Staffing firms must become more agile and innovative to maintain their relevance.
Key takeaways
AI is transforming the staffing industry by enhancing productivity and streamlining processes.
To attract and retain top talent, staffing firms are prioritizing the employee experience.
According to IBISWorld, the staffing industry may experience some volatility due to economic uncertainty, but businesses are still likely to rely on temporary workers. While staffing employment fell 12.5% in 2023, according to the SIA Bullhorn Staffing Indicator, firms have reason to be optimistic in 2024.
Historically, staffing firms have relied on the performance of the economy. Employers across most sectors slowed new job creation in 2023, given the uncertain economic environment. This led to a decrease in demand for staffing firms.
While that won’t change in 2024, staffing firms must become more agile, innovative and data-driven to weather geopolitical and macroeconomic conditions. Additionally, office staffing and temp agencies must adopt new technologies, such as advanced AI, to streamline recruitment and stay competitive.
The impact of artificial intelligence (AI)
AI deployment will influence where staffing firms fit in their ecosystem. Recently, worker productivity has increased, resuming its historical alignment with labor costs—a development likely driven by AI. Staffing firms will continue to find ways to harness AI to improve worker productivity.
According to IBISWorld, advanced AI technology is expected to streamline recruitment and placement processes by enhancing the following:
- Applicant tracking systems that sort through thousands of resumes and cover letters, freeing up recruiters to concentrate on preparing for interviews and interacting with candidates.
- Task automation that improves the quality of candidate matching to placement openings and assesses candidate skill and potential.
- Workforce specialization, as customers demand workers with skills and training in technology—especially in cybersecurity. According to the Q1 2024 RSM US Middle Market Business Index report, 37% of middle market executives surveyed plan to increase their cybersecurity budgets this year. Staffing firms must address this concern to ensure growth.
By embracing AI, staffing agencies stand to improve efficiency and influence their industry. Leveraging AI for employee placement will be key to proving their value-add proposition to customers.
TAX TREND: Artificial intelligence
Staffing firms may develop AI software themselves or license it from a third party. The tax and accounting implications of each approach will factor into overall cost-benefit analyses.
A business that licenses software usually deducts each year’s license expense from its taxable income in that taxable year. Conversely, the tax treatment of software development expenses became less favorable in 2022 when a law change took effect.
Employee experience
Like organizations across most industries—particularly business and professional services—staffing firms are focusing on the employee experience to attract and retain top talent.
This renewed focus emphasizes work-life integration rather than work-life balance. Staffing firms historically have been adept at providing employee flexibility. Building on this, they are aligning their employees with clients more accurately to solidify the work element of the integration, best done through the leveraging of AI.
Another way staffing firms help candidates future-proof their careers is through training and certification programs. According to the World Economic Forum, by 2028, an estimated 44% of workers’ skills will be disrupted due to technological and economic changes. This implies that a significant portion of the workforce will require upskilling or reskilling.
Traditional skill providers aren’t keeping pace with the evolution in job content. Employers need to focus on providing workers with the specific skills needed to perform job tasks rather than general education.
Given the rapid pace of change across all industries, primarily driven by technology such as AI, the workforce may not be prepared for the future.
CONSULTING INSIGHT: Artificial intelligence
AI is redefining how companies in all industries do business. As new solutions and use cases emerge, organizations are capitalizing on opportunities to work smarter, make more informed business decisions and elevate customer and employee experiences. No matter where you are on your AI journey, RSM’s experienced advisors provide a variety of services and technology tools to take your business and productivity to new heights.
While companies are aware of this, the time and cost to deliver these trainings are at times overwhelming, and these programs are among the first to go when companies look to cut costs and improve margins, a theme we’ve heard time and again.
If staffing firms want to stand out, their ability to offer upskilling and reskilling training is an additional benefit to their customers. Training is costly, and it needs to be a calculated undertaking. But if done well, companies may lean on staffing firms rather than train people internally.
Customer experience
Optimizing the customer experience is critical for a staffing firm’s continued success. Typically, if customers have a good experience with a staffing firm, they won’t seek out a new one even if the costs of retaining that firm increase.
The work staffing firms perform internally will result in added value to client delivery, thus improving the overall customer experience. If staffing firms can better match talent to customer needs, those employees will be more successful in their roles—increasing the likelihood that customers will continue to hire employees from the same firm. Similarly, the greater the success of the placed individuals, the more the staffing firm brand will grow. The staffing firm will gain a reputation as a company that properly places competent and skilled individuals.
The takeaway
If middle market staffing firms don’t innovate, they risk falling behind the major players in the space, losing market share to those that have a well-developed digital strategy. Further, if they don’t develop technology, including AI, and implement it effectively, they will fall behind or become obsolete as their more efficient counterparts surpass them.
Staffing firms must adapt and implement new technologies to keep pace with an evolving workforce. This implementation will allow staffing firms to revolutionize the employee and customer experiences, thus providing more value to their customers.
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