Managing Contingent Labor Strategically

by Dr. John Sullivan & Master Burnett

For many in corporate staffing, contingent labor management is an unpleasant activity often relegated to the lowest-cost outsourced service provider the organization could find, mainly because no one internally wanted to deal with it.

The work is largely considered mundane, process-oriented, and as a necessary overhead cost that provides little or no value.

If you work now or have worked in an organization that views contingent labor management this way, you work or have worked in an organization that has no clue about the future of strategic talent management!

Contingent Labor Taking Over?

Unless you are new to the workforce, chances are you have noticed a significant increase in the percentage of people working around you who are not employees of your organization. Sure, in the past there was the occasional temp who stepped in while someone was on family leave or covered activities during high-volume work periods, but today many organizations are awash with contingent labor of many types.

You may sit next to a temporary worker, a medium- or long-term contractor, an outsourced service provider, a consultant, a worker on loan from a strategic partner, an onsite representative from a vendor, a virtual worker (automation), or be connected to an offshored worker via collaborative technologies.

In just 20 years, the percentage of work allocated to contingent labor on average has grown from 6% in 1989 to more than 27% in 2009.

According to another study just completed in January by the Aberdeen Group, a majority of employers identified that their use of contingent labor would increase moderately in the next two years (1:10 employers are prepared for significant growth in the utilization of contingent workers).

[The Aberdeen Report on Contract Labor Management is available free to individuals who register for access thanks to report sponsorship by Peopleclick and Allegis Group. If you would like to download your free copy, click here.]

Like it or not, contingent labor now plays a significant role in providing both organizational capacity and capability. Given statistics regarding the desires of incoming generations and the changing nature of work itself, it’s entirely possible that in the very near future a majority of all work done in your organization will be done by contingent labor.

True Labor Cost, Possibly the Most Unknown Statistic in HR

Contingent labor includes many different types of labor, and many organizations admit they do not know, nor do they have any way to identify, true labor costs.

While it is widely accepted that on-average labor costs equal 60% of an organization’s variable expenses, it’s entirely possible that unknown spend on alternate forms of labor could significantly alter that percentage.

World-Class Contingent Labor Management Essential to Strategic Talent Management

It shouldn’t require much to convince you that given the increasing role contingent labor plays in the organization, it is essential for organizations to build a world-class contingent labor management framework in order to drive strategic talent management.

If you see your organization as a complex living organism, would you trust a doctor who said you can ignore 27% of your internal systems and remain healthy? Hopefully not!

Organizations need to get out in front of this issue and recognize the need for a holistic workforce strategy that incorporates all forms of labor available to the organization and coordinates the activities of programs and processes that acquire, develop, motivate, and retain that labor.

Uses of Contingent Labor

During the 1970s, contingent labor popped up as a stop-gap solution to mitigate the impact of a position vacancy.

Today, however, contingent labor is not a temporary fix to a temporary problem; it’s a permanent mechanism that provides flexibility in how talent is deployed.

Some of the major ways your organization should plan to use contingent labor include:

As an economic buffer. Many organizations today are in the midst of a battle to contain labor costs. They are employing reduction-in-force mechanisms that carry significant costs such as layoffs, furloughs, alternative work schedules, etc. While such mechanisms can cut costs, the long-term impacts generally end up costing organizations more than the labor-savings produced, particularly when a downturn is short-lived and resources must be re-recruited within a year of being let go. The contingent labor force, on the other hand, can flex up and down in size, often with little or no impact on variable cost. Strategic talent management organizations should leverage contingent labor to create a workforce buffer to economic oscillations.
As a training/development resource. The research powerhouse Gartner pointed out a long time ago that the most expensive talent resources in the future would be those resources that have extreme knowledge in a special field, or that possess enough versatility to be deployed across several traditional stand-alone roles. Strategic talent management organizations should leverage contingent labor with extreme knowledge in special fields as training or development resources. Hiring such individuals for short periods and structuring knowledge transfer goals into their engagement agreement is a great way to provide a lasting augmentation to your organizational capability while containing long-term costs. This development methodology provides existing employees with on-the-job learning opportunities, day-to-day coaching/mentoring, and improved skill mastery/retention probability.
To augment capability for a short-time (seasonal). Many organizations today need access to specialized labor for short durations. For example, an HR organization may need routine access to a web developer to build out web applications to power recruiting campaigns, but not require access full time. Whenever new requisitions for labor are being drafted, organizations should evaluate if the volume of ongoing work is sufficient to hire full-time resources, or if a contract worker should be procured either as a periodic service provider or short-term development resource.
To support cost-containment efforts. Global competition has placed extreme pressure on product and service pricing, which has increased visibility on all variable costs that go into producing goods and services. No variable cost is more visible than labor costs, so it’s no wonder that contingent labor pools have popped up that enable organizations to accomplish low-margin activities at significant lower cost. If your organization has component work that must be delivered in order to enable your goods and services, but that would erode profit margins if completed using traditional labor, then your organization should evaluate contingent labor options.

Elements of a World-Class Contingent Labor Management Solution

Managing contingent labor in a world-class way really comes down to making sure that your talent management systems optimize the capability and capacity of the labor force to accomplish your organization’s objectives at the lowest possible cost.

It’s about identifying when contingent labor sources can and should be used in place of traditional labor, what sources of contingent labor provide the best value, and how to manage the life-cycle of contingent labor engagement to maximize ROI.

The major elements of a world-class contingent labor-management solution include:

A comprehensive labor strategy. This should identify the mission-criticality of roles in the organization, the parameters that limit suitability of labor types, and the projected financial impact of various scenarios such as extended vacancies, bad hires, labor cost increases, etc.
An optimal labor type assessment. With a strategy developed that identifies the criticality of positions in the organization and the parameters that limit what labor types can accomplish the work to be completed, an assessment is needed to determine what labor type and source of labor would produce the optimal ROI. This element essentially creates a universal work order for labor that can be handed off to procurement specialists.
A holistic labor procurement system. One of the key benefits of a world-class solution is extreme visibility into true labor cost. To enable this, organizations must create a single point of control for the sourcing of all labor, regardless of type. The holistic labor procurement system is charged with maintaining an index of possible service providers, initiating sourcing activities, managing the engagement process, and coordinating with other systems for the onboarding, deployment, performance evaluation, and offboarding of contingent labor.
A holistic engagement/development system. The business environment changes rapidly. Skills of extreme value today may become commodities tomorrow. Compensation factors may go from being highly prized to being utterly worthless overnight. To ensure that contingent labor resources are engaged and capable of delivering the quality and volume of work needed, a system must be contracted to periodically assess the resources interest in deployment options, desired terms of engagement, availability, and suitability/readiness for deployment.
A holistic knowledge management system. It is essential that the organization develop a system that enables capture and ongoing access to knowledge or work developed during the engagement. This system could include tools to enable social interaction between resources (social networking), document capture, communication capture, context sensitive search tools, etc.
A holistic performance management system. Organizations must invest in tools that enable a periodic snapshot of performance — at the onset, midpoint, and completion of the project at the very least. In recent years, a number of technology products and services have popped up to enable such evaluation, but organizations could also build a solution quickly using basic e-survey tools.
A holistic talent-relationship management system. As the percentage of work deployed to contingent labor increases, so too will the volume of resources organizations need to remain in contact with. Staying on top of all of the communication timelines and delivering customized messaging in response to various triggers is a complex task. Luckily, customer service organizations long ago developed customer relationship management methodologies, many of which are now supported by automated technology solutions that can be easily borrowed and adapted to create talent relationship management systems.
Advanced workforce management analytics. No world-class solution would be complete without a process and set of measure to periodically evaluate and report out on the performance of the solution relevant to the goals for the solution. Organizations must draft comprehensive metrics to assess their utilization of contingent labor and ensure that all component systems in the solutions are capturing the data needed to power the metrics.

Final Thoughts

Like a fast-paced chess game, strategic talent management is about making sure the right resources with the right capabilities is in the right place at the right time to capture the competition.

The fact that many organizations have developed their talent management tools and program in functional silos and continue to ignore vast populations of the labor force is a sad statement about the true capability of our profession to deliver truly strategic work.

Contingent labor management is already a mission-critical activity, one that will only continue to increase in the years to come. Now is the time to evaluate your approach, rip out the archaic systems you currently have in place, and deploy a new set of talent management practices that pay homage to the current environment.

Free Webcast on Contract Labor Management
Join Dr. John Sullivan on Tuesday, March 17 at 1pm EST for an interactive discussion on Aberdeen’s latest research report, entitled Contract Labor Management: Superior Workforce Strategies for a Demanding Market. This informative webcast will dive into the characteristics of innovative contingent workforce management solutions developed by best-in-class organizations in response to global business practice and economic pressures. It will feature examples of emerging best practices and discuss how staffing industry technology and service providers are working to support them and expand talent management capabilities. John will be joined by Ginny Gomez, SVP, Product Management & Marketing, Peopleclick, Inc., and Jay Lash, Executive Director, Human Capital Solutions & Product Development, Allegis Group Services, Inc. To learn more and register for the event, please click here.