The Effect Of The Anheuser-Busch Merger On The St Louis Staffing Market

InBev did it.  They came in and merged with the All American brewery, amidst the beating of breasts and rending of garments from St Louis loyalists.  It's a fact of globalization, but it's a tough blow for a city that keeps losing household names to global mergers.

Do the household names matter?  St Louis has a lot more here than the Fortune 500 headquarters.  We have a stable, loyal, conservative workforce, decent housing prices and transportation, and a reasonably relaxed state and local government.

So we'll be okay, but there will be changes, and one of those changes is the local information technology staffing business.  AB-MSG is the umbrella organization for all of the IT at AB.  They started swallowing up smaller divisions like the brewery, the theme parks, packaging several years ago, and employed at their peak, some 500 contractors to add to their 500-700 employees.  That's a lot of contractors, and the result was a vendor list of the top staffing firms in St Louis.

The problem?  Working with AB is a bit like working for Walmart.  They bring you a lot of revenue, but once you're in, you're terrified of losing their business, and scramble to put your best people on the account.  You've heard of the 80/20 rule?  80% of your business comes from 20% of your clients?  With AB, for several firms in St Louis, 80% might be a bit low.  One Client shops aren't that strange in the recruiting world.  When an account manager has a good client, you want to work with them as much as possible, and there was definitely a ego piece to working with AB.  Contractors liked it, and so did you friends and family.  Anheuser-Busch was the holy grail of employment in St. Louis.  That was true for a long time for both full time employees and contractors.  It wasn't just the two cases of free beer.   

So what happens now? Patrick Thibodeau of Computer World writes about the possible impact of the merger.

The future for Anheuser-Busch's IT may be in outsourcing. In 2005, InBev outsourced its IT functions, including its data center, to IBM and its global communications infrastructure to BT Global Services. More than 160 InBev IT employees were transferred to IBM. InBev followed that move a year later with further consolidations as it moved to shared services.

InBev's decision three years ago to outsource its IT department fits with a general trend of companies deploying IT outsourcing to help prepare for mergers and acquisitions, said Linda Cohen, an analyst at Gartner Inc. "It just makes the deal easier," she said. And unless an acquiring company is experiencing problems with its current outsourcing relationship, merging firms will often extend their outsourcing arrangements to the acquisition. "Once you start outsourcing, you tend to do more of it," she said.

InBev likes to use managed outsourcing, which could mean IBM, Accenture, EDS, or another company coming in and running the show.  Anyone who has been through a merger like that knows it doesn't work out for the staffing firm.  Margins have to be squeezed to accomodate the new managed service, and when margins are tight (which they are), the only recourse is to cut the contractor or drop off the vendor list.

Either way, attrition begins to eat away at your workforce. Branch managers and owners may take the profit hit to keep contractors working, but they're not going to make new placements for IBM rates. When I was inside, I avoided certain companies like the plague.  At a certain point, the margins on high volume companies just aren't worth it.

Motorola, SBC, IBM, Sara Lee - profitable account managers at staffing firms knew to stay away from these accounts because they were just too hard to work.  Low rates, no manager response, and those dreaded rebates made it not worth your time to make placements.

Will AB go this route?  It's too early to tell, but staffing firms, already hurting for new business in a tight economy, need to take a look at their client mix.  If AB is 50% or more of your business, you need to go out and start knocking on doors.

On the other hand, if you don't work with AB - now is the time to start advertising the fact.  Non-compete clauses prevent many staffing firms from raiding AB technical people.  For those who were never, lucky? enough to get on the list, now may be the golden opportunity.

One thing to be careful of, is the denial factor in the candidate.  We saw this in the aerospace recession in the early 90's.  Many employees never quite come around to believing that the gravy train is over. They've had it so good, for so long, that they won't commit to something new in the hope that some miracle changes the environment. As a recruiter, be on the lookout for those who want to kick tires, but won't cut the cord.   St Louis has a lot of talented people, and the influx in the last decade of late 20's and early 30's talent returning from the coasts gives you a lot to choose from.  I believe this will actually be good for the St Louis economy.  AB employees and executives are famous for having side businesses.  For those with the moxie, the opportunity to go out and start new businesses will be great for the region.

Expect a lot of new startups and new entry into the St Louis markets from established firms.  We're seeing this with companies like Matrix and S3 - expect to see a lot more.