If you are aware of Uber, the global contingent driver car service, you already know the impact that the “flexible workforce model” can have. Because Uber has in just a few years completely transformed an entire industry primarily as a result of its labour flexibility. Although traditionally it has been called “contingent labour”, it should really be called a “flexible workforce” or “flexible labour”. Because by emphasizing flexibility, a firm can either rapidly increase labour capability or easily cut labour costs.
The Need For Flexibility
The need for flexibility has recently been elevated to the point where it is now a critical success factor throughout in the world of business. This is because the business environment has actually become measurably more volatile, with more frequent but less predictable “ups and downs”. Technically the name for this volatile world is VUCA, which is an acronym for Volatility, Uncertainty, Complexity, and Ambiguity. As these frequent surges and wanes occur, a flexible workforce allows a firm to rapidly add labour capability and brand-new skill sets during a surge in business. And it also allows a firm to reduce labour costs and also to release obsolete and poorly performing employees whenever necessary, with none of the pain generally associated with laying off permanent employees.
‘The Work’ And Worker Expectations Have Changed
Another reason why more flexibility is needed today is because “the work” at modern corporations has also changed. Most corporations are shifting to a “project” model of work because that model allows them to be more innovative and to also rapidly take advantage of sudden opportunities and to quickly respond to unforeseen problems. This project or matrix model of work, much like making a movie, has labour come in and leave throughout the project. This model is efficient simply because most of the talent and labour are not needed continually throughout the project. Obviously having access to a large contingent labour pool makes managing these projects and task forces much easier and cheaper.
And finally it’s important to note that although a “flexible workforce model” obviously benefits the firm, but the freedom that it provides also benefits the worker. Rather than resisting it, today’s modern workers increasingly demand flexibility in their scheduling and control over when and where they work. And for those that want to start their own business, finish college or spend more time with their family, many forms of contingent jobs allow them to do that.
Unfortunately The Way Most Manage Contingent Labour Is Embarrassing
Even under the traditional approach of managing contingent labour, you can’t credibly say that contingent labour is insignificant. That is because, at many firms, over 40% of labour costs are spent on some form of contingent labour. And even when the amount that a corporation spends is about right, there is a real issue around why contingent labour is often unmanaged or mismanaged. It certainly isn’t managed strategically.
Because even though the business environment, how we do work and the expectations of modern workers have all changed, the way we manage contingent labour has not kept up.
The Inflexible HR function
Most business functions like supply chain and production have long ago incorporated flexibility, agility, nimbleness and adaptability into their operations. However, the one business function that stands out as being unsuccessful in systematically becoming flexible is HR. It’s a fact that the contingent labour model that is used by most firms was literally designed in the 1960’s, when we all lived in a more predictable world. Given the amount of money spent on it, contingent labour may actually be the poorest managed HR function.
Why Is Contingent Management So Bad?
Why does contingent labour deserve the title of “the worst managed HR function?” because contingent labour is almost always a scattered function. It is seldom an integrated function, with a single point of contact and where all of the subparts report into a single leader that reports directly to the VP of HR. And in many organizations, contingent labour is for some reason treated as a commodity, which is then inexplicitly managed by the purchasing function.
The mismanagement continues in the area of data because it is rare for contingent labour to be a data-driven function. Few firms adequately measure how much is being spent on contingent labour and whether it is effectively spent. Almost no firm measures the productivity of contingent labour and it is extremely rare for any contingent worker to undergo performance appraisal and to have pay for performance. Contingent workers are seldom hired using the same strict criteria as permanent employees. And often training is not offered to contingent workers even though they work right alongside permanent employees that are eligible for training. And finally, literally no one measures the ROI of contingent labour or uses data to determine which jobs should be filled with contingent labour and which should be filled with permanent workers.
Unfortunately, most senior executives will probably continue thinking of contingent labour as “only temps” until HR seizes the opportunity to develop a strategic plan and to build a strong business case for having a “flexible workforce”.
The Many Benefits Of Developing A “Flexible Workforce”
If you’re going to compile a business case to justify the transformation of the contingent labour function, here are some of the many benefits associated with an effective flexible workforce strategy.
Reduced labour costs
Under an integrated system, the cost of contingent labour can be more accurately tracked. An integrated process also means that a higher percentage of contingent labour will be working under competitive contracts. The majority of the cost savings come because you only utilize contingent labour when it’s needed, there and, as a result, there will be less idle worker time. It’s also true that contingent workers can be cheaper because they don’t expect sophisticated and expensive benefits. Taken together, these cost savings may result in as much as a 15% decrease in the corporate-wide expenditures on all types of labour.
New skills can be rapidly added
When competition requires innovation and speed, developing current workers may be too slow. So contingent labour can bring in experienced workers that have already developed the needed skill set.
You can increase labour volume to match company growth
When an organization is growing in a particular product area or geographic region, contingent workers can be added to fit that expansion. Fortunately, surplus workers can also be released if the growth rate isn’t actually as high as it was projected to be.
Labour volume can be increased for peak time periods
There may be times during the day or week where a higher volume of labour is needed due to spikes in customer demand. And continued workers can provide that help during “peak time periods”. In addition, if the firm faces a busy season (like Christmas or summer), contingent labour can fill that need for a month or more.
Improved employee selection
The process of hiring permanent employees can be hit or miss. However, you can better assess the capabilities of a stranger by letting them prove themselves “on the job” and then only convert the best to employee status.
Improved production and quality from contingent workers
Under an integrated and data-driven function, each contingent worker will be more closely monitored and more productive. Under a strategic process, the quality of hire for contingent workers will increase and their turnover rates will decrease.
Avoid worker burnout
Some jobs are simply so intense that they eventually lead to fatigue or burnout. Rather than changing the job, you can insert contingent workers and then rotate them out when their productivity decreases.
There are more and better quality outsource firms
it is certainly true that the outsourcing industry has matured and become more data-driven. As a result, there are more high-quality outsourcing choices, some of which may now produce work that is superior to that done by your current regular employees.
Workers can be more easily released
The reality is that most managers are unwilling to release permanent employees. However, because most continued workers don’t expect a permanent job, it is easier for both sides to agree to terminate the relationship.
Executive meetings these days in this volatile world are dominated with words like adaptive, agile, nimble, scalable and speed. Although those are not words that are often utilized in HR, they need to be because we are not exempt from the corporate expectation of nimbleness and scalability. We operate in the same crazy business world where things change and come and go almost overnight. So HR needs to “step up” and emulate the kind of agility and flexibility that is commonplace in other functions like production and delivery. What is needed is a modernized strategy and a process that can use data to determine when a particular type of work needs to be done by a “regular employee”, by the best type of contingent worker or even by a robot. I call that approach a “flexible workforce strategy”. It includes integrating all existing contingent management processes with the standard HR processes that are used to manage regular employees. And for those that make the transition, I predict that the percentage of work that is not done by permanent employees will eventually exceed 50% of all corporate work.
If you want to learn more about managing your contingent workforce function, and the rise of the freelancer, join us at this year’s Contingent Workforce Conference in Sydney 22-23 September.