Remember when you couldn't open an IT newspaper without reading about the skills shortage and how companies were having to determine their strategy by the availability of technical skills to support it?
It all seems a long time ago now, given the post-Y2K lull in new system implementation that has seen users spend budgets on thinkers rather than doers. One of the worst affected has been recruitment agencies, where UK industry spend has fallen by 25% from £6bn to £4.5bn a year.
It is little surprise that the share prices of quoted staffing agencies has tumbled during this period, but there are signs that growth is returning to the market and half-year results from MSB International provide a more upbeat backdrop to the industry.
The company beat forecasts comfortably, helped by a strong performance in the second quarter, but it was news of its broadening range of services and expansion into Europe that was most significant. Known for placing contractors, the company has added a permanent division and changed its focus internally from placing contractors with certain technical skills to meeting the entire range of clients' recruitment needs.
The change in MSB's strategy mirrors that of the market for IT recruitment as a whole, which is changing as IT directors look for a fuller service from agencies. User organisations had been happy to let IT managers determine their own requirements and instruct agencies to supply them with the required number of permanent and contract staff.
It is becoming typical for more control to be exerted within organisations and for the process to be less ad hoc. This is leading companies to work more closely with IT staffing agencies to determine their requirements and to identify the ideal candidates.
The result is closer relationships between agency and the client, with clients often awarding a small number of agencies preferred supplier status. For example, alongside its interim results MSB announced a 33% increase in the number of preferred supplier agreements it has signed.
MSB has also introduced a sophisticated package of candidate evaluation, including technical competence, credit checks, cultural fit and personal integrity assessments. It is also entering the consultancy arena by offering to help clients assess their staffing requirements and how they should be met.
As the market returns we are likely to see competition focused around quality of service, and clients will have to be prepared to pay for good quality service. While the days of placing contractors on high margins may be ending, the IT staffing agencies market will move on and we can anticipate a recovery in share prices in response.
Ian Mitchell is an IT analyst at stockbroker Beeson Gregory. His opinions should not be construed as investment advice.