A Collaborative Approach to Creating an Agile Workforce

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1 A Collaborative Approach to Creating an Agile Workforce In periods of economic uncertainty, every company strives to increase its agility. During past economic downturns, companies employed tighten your belts initiatives, including cost reductions, downsizing, and restructuring initiatives. These efforts will prove insufficient in addressing our current recession, however, because global competitors continue to introduce new offerings, enter new markets, and increase their overall market position. Executives today must struggle with a dual agenda of growth amid cost containment and the need for increased operational efficiency. A 2008 study released by Towers Perrin indicates that the top priorities of respondents (56%) were to expand into new product/ service lines and contain costs 1. Simultaneously accomplishing these goals requires an agile, top-performing workforce. How does one build an agile workforce? By transitioning to a new workforce model that combines a core group of permanent employees with a contingent workforce of temporary employees, independent contractors, and consultants. This blended workforce model offers a number of benefits: A company can expand or contract a contingent workforce as needed, minimizing the impact of industry fluctuations and providing a buffer zone for permanent employees. When using contingent workers, employers can realize a savings of 30 to 40% in health care, unemployment insurance, life insurance, workers compensation, severance packages, and other expenses tied to permanent employees. Contingent workers can provide access to scarce skills needed for special projects or peak periods. Contingent workers provide an opportunity to try before you buy. It is estimated that 10% of contingent workers convert to permanent hires. The use of contingent workers is not a new concept. However, the practice has evolved in the last few decades from a tactical response to an immediate need to a key component of corporate strategy.

2 The contingent workforce emerged more than 50 years ago to address the need for temporary clerical workers. Companies would react to prolonged worker absences, peak loads, or unexpected turnover with temporary employees, providing short-term assignments for secretaries, receptionists, switchboard operators, and similar positions. These assignments were always reactive and tactical, and were typically coordinated by the office manager or accountant. The number of contingent workers employed by U.S. companies grew considerably in the 1990s following the fallout from extensive downsizing in the 1980s. In the decade from 1990 to 2000, the number of average daily temporary workers in the U.S. grew from 1 million employees to 2.7 million employees, with office/clerical workers accounting for more than 50% of the total contingent workforce. 2 The temporary staffing industry grew just as quickly, as hiring managers increasingly adopted the practice of quick hiring. As the new millennium approached, the demand for software engineers and IT personnel who could modify legacy software applications led to the birth of the contingent technical worker. Since then, a growing number of companies augment their staff with programmers, engineers, and IT personnel. Between 1999 and 2006, technical contingent employment grew 17%, as compared to 4% overall growth in U.S. employment. 3 Contingent labor is now approaching 20% of the total workforce in high-growth industries such as pharmaceuticals and technology. 4 Until 2000, the hiring and management of contingent workers was the sole responsibility of business unit managers. These hiring managers called in contingent workers and paid for them out of existing budgets. The organization had no insight into the enterprisewide volume or cost of contingent worker usage. The 2001 recession, however, touched off a round of scrutiny of all costs, including contingent workforce costs. Contract labor management programs were introduced, and have since become commonplace. A recent Aberdeen Research 5 study indicates that the drivers for program adoption include a desire for increased enterprise-wide visibility into contingent worker sourcing, elimination of maverick spending, a desired reduction in time to hire, and a need for higher-quality hires. The procurement organization began to expand its role to include the control of contingent labor costs. Procurement viewed the contingent workforce as a commodity, and their efforts focused on sourcing these workers at the lowest possible cost. Typical approaches taken within contract labor management programs to increase visibility and reduce spending include introduction of RFP processes, supplier rationalization, process improvements, and process automation. The market is currently experiencing a professionalization of contingent workers. It is estimated that in 2007, 57% of contingent worker spending was for professional skill sets in the accounting/ finance, health care, legal, and information technology fields, with the five fastest growing professions for contingent workers in the IT sector. Office/clerical revenues dropped to 17% in the same period. 6 It s not that easy to hire technical workers, however, as demand often exceeds supply, particularly in engineering and IT. These workers are the lowest on the commodity scale, and can be very selective in their choices of assignments. Sourcing also requires a complex technical skills assessment. The strategic role played by technical contingent workers requires an effective approach to recruitment. Who Owns the Contingent Technical Worker? As the contingent workforce becomes more strategic and more important to corporate profitability, greater corporate visibility into sourcing strategies is needed. Companies who initially deployed contract labor management programs to track costs quickly recognized that they needed better ways to recognize top-performing contingent workers so that those workers could be considered for permanent positions or redeployed elsewhere in the enterprise at the end of an engagement. Also, Sarbanes Oxley regulations made it necessary to ensure that contracts are up to date and criminal and background checks are being conducted. Responsibility for addressing these concerns falls to a number of organizations, leading to an internal struggle for ownership of the contingent technical workforce. The purchasing organization responds to pressures from the CFO to reduce costs, the human resources organization resents interference in its relationships with staffing suppliers, and hiring managers fear that a more 2

3 structured framework for acquiring contingent technical workers could increase the time required to fill positions. In addition to different priorities and objectives, each of these stakeholders brings unique capabilities and strengths to the recruiting process, and each has limitations that make them unsuitable for solely owning contingent workers. Procurement organizations provide the skills required to establish buying criteria, conduct price comparisons, negotiate rates, develop volume discounts, establish contracts and Service Level Agreements (SLAs), conduct vendor contract reviews, and analyze contingent worker spending. However, if a company focuses exclusively on achieving below-market rates without considering talent quality, it may end up with second-rate employees, thereby undermining its strategic goals. Information systems used by procurement organizations are focused on paying contingent workers, not on gathering information on performance or skills. Also, purchasing officers lack the knowledge of employment law necessary to ensure that steps taken to lower costs do not increase exposure to legal issues such as co-employment. Traditional responsibilities of human resources organizations include policy creation, cost reduction, process efficiency, and risk management. They also ensure that contingent workers do not become co-employees with all of the legal obligations, employee rights, and industrial relations issues associated with permanent employees. Because of their traditional role they ve historically focused on permanent employees, not contingent workers human resources professionals are not viewed by hiring managers as possessing the business knowledge or technical skills needed to effectively recruit technical contingent workers. Line managers prefer to do most of their own hiring given the specialized nature of the work that technical workers perform. However, if line managers fail to manage to the provisions of the contract, or if they lack the knowledge of employment law, incremental expenses and the risk of employment reclassification may result. In addition, there are fewer managers per employee today than in the past due to downsizing, flattening of organizations, self-directed teams, and business process reengineering. Managing more people and bigger projects reduces the time available for sourcing and hiring. A Collaborative Approach to Creating an Agile Workforce No single corporate entity has sole responsibility for acquiring, deploying, and managing contingent workers. To create an agile workforce composed of permanent and contingent workers, you need a new collaborative model that brings together the relative strengths of all stakeholders. It requires the development or expansion of new skills and the establishment of new approaches to contingent workforce recruiting and management. A team consisting of representatives from human resources, procurement, and line management, supported by legal and finance, should work together to develop or enhance their contingent technical workforce recruitment program. In addition to defining the overall process, this team should establish criteria for selecting and managing a staffing firm, skill-driven wage rates, program success metrics, and Vendor Management System (VMS) user requirements. The work of the team begins with the development of the overall process and requirements for contingent workforce recruitment. Workforce planning, a cooperative effort between human resources and line managers, has traditionally focused on permanent employees. In building an agile workforce in which contingent workers play a strategic role, companies need a holistic approach to workforce planning. Human resources, working with line managers, should develop a staffing model that determines, in advance, the roles filled by permanent and contingent employees. Using this model, the company can more closely manage workload volumes, labor costs, and timely sourcing of scarce resources. The procurement organization should draw from the company s overall procurement process to propose sourcing policies appropriate for workforce recruiting. The team should then design the contingent workforce recruitment process, specifying workflow and ensuring role clarity. 3

4 The team should agree on key metrics for measuring process effectiveness, staffing vendor performance, and contingent worker quality. These metrics serve as the basis for determining which Vendor Management System (VMS), if any, a company should use. Procurement should assume ongoing responsibility for managing the process and adhering to standardized sourcing and procurement policies. Staffing supplier selection and management is also a team effort. An assessment of internal capabilities, particularly within the human resources organization, should drive decisions regarding the type of sourcing relationship(s) to establish with staffing suppliers, as well as the selection of possible added-value services provided by the vendors. Using the staffing plans jointly developed with line managers, the human resources team should work with procurement to conduct market analyses and establish target pay rates. The human resources team should ensure that contracts are designed to comply with corporate policy and legal requirements. Procurement should manage the RFP process or other approaches used to identify potential staffing suppliers. Procurement should negotiate contracts with staffing suppliers, ensuring that success metrics are reflected in the Service Level Agreements (SLAs). Procurement should periodically conduct staffing supplier performance reviews. Human resources, with input from line managers, should assess supplier performance on each assignment or project and provide that input to the overall supplier assessment. Individual sourcing assignments should be driven by human resources and hiring managers. Hiring managers should submit a request to human resources to source contingent workers. The hiring manager should specify the necessary volume of resources, skills profiles, experience levels, and other relevant criteria. Human resources should then work with the staffing suppliers to source contingent technical workers that meet the skills and cultural profile established by the hiring managers. For highly technical positions, the hiring manager may need to meet with the staffing agency to discuss position requirements. Human resources should provide preliminary screening of the candidates, with the hiring managers retaining responsibility for selecting the candidates. The on-boarding process for a contingent worker should be the same as for a permanent employee. The human resources team should ensure that all polices are compliant and perform all needed on-boarding activities. At the conclusion of the engagement, human resources should also take responsibility for off- boarding. As with any permanent employee, the hiring manager is responsible for ongoing contingent worker management. Human resources should provide qualitative analysis of vendor performance for periodic vendor reviews. What is the optimal organizational model for executing an effective contingent workforce recruitment program? The determination should be based on the overall company organization, the company size, the volume of contingent workers, and the types of positions being filled. Many large companies are attempting to balance the benefits of centralized coordination against the need for local responsiveness. Many are moving toward a model where strategic decisions are coordinated centrally while transactional activities tend to be decentralized and executed by hiring managers or a distributed team of buyers who reside in each business unit. 4

5 Which organization should lead the contingent workforce recruitment program and have overall responsibility for its success? Current data indicates that several different approaches are used. In a survey of contingent worker buyer patterns conducted by the Staffing Industry Association (SIA) in 2006, procurement took the lead in supplier selection in 55% of the companies surveyed, up from 36% in In highly centralized companies, human resources took the lead role in contingent workforce recruitment at 70% of the surveyed firms in 2005, but this number is expected to shrink to 50% by early Procurement is most likely to play the leading role in companies using a Vendor Management System (71%), followed by hiring managers (74%), then human resources (39%). 7 In companies that are highly decentralized, the hiring manager continues to play the lead role. Company size and recruiting complexity also helps to determine roles. In smaller companies, hiring managers, office managers, or finance/accounting managers often take responsibility for sourcing contingent workers. Procurement tends to get involved when the company has more than 500 employees As the total number of employees increases particularly as it approaches 10,000 employees the lead role is more likely to shift to procurement. Purchasing personnel also frequently lead the program if the company is using a large number of staffing suppliers. The leadership of contingent workforce recruitment also depends on the type of positions being filled. Procurement tends to take the lead for clerical, light industrial, and other commodity jobs, while hiring managers and human resources drive the process of hiring contingent workers with highly technical or scarce skills. Regardless of which corporate entity has overall responsibility for the contingent worker recruitment program, its success depends on a collaborative effort founded on a clear and formal process, well-defined metrics, and ongoing monitoring and evaluation. This process should enable all team members to lead the phases of the process that are most dependent on their skills and are most closely aligned with their overall responsibilities. Managing Effective Staffing Supplier Relationships As organizations continue to transform traditional employment models into a complex array of relationships with workers at all levels, staffing firms can be of great assistance. These agencies offer many options that increase choice, but can also increase purchase complexity. When working with staffing agencies, relationships can range from vendor- neutral agreements (in which vendors are encouraged to respond to RFPs), to multi- tiered structures, to master supplier agreements. Each agency may offer consulting services or value-added managed services such as workforce planning, vendor on premise (VOP), or recruitment process outsourcing (RPO). Sourcing options may include temporary employees, temp to perm, or direct hire. Software vendors offer applications and platforms for vendor management, automated requisition tracking, workflow management, contract worker billing and administration, and contingent workforce management program performance analysis. Before companies determine the optimal staffing vendor relationship and desired value-added services, the workforce recruitment team should conduct a careful needs analysis. Top-performing companies often conduct these analyses as part of their annual planning and budgeting processes. Line managers and human resources personnel identify the required resources, including the core skills best filled by permanent employees and the skills best suited for contingent workers. These analyses serve as foundations for detailed workforce plans that specify the volumes of resources needed during normal operations, peak periods, and special projects. Procurement managers review approved/preferred staffing vendors lists to ensure that these agencies can effectively meet their needs. And, the entire team examines the recruitment process to determine which services to outsource to a staffing vendor. Regardless of the vendor relationship structure or staffing services choices, the contingent workforce recruitment team should evaluate all potential staffing partners against a common set of criteria when seeking highly skilled workers. Typical metrics include time 5

6 to fill positions, cultural fit, temp-to-hire conversion opportunities and rates, and turnover. However, to ensure candidate quality and the ability to rapidly supply qualified candidates, companies should consider a few additional factors: Agencies that specialize in recruiting candidates with a specific skill level or individuals with specific industry expertise are able to provide specialized employees in need of little training. Strategic supplier relationships tend to focus on long-term partnerships aimed at increasing the competitiveness of both parties, whereas transactional relationships tend to provide fewer opportunities for cost management or access to top talent. Consequently, when sourcing scarce resources, companies can derive the highest return from established relationships with a limited number of specialized vendors who have a large talent pool and extensive geographic each. Leading staffing companies ensure that contingent workers are productive as soon as possible. This is done through proficiency testing, background checks, and training sessions. In summary, agility is key to business success, but agility can only be achieved with a flexible, high-performing workforce. Human capital is the most difficult asset to acquire and manage, requiring a holistic approach that addresses the combined permanent and contingent workforce. Acquiring, deploying, and managing contingent workers requires the cooperative and collaborative efforts of the procurement, human resources, and line management organizations. By creating a contingent workforce recruitment team, companies can establish more strategic partnerships with staffing agencies, resulting in a greater return on investment in contingent workers. About Advantage Advantage, headquartered in Tokyo, Japan, is the world s 11th largest staffing and professional services company. Advantage Resourcing provides global talent acquisition and management, with offices in the U.S., Japan, United Kingdom, Australia, China, Poland, and Dubai. Advantage Resourcing offers comprehensive services through four main business groups: Advantage xpo, Advantage Technical Resourcing, Advantage Professional, and Advantage Staffing. More information about Advantage Resourcing is available at Value increases as companies are able to keep contingent workers on board long enough to get a return on investment while ensuring that they don t become unnecessary permanent employees. Top staffing agencies actively work with customers to assess worker performance and manage assignments so that employees can be reassigned to the same customer. Sources: 1. Towers Perrin, Taking the Pulse of Business and Workforce Challenges, April American Staffing Association, American Staffing 2006 Annual Economic Analysis 3. Staffing Industry Association, IT Staffing Growth Assessment, Nov Ibid. 5. Aberdeen Research, Contract Labor Management: Permanent Solutions for Temporary Workers, January 2008, p.6 6. Staffing Industry Association, IT Staffing Growth Assessment, Nov 2007 and U.S. Bureau of Labor Statistics data 7. Staffing Industry Association, 2007 Staffing Buyers Survey: Insights into Staffing Clients Actions, Plans, and Key Decision Drivers, All rights reserved. The Advantage logo and Hire Thinking are trademarks of Advantage Resourcing US

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