ARTICLES : PLANNING FOR THE SEISMIC SHIFT TOWARDS CONTINGENT LABOR

The requirements of globalization in a difficult economic environment place an enterprise-wide premium on sourcing key talent. In order to establish and maintain competitive advantage, companies are deploying various contingent labor and services procurement models as a strategic component of talent acquisition and workforce planning programs. Utilizing a network of fungible labor (i.e., individuals, local agencies, on-shore and off-shore providers), companies are embracing a “pay as you go” model as a strategic solution to specialized labor, cost containment, risk management and speed-to-market requirements.

Though the premise of contingent labor is not new, companies as well as individuals are collectively part of a seismic shift away from fixed labor models to specialized, just-in-time labor solutions. Marshall Goldsmith, in his article “The Contingent Workforce’ (Business Week, May 2007), predicted that by 2017, contingent labor will increase from less than 10% today to over 40% of U.S.-based organizations with 10,000 or more employees.  Based on various government job indices, contingent labor grew 150,000+ positions during 4Q 2009 alone and has risen for five straight months – a trend not seen since the mid 1970s (“The Call,” CNBC, Jan. 8, 2010).  Marshall was prescient.  Clearly, contingent labor is the fastest growing segment of the workforce.

Utilizing contingent labor and services procurement solutions enables organizations to gain competitive advantage in strategic planning and market positioning, cost containment and talent management / workforce planning.

Strategic Positioning
A knowledge-driven global economy contributes to the growth of contingent labor solutions as organizations re-focus on core businesses and shift non-core processes to highly skilled, lower-cost suppliers. Executive Leadership, in partnership with HR, Procurement and Finance, are rapidly embracing such alternatives as part of long-term visioning, strategic planning and talent management programs to become more agile and able to quickly respond to business change.

Cost Containment
The premise of Contingent labor solutions shifts business planning and expense from a standard, fixed model to a more variable, “pay as you go” model. This is important especially within a volatile economy. However, there is more work to do. Such solutions provide flexibility to scale, downsize and/or redeploy resources as required. By reducing the number of full-time employees without sacrificing productivity, firms have an opportunity to reduce longer-term benefits and retirement plan costs. In addition, establishing relationships with higher-value, lower-cost preferred providers enables executive leadership and hiring managers to scale labor solutions based on an agreed upon set of bill and pay rates.

Talent Management / Workforce Planning
Contingent labor solutions provide companies across all industries access to specialized talent and skills without losing productivity. Companies essentially “buy” skills from providers only when needed. This increases the ability to meet immediate demands of M&A, IT development, operational processing, etc. in times of strong corporate investment while reducing the need for a “reduction-in-force” during market downturns if such work was being performed by employees. From a human capital perspective, there is a greater opportunity for HR Professionals to influence business leaders developing integrated workforce plans and better managing potential re-deployment of key employee talent to higher value work.

Based on market analysis and continuing client work, it is our view that managing contingent labor will be fundamentally different in the future. For forward thinking companies, the future is taking shape now.

In order to achieve this future state, companies are centralizing oversight of their Contingent Labor solution through a cross-functional Shared Services Model that may also include a Recruitment Process Outsourcing solution. This model leverages leadership and oversight from HR, Finance, Procurement and high-use business units. The goal for this function is to develop a Contingent Labor Shared Services model that successfully builds strategic business partnerships and provides labor, supplier and spend expertise supporting the business goals and cost reduction objectives in compliance with applicable legal and regulatory requirements.

Implementing such a vision is a difficult task and, in our experience, can take up to 24 months. Identifying several key objectives can help better manage the work and proactively prepare organizations for this “seismic shift” towards variable labor.

Planning Considerations

• Define governance, policies, business processes and training solutions that drive accountability and manage data, reporting and spend components.
• Create a cross-functional support structure that provides oversight and subject matter expertise in terms of contingent labor, preferred suppliers, business policy and process and spend management.
• Implement a Program Management model comprised of strategic planning, program oversight and administrative support as required; this may include blending a strong internal team of relationship managers and subject matter experts with complementary skills from a Managed Service Provider(s) with expertise in strategic, programmatic and/or administrative solutions across the enterprise.
• Institute Preferred Provider programs that embrace relationship management, service levels, consistent engagement policies, reduced rates, risk mitigation and management reporting.
• Integrate a selected Vendor Management System (VMS) technology that automates the end-to-end recruiting-to-payment process for global Contingent Workers, enables self-service for hiring managers and provides a value-added portal for suppliers.

Thomas F. Kaminsky, Managing Director