Workforce on demand Are you ready?

• Companies are taking a more sophisticated approach to managing all aspects of their workforce, including the hourly, contingent, and contract workforce.
• More than one-third (34 percent) of all workers in the United States are contract workers,¹ and more than half (51 percent) of our respondents say their need for contingent workers will keep growing over the next three to five years.
• The on-demand workforce offers companies the ability to tap into extensive networks of innovators, technical experts, and seasoned professionals. To engage and retain them, companies should think broadly about how their HR programs, strategies, and analytics tools could be applied not only to full-time employees, but also to contingent and part-time workers.

View the complete Global Human Capital Trends 2015 series

In our initial Global Human Capital Trends report in 2013, we described the rapidly emerging “open talent economy” and outlined how talent strategies were moving beyond traditional corporate and organizational balance sheets to tap into a broad range of external talent. This external talent market includes joint ventures and partners, contracted and outsourced employees, freelance workers, and competitions for ideas and solutions.

Today’s workforce is no longer a set of employees who come into the office or factory each morning or shift and go home each night.

This year, the “on demand” and “on tap” talent markets continue to grow and to challenge companies’ ability to effectively manage their total workforce,²  as companies expand their use of external talent sources to gain access to badly needed capabilities, In fact, in this year’s Global Human Capital Trends research, workforce capability was rated the fifth most important challenge. Yet as the importance of workforce capability builds among corporate leaders—with the trend’s importance index climbing from 62 last year to 70 this year—organizations’ readiness to address it has slipped, with its readiness index dropping from 46 to 43.³ And although workforce capability had only the eighth-largest capability gap overall, there was significant geographic variation, with particularly pronounced capability gaps being reported in Japan and South East Asia (figure 1).

Today’s workforce is no longer a set of employees who come into the office or factory each morning or shift and go home each night. More and more of the workforce is composed of contingent employees working variable, often part-time hours or schedules, compensated hourly, operating remotely, or actually working for an external firm.

The challenges presented by the on-demand workforce are significant. But the trend itself seems irreversible, driven by the networked nature of work, the multigenerational workforce, a desire for more flexible working conditions, and the demands of business. Researchers estimate that as many as 30 to 40 percent of all US workers today are contingent.⁴ In fact, just over half (51 percent) of respondents in our survey report that their need for contingent workers will continue to grow over the next three to five years (figure 2).

For years, roles such as delivery drivers, food service professionals, custodians, and other hourly positions have been outsourced to agencies. But today, roles that can be filled by contingent workers include IT professionals, engineers, computer programmers, accountants, and those in other technical positions, which are commonly outsourced to contractors or staff augmentation firms. These workers are engaged as freelancers or temporary employees for a project.⁵

Typically, the need for such talent was considered to be a procurement problem, managed through vendor contracts and external staffing firms. Yet as these types of workers become more important, HR should now consider them an integral part of the workforce. It’s time for HR to consider all workers in its talent strategy, regardless of their contingent or full-time status.

How can organizations best manage this new “freelance economy” of valued staff? Which elements of the talent management process should be applied to contingent workers—and why? Some of the biggest issues to consider include:

• How do we recruit from a highly diverse set of talent pools, including expert networks and specialists? Important HR practices include understanding the compensation and tax implications of contract workers’ location and managing new rules such as the federal Affordable Care Act in the United States.
• How do we manage freelance and outsourced staff? Should we on-board, train, manage, set goals, and engage these workers like our full-time employees?
• How do we administer and oversee contingent workers, many of whom may be managed by procurement and not even included in HR systems? While leading HR systems vendors are adding hourly workforce management systems to their products, they have yet to integrate with external networks like Elance, Topcoder, Freelancer, and other contingent expert networks. These networks of experts are like employee pools that can now be included in the workforce.⁶
• How should compensation be structured? What is the implication of contingent or hourly workers earning more than salaried workers? Should they get the same holidays or other benefits?
• How can we engage contingent workers and integrate them into our culture? Everyone in an organization impacts culture, engagement, and corporate brand. Organizations should include contingent workers in the development and management of workplace culture, making sure they are well engaged and represent the company well. Companies should consider including contractors in programs like on-boarding, development, and even performance management.
• How should we measure contingent workers’ performance? Measuring the performance of contingent workers in a manner consistent with non-contingent workers is critical to avoid a dual class system. How can a company extend its performance management process to get a holistic view?

Companies are now beginning to realize that contract labor is often highly talented and should be managed strategically. New expert networks like Kaggle (an external network of data scientists who bid on analysis problems) and Innocentive (an online competitive marketplace where companies can post problems for innovators from all over the world to bid on and respond) make it easier for organizations to outsource problems to networks of experts without having to hire full-time staff. Netflix, Procter & Gamble, NASA, and GE are among the organizations that use such services to find innovators in the freelance economy.⁷ In doing so, they are essentially tapping into a workforce of independent workers, whether as firms or individuals.

The on-demand workforce brings many challenges to organizations as they look at ways to integrate each workforce segment, such as hourly, salary, contingent, contractor, and vendor staff, into a complex ecosystem.

Companies are also successfully leveraging the contingent workforce to drive innovation and new ideas. More than half of Procter & Gamble’s product initiatives involve significant collaboration with outside innovators. Through its Connect and Develop program, the company now has more than 1,000 agreements with external innovation partners. It uses crowdsourcing to get new ideas for hundreds of products. This external talent has helped P&G develop hundreds of successful offerings, such as Swiffer Dusters, the Crest SpinBrush, and Olay Regenerist.⁸

Lessons from the front lines

The on-demand workforce brings many challenges to organizations as they look at ways to integrate each workforce segment, such as hourly, salary, contingent, contractor, and vendor staff, into a complex ecosystem. One area that has received a great deal of focused attention is the optimization of the hourly workforce.

For example, one of Florida’s most comprehensive private, not-for-profit health care networks needed better insights into its labor utilization and budget. Serving nearly 2 million residents in central Florida annually, the company aimed to manage its limited resources more effectively through a better understanding of its complete labor activity and associated costs.

In early 2013, this health care provider decided to tackle the problem by identifying opportunities to reduce any unintended extra spending on its workforce. During this assessment, the company examined its annual timecard data to quantify potential improvements and savings opportunities as well as operational improvements.

The result: an estimated savings range between $700,000 and $1.8 million that grew sharply to $3.16 million once the analysis included more extensive data. Savings resulted from four dimensions of leading practices in workforce utilization: system design enhancement, process and management enforcement, benchmarking and analytics, and governance and accountability enrichment.

By implementing improvements in these areas, this employer has gained valuable line-item insights for aligning labor activity with budget objectives. The company has documented millions of dollars in savings opportunities from this initiative because it has enabled the company to have data-driven conversations about how best to utilize its workforce.

Where companies can start

• Proactively plan for a hybrid workforce that includes owned and on-demand employees: Evaluate skill needs, including needs for technical, creative, and managerial skills, and analyze and explore how to create combinations of on-roll and on-demand talent to meet those needs. Don’t be afraid to tap into expert networks rather than hire people outright.
• Educate business and HR leaders on the range of on- and off-balance-sheet approaches to talent: Many business and talent leaders are less than familiar with the rapid expansion of on-demand and off-balance-sheet global talent models and markets. HR leaders should take the lead and provide research, options, and information to business leaders on the full range of available on-demand and related talent markets.
• Put in place integrated management and risk controls across the business, procurement, and HR teams: On-demand and open talent economy models require new working relationships beyond traditional silos—across the business, the supply chain, and HR. Levels of training and on-boarding activities should match the type of contractor or employee (for instance, companies could offer less intensive on-boarding to temporary workers).
• Extend your performance management and analytics efforts to on-demand talent: What factors drive performance, continuity, strength of engagement, cost, and flexibility for different types of talent? With a growing portion of the workforce in new working arrangements, understanding how to develop, engage, and manage these employees will be critical if HR leaders are to optimize the entire employee base.
• Develop HR and IT systems to support on-demand talent: Many HR processes and systems are geared almost entirely to support full-time, on-payroll employees. HR professionals should evaluate how to modify and customize talent processes, including acquisition, assessment, development, compensation, benefits, and retention and career programs, to accommodate new categories of employees.
• Assign ownership and governance of on-demand workforce management: Ensure that lines of authority are clear, and define criteria for success in managing on-demand workers. Is it time for a director of extended workforce management or a dedicated workforce management office?

Bottom line

The on-demand and extended workforce—contingent, part-time, remote, and contract workers—is now a critical part of virtually every company’s talent pool. Managing this complex workforce effectively and with greater sophistication will require new, integrated relationships across HR and procurement as well as with business leaders.

Think broadly about the range of talent practices your organization uses for full-time, on-roll employees, and consider how they may be applied to other categories of the on-demand workforce. Programs to consider extending could include those around workplace culture, engagement, analytics, productivity tools, performance management, collaboration, and retention. In short, it is time for HR to take ownership and share the management responsibilities for on-demand workers—and not to leave it to the procurement department alone.