Contingent Workforce Management & Shared Services

One of the most profound changes to have taken place over the last couple of decades in this ever-changing business world has been the disintegration of what might be termed the "job for life" ethos: the idea that permanent employment with one or, at least , no more than a small number of companies over the course of one’s career was the most desirable of all professional options, and that mutual loyalty between employer and employee was something that could and should be a given (barring drastically deteriorating circumstances on one side or the other). This ethos - however genuinely embraced by workforce and employer alike - has over the course of only a couple of generations largely given way to a new paradigm in which the relationships between employer and employee tend to be far more transient and based on immeasurably more complex foundations.

Whatever the causes of this development - and they are numerous indeed - its consequences have included a drastic reassessment in what constitutes a workforce and how closely connected that workforce is to the corporate body. The global business environment has witnessed the rise of a vast host of professionals whose ties to the individual businesses which pay them might last for only a few weeks or months but whose impact can go right to the heart of those businesses’ operations: call them consultants, independent contractors, contingent labor or anything else you like, but the advent of this set of temporarily affiliated professionals has fundamentally changed the business landscape.

This is particularly true in the shared services and outsourcing space, of course, of which transformation - which implies a temporary state of being - is such a key element. The unique skills required to put a shared service implementation, or a similar change program, into practice might well be totally indispensable to an organization for a comparatively short period, and then relatively useless once the change in question has been made. It makes no sense for an organization to employ on a permanent basis the kind of specialists demanded by the parameters of the change; similarly, for those specialists the attractions of a short-term, high-value, challenging and interesting contract might far outweigh the appeal of a permanent, relatively undynamic position on a career ladder unable to tick many personal professional development boxes.

The advantages to a company of maintaining a significant quotient of contingent, rather than permanent, employees where possible have been especially prominent during the last few quarters following the sharp downturn affecting much of the world’s business activity, during which the ability to scale operations down or up to match varying demand (scalability also being, of course, one of the great boons conferred by a well-functioning shared service organization, especially one operating on a global scale and able to cater simultaneously for very different economic climates according to geography) has been in some cases the difference between corporate success and failure. The capability of a global shared services body to cope simultaneously with, say, continued contraction in Europe, stagnancy in North America and an increasingly steep upturn in emerging Asia has been evident on many multinationals’ balance sheets in recent times and, while it’s probably going a bit far to say that shared services’ scalability has been an engine of recovery globally, it’s certainly had a significant impact on many companies which might have faced much longer and more profound doldrums under their pre-SSO structures.

Both within and beyond shared services, an organization - especially one of significant size and scope - might now have engagement with dozens, hundreds or even thousands of these freelance professionals, active within all corners of the business in advisory or delivery capacities. While the benefits of this revolution have been immense, however, it has also resulted in a drastic increase in complexity in terms of working practices, terms and conditions, payroll and the employee relations environment generally, as well as calling upon businesses to have an immeasurably greater understanding both of the specific skillsets required for any given activity, and how to go about obtaining and retaining them. These requirements have given rise to the development of a strategic approach known as Contingent Workforce Management (CWM; also sometimes known as Contingent Labor Workforce Management, or CLWM).

CWM "is the practice of orchestrating the contingent labor supply chain to meet customer expectations with regard to quality, efficiency, cost, and risk," explains Jason Ezratty, Managing Partner at Brightfield Strategies. "CWM programs serve horizontally across the entire enterprise. Furthermore, CWM relies on the expertise and resource commitments of several corporate stakeholders including HR, Procurement, IT, Legal, Tax, Finance, and Security. CWM is typically administered through a software platform known generically as VMS, or Vendor Management Systems."

The crux of the matter, implies Ezratty, is that contingent labor has now become such a crucial element of so many different parts of a business that it needs to be addressed strategically in order to facilitate the kind of efficiencies and corporate coherence which are today a sine qua non of a successful organization. Allowing each individual department or location in a multinational corporation to manage its own contingent labor strategies and practices poses the same kind of problems as maintaining individual finance or HR organizations for each of those departments or locations - solving which has of course been a key aspect of the success of the shared services model. And where better to place implementation and oversight of a CWM strategy that within a shared service organization which already occupies such an integral position within the wider structure?

"Some companies are beginning to position their CWM program into their shared services hierarchy (versus Procurement or HR, specifically)," says Ezratty. "The logic and benefits of doing so are dependent upon many internal factors, including culture, goals, skill types, and scope of service. [Meanwhile] outsourcing can be answered two ways:  one, outsourced operations can be sourced and managed within the context of CWM; and two, one can outsource their CWM program operations to an MSP, or Managed Services Provider."

The idea of running certain outsourced operations via a CWM framework is an intriguing one - particularly for companies in transition for which outsourcing might be a temporary state before full divestiture of a unit or a similarly radical transformation, or who have included as part of their outsourcing architecture roles which fit into the "contingent" rather than "permanent" category. However, a more common association of outsourcing with CWM is the outsourcing of the workforce management itself, either in part or end-to-end. This activity is often described as Contingent Workforce Outsourcing (CWO).

"There are," believes independent MSP/RPO specialist Tracey Friend, "three choices a company may make: manage contingent labor and professional services on their own; self-manage part of it and outsource the other part; or completely outsource the management to a Managed Services Provider. Depending upon the spend under management and geographic reach, may also determine how this program is delivered.  Just like large IT outsourcers, the MSP providers who manage contingent labor will create scale in their delivery models. The outsourcing of recruitment is tough because there is a transactional layer and a BPO layer.  There are specialized companies that provide both; however due to cost compression, [they] must do it efficiently.  Hence the outsourcers in this space that provide both Recruiting and Staffing outsourcing must continue to look at more operationally efficient models, and as corporations desire for these services to be global, must build help desk, customer service, supplier service models that can scale, and be culturally sensitive to the global needs."
 
On the other hand, explains Friend, "if a company does not decide to outsource this function, they may roll components of this function into a HR shared services center. It may be as simple as a tier 1 helpdesk to provide transactional help (i.e. "change my password"), or it can be more advanced to handle contracts and onboarding. This approach will vary, by company culture, size, goals and overall objectives around how they manage both recruitment and staffing."

While CWM strategy was initially developed within an onshore business environment there are no insuperable fundamental obstacles to applying it to offshore operations, as would be required by global businesses in order to fully leverage its potential.

"This can be taken from two perspectives: onshore / offshore sourcing decisions can be supported and executed through a CWM program; and  CWM programs themselves are sometimes staffed offshore. Typically, the capabilities in both are limited due to proximity and cultural barriers (business culture) such as service level expectations. However, since a fully optimized CWM program accounts for the entirety of the enterprise, including all locations and non-employee classifications, this is an area that's likely to continue to mature," says Ezratty.

Friend, however, cautions that until that maturity is achieved, keeping the higher-level CWM activity onshore may be the safest option.

"As noted in some of the discussions I have seen around HRO, the offshoring of recruitment and staffing operation is challenging, with the exception of transactional support processes that are concrete and where desk level procedures can be adequately defined for the worker," she says. "If there is any conceptual or situational decision-making required, this is best to keep near or onshore for greatest success."

An organization wishing to implement a CWM program should not consider it to be an overnight task: as can be expected, it requires a degree of restructuring across each part of the business within which contingent labor plays a role, and of course has significant implications for HR and finance units in particular. Furthermore, specific skills are required which may not be found within the existing workforce (in which case, somewhat poetically, contingent labor may well be a useful solution for putting this change program into practice); a certain reeducation process will be necessary right up to board level in order for existing staff to become au fait with, and understanding of the need for, such a change in practice. In addition, the greater the geographical diversity of any organization, the greater the complexity arising from centralizing an activity which must cope with different legislative architectures and labor cultures (although here once again companies with well-functioning SSOs will be at a great advantage since much of that complexity will already have been negotiated to a certain extent as a result of centralized accounting or HR practices).

New technological solutions will almost certainly also be required, such as the VMS software mentioned by Ezratty (companies already utilizing VMS may have to adapt existing systems to embrace the new strategy). Again, this will probably demand the introduction of new talent from outside the business and a degree of training for the team slated to take over the operation of the CWM program. None of this comes for free. However, the dual impact of the recent downturn and the ongoing drive for efficiency, process harmonization and risk reduction means that more and more companies are turning to CWM aware that short-term investment could lead to significant gains in future.

"Companies are seeking to reduce their overall spend and better manage risk," Friend says. "If you go to google.com and select ‘news‘, type in ‘misclassification of independent contractors’.  The Obama administration is putting this topic back under the microscope.  Good workforce management programs control this and help organizations mitigate this risk. As a result of the economy the outsourcing of MSP programs has becoming increasingly popular and what services a provider will offer will continue to evolve as laws, needs and complexity around talent change."

Among the MSP community, however, the impact of the crisis and subsequent downturn has been a complicated one, with buy-side companies’ need to cut costs and further push the efficiency agenda offset by a decline in overall demand and greater buyer leverage, and a growing understanding that significant portions of a CWM strategy can be implemented within an organization without recourse to outsourcing.

"One of the only barriers to starting a staffing company is access to sufficient capital to consistently clear payroll while waiting for client payments," explains Ezratty. "Accordingly, the decreased availability and increased price of capital has impacted many suppliers, especially smaller agencies. More importantly, however, was the overall impact of reduced demand as companies universally cut back spending. Several staffing agencies' revenues are down over 20 percent (some greater). Making matters worse, several large companies looked to contingent labor as a source for quick savings and demanded discounts (up to 10 percent) on existing PO activity. This type of rate reduction approach can be effective at driving immediate savings; however, I fear the long term insult to supplier relationships will make it harder to achieve a fully optimized and mature CWM program."

However, Ezratty adds: "In terms of CWM suppliers like VMS and MSP companies, the drive for savings actually created an uptick in business."

While the theory behind CWM and CWO is perhaps nothing radically new, the trend towards embracing CWM at the heart of a company’s strategizing is certainly accelerating and practices are undoubtedly maturing at a rapid pace (again, to a certain extent catalyzed by the economic events of the last couple of years as well as longer-term business trends). It is of course a trend with great relevance for the SSON community - both for those members who themselves are classed as "contingent labor", and those whose roles may come to encompass oversight or operational management of CWM strategy and delivery. Implemented and managed correctly it can contribute towards the quest for process perfection and operational efficiency which underpins the entire space, while reducing risk on the part of the employer at the same time as formalizing the employer/contingent employee relationship according to corporate norms. It will be interesting to watch over the next few years how fully CWM is able to be brought under the shared services umbrella, and how this development impacts on both the shared services space and the ongoing move towards maturity of both CWM and CWO.