Capitalizing on the Contingent Workforce
While it may sound strange, when it comes to strategic planning, companies often have difficulty determining exactly who is working for them.
The HR department maintains the salary and benefits information of full-time employees and it helps executives crunch the data to figure out the best way to use and maximize that talent. The problem is that HR departments often know little about the host of other workers—temporary, freelance and contingent—that may be laboring side-by-side on teams with salaried employees.
“Traditional HR information systems have never dealt well with contingent workers,” says Mark Nittler, vice president of financial applications strategy at Workday. “Technically, you don’t have a legal employee relationship with a contractor, but you still need to treat him or her as an employee for management and planning purposes.” However, he adds, “most companies don’t have systems that can connect the dots between procurement, position control and 1099 processing needed to provide visibility into the contingent labor force. Invisible contractors mean actual people counts and costs often exceed reported headcount.”
As a result, companies are challenged to even figure out exactly how many workers they have. So if a company can’t even count its people, how can it possibly capitalize on the skills of its workforce?
Studies have found the kind of standard, full-time employment that was once a feature of the labor market is increasingly a thing of the past. This development has been dubbed “The Open Talent Economy” in Deloitte’s Human Capital Trends 2013 study: the evolving workforce is a mixture of full-time employees, contractors, freelancers and, increasingly, workers with no formal ties to an enterprise.
“If you don’t have a good understanding of the people in all these different roles, you can’t make an apples-to-apples comparison about your workers to make good planning decisions,” says Michael Gretczko, a partner with Deloitte Consulting who co-authored the trends report.
He gives an example: A global consumer products company was trying to get a better understanding of its vast army of project managers. It could only do so by looking at the information in both its HR and financial systems. At that point, the company realized that many of the project managers were being hired on a project-by-project basis and paid by the hour.
“Only after they analyzed all the data did they realize it would have been cheaper to fill those roles with salaried, full-time employees,” Gretczko says. “Besides saving the company several million dollars, this new approach gave the company the opportunity to build greater organizational knowledge.”
Not having a firm grasp of an organization’s different types of workers can bring up prickly compliance problems as well. “The Affordable Care Act is a perfect example of how companies can be affected by the different types of relationships, from full-time to part-time to contracting,” says Stephan Millard, vice president and research director for Ventana Research. “Your obligation to provide health insurance depends on the number of full-time workers you have. You need integrated HR and financial data to get a holistic picture of your cost structure, particularly from an international perspective.”
Companies are quickly discovering that integrated financial and HR data has broad uses beyond a top-down approach. “In the past, it was thought that only the most senior-level executives needed this data,” Gretczko says. “But today, a first-line manager might manage a team of three or four people, all of whom have different relationships with the company—full-time salaried, contingent or freelance. Without the data that outlines the costs of those different relationships, the manager is just shooting in the dark, trying to determine the best makeup of his team.”
Merging HR and financial data also allows organizations to get a better handle on how individuals contribute to the company’s success and how to manage them most effectively. For example, it can spot the warning signs of employee issues that are percolating just below the surface. Imagine that an employee has been in the same slot for several years, during which time he or she has had a number of new managers. Even though the employee is an able worker, his or her compensation is below the current market value.
None of these factors individually might be significant—and no one at the company but the employee might even realize all these things have happened. But linked together, they could be an important indicator that the employee is at risk of leaving. When companies identify the true value of an employee, or group of employees, they can take the proper steps to retain their best talent. If HR understands, for example, that a group of employees are worth X value to the organization, they can guide the company on how much to spend on efforts to keep them.
“For many companies, the value of the organization is not some tangible asset in a warehouse, but the people,” says Amy Lewis, practice leader for talent strategy and talent acquisition at the Human Capital Institute (HCI). “The knowledge workforce is what’s important from a true financial perspective. But how valuable is that asset if you don’t place a value on it?”
She stresses that while data can be a valuable asset to inform managers, it cannot replace a strong managerial-employee relationship. “When you assign a dollar value, it’s easy to treat workers as interchangeable—easily replaceable with an endless supply,” she says. “But if used correctly, data helps business leaders develop the right mindset for managing talent. When a business understands the value of talent in both a sentimental and empirical way, the insights become richer.”
Rich insight into non-salaried talent will become even more important as the makeup of the workforce continues to change. “The majority of workers still prefer to have full-time employment status,” says Lisa Rowan, research vice president, HR, talent and learning strategies for IDC. “But one area people haven’t thought much about is the aging of the workforce. As people live longer, they will still be vigorous and want to have income, but they might want to change the nature of their status within the workforce.”
She points to a Boston company that provides its clients with C-level executives who take on limited-run consulting engagements. This is the type of high-level “temporary worker” that is outside the bounds of traditional workforce planning—and is usually not captured by traditional technology. As the relationships workers have with companies become ever more diverse, companies need to make sure they are examining—and combining—all the HR and financial data necessary to maximize workforce productivity and profitability.