gig economy, hourly temporary online contracts.

{audio:1:03:46} Assuming that post-COVID we see a 30% decline in the ratio of permanent to temporary employees, what will that mean for the relationship with agencies?

{audio:1:04:10} Agencies began and developed with their ability to provide temporary employees. They provided anybody in the right place and at the right time and cost for as long as you wanted. There will be a huge surge for all recruitment companies in this transition as employers are unsure. They do not understand the ongoing implications to their business processes, plans or targets.

{audio:1:05:07} This industry can provide flexible solutions, given interesting potential business reconstructions as we go through this crisis because ultimately every business needs talent. That is why I am trying to buy more shares in my old company and Adecco and Randstad because those companies will do well if they morph their business models and partner with digital providers.

{audio:1:06:31} Could more digital businesses outsource their HR to Manpower or others?

{audio:1:06:42} Is the HR function evolving by employing digitally savvy millennials who are more prone to use Upwork to recruit or are relationships key for the large enterprises?

{audio:1:07:08} The new generation of HR people is so important. I have been through the era where HR runs and rules, yet it is no longer effective and should be outsourced in corporations. Today, the 25 to 35 year old who is running HR is the future because they absolutely get it.

{audio:1:08:13} They understand the interplay between digital, physical and operational implementation for companies, whereas my generation did not get that until we were too old. HR functions have to get back to the top table from where they have mostly been dismissed over the past 20 years, and convince old board members they can help them. I have 10 young HR troopers who are amazing.

{audio:1:09:12} Every time I talk to them, they find solutions such as getting compensation benefits synchronized with shareholders digitally or we can do all the psychometric assessments online. My future hope for human resources is that we get these individuals to the top table so they can help re-engineer corporations.

{audio:1:09:57} How will employers structure their work forces and use different agencies or digital services in future?

{audio:1:10:23} We should observe how the global economic and business structure is changing because everything works back from that, but various stimuli have changed businesses forever. Individuals can work from home but how could they work from anywhere in the world at any time and make a fundamental impact on their job role in the business process? Over the next three years we will discover how that plays out. Two years ago, I had five or six calls per month on Microsoft Teams whereas today it is in the hundreds. All my friends in the industry tell me their world has fundamentally changed. We need to restructure the management process of the company because we no longer need to go to headquarters daily.

{audio:1:12:51} One thread which has continuously come alive in this conversation is the importance of the ethical element to big employers. Is the value of Randstad, Adecco or Manpower based upon being a trusted partner to large enterprises going forward?

{audio:1:13:30} The recruitment industry plays an important global role in helping governments start things like the California Act, the UK Modern Slavery Act or the Brazil Act. William Wilberforce helped stop slavery by changing the UK Maritime Act in the 1700s. On the call with the UN yesterday we compared the situation to five years ago with regard to ethical recruitment, abuse of women and child labor, and internationally we have made very little progress. The industry still has a way to go and has both a moral and practical responsibility to keep fighting to ensure nobody on this planet is abused at work. Your digital platform is one way to spread this message. I will leave you with a quote from the Untouchables: never stop fighting till the fight is done!

Manpower, Upwork & Global Enterprise Recruitment Contracts

Former President at Manpower Group

inpractise.com/articles/manpower-upwork-and-global-enterprise-recruitment-contracts

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Executive Bio

David Arkless

Former President at Manpower Group

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Manpower, Upwork & Global Enterprise Recruitment Contracts(April 23, 2021)

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