Do you have workers on tap (and if not, when will you)?
This article was written in conjunction with Courtney Harrison, Principal, Medius Advisory Group.
In case you haven’t heard yet, change is coming to the workplace – and fast. According to a 2017 study conducted by independent research firm Edelman Intelligence and commissioned in partnership by Upwork and Freelancers Union, 36 percent of the total workforce is currently freelance. This number is expected to balloon to 50 percent by 2020, leading us to an almost majority on-demand workforce.
Welcome to the Gig Economy
According to the 2017 Deloitte’s Global Human Capital Trends study, 51 percent of global executives surveyed said their organizations plan to increase the use of flexible and independent workers in the next three to five years. For organizations that get this right, the on-demand workforce trend can be of enormous benefit to business strategy. The “Gig Economy” consists of a broad continuum of on-demand workers ranging from moonlighters to entrepreneurs, including temp workers, independent contractors, contingency workers, freelancers, and consultants. Many of these professionals have highly specialized skills, and an impressive breadth and depth of experience.
This trend has significant, and possibly irreversible, implications for people who are tasked with finding, hiring and managing talent. There is probably no question more apt to strike fear into the hearts of HR and business leaders than, “Are you ready for the on-demand workforce?” But rather than hiding our heads in the sand, perhaps it’s time to embrace this trend for what it actually represents: an opportunity to infuse corporate culture with new learning, new ideas, engagement, and energy.
Managing the on-demand workforce will require more insight and creativity than just thinking about the legal classifications of W2 workers versus outsourcing. Leveraging on-demand talent will necessitate, for example, that your managers and leaders learn to parse work into competencies and approximate time to completion. If approached properly, embracing the on-demand trend could result in having the right talent when you want it, where you want it, while only paying for exactly what you need.
Imagine, if you will, a world in which workers continually transfer external and internal knowledge as an innovative, competitive advantage. Visualize a boundaryless organization built on a culture of proactivity and continual learning. How agile could the organization become? How much more quickly could change move forward?
Where is all the talent going?
Until recently, most workers sought full-time positions because of the safety and security offered by employers, including a steady paycheck and health insurance. The perks were also an attraction (e.g. gourmet food, gym memberships, paid vacation time, tuition reimbursement, etc.). In past decades, this was a way for companies to try to differentiate themselves as a means of attracting talent. The best talent found employment in a growing corporation and often stayed there for their entire career. Freelancers and outsourced solutions existed, but companies used them sparingly for tasks and jobs that were rote, routine or of lower priority. Typically, they were called “contingency workers” or “temps,” and the primary benefit to their employers was that they could use them to complete peripheral work tasks at a lower cost than full-time employees. Then, employers could let them go at will with no consequence.
But the volatility of our current business climate has changed this pattern, perhaps for good. Now, fewer companies can offer guaranteed job security, benefits are starting to erode, and the future of corporate-sponsored health insurance is in question. And let’s face it, the notion of having a career with one organization is a dying construct associated with the industrial age, not the digital age. Career pathing hasn’t been successful at many companies for over a decade. As more companies continue to re-organize and lay people off during downturns, there are fewer ladders for talented employees to climb. In companies that do not value learning and are not constantly investing in people, the skills of the employees are rapidly perishing. This issue will become increasingly more pronounced with the continued adoption of artificial intelligence and robotics.
According to ongoing reports from Gallup, employee engagement has consistently averaged less than 33 percent for the past 15 years, meaning that nearly 70 percent of employees are disengaged. There are real costs associated with this lack of engagement — approximately $26K per employee each year, and over $450B lost annually in productivity.
There has been plenty of speculation about what led to this epidemic of disengagement, but a key takeaway is that full-time employees don’t want to be at work. People no longer want to fight rush hour traffic to sit in a cube farm all day, wearing headphones, sitting on calls, navigating bureaucracy and answering to mediocre leadership.
This trend has been compounded by the growing percentage of millennials in the workforce. Research from the Pew Research Center says that millennials currently number 54 million working Americans ages 18 to 34, making them the largest employee block ever, displacing Generation X which held that top spot for the past three years. According to the Governance Studies at Brookings report, “How Millennials Could Upend Wall Street and Corporate America,” millennials will comprise more than one of three adult Americans by 2020 and 75 percent of the workforce by 2025. This popular has made it clear that they want flexibility, with 77 percent saying that flexible work hours would make the workplace more productive.
Meanwhile, technology has enabled people to find work easily and complete it from anywhere they want, on their own terms and schedule. In the current business climate, the primary motivation of younger workers is to stay more employable in the long run, rather than leaving their future in the hands of their employer. Some of the most talented workers are deciding to leave the perceived safety of their organizations and pursue challenging and meaningful work on their own. This gives them the opportunity to experience new industries, learn new technologies, explore best practices and expand their professional networks. Rather than just freelancing as a means of making money in between jobs, a larger percentage of the workforce is on-demand by choice with a longer-term vision.
The (very near) future of work
Make no mistake, the way companies attract, communicate with, and treat on-demand workers is fundamentally different from the way they interact with full-time employees. There are, for example, many legal implications around hiring short-term employees.
Co-employment issues can present problems for companies that supply contingent labor and for their clients. Often, client companies erroneously believe that the staffing company or other supplier they engaged the temp worker through is the sole employer of that worker. However, if the client company manages that contingent worker on a day-to-day basis, they could be regarded as a co-employer or special employer of the worker in conjunction with the worker’s statutory employer – often a staffing company or “payrolling” company. With co-employment, each company is liable for the decisions made by the other party. This means that if a contingent employee files a legal complaint and wins, both the supplier of the worker and the client company could be responsible for paying damages.
Beyond the legal ramifications, the on-demand workforce is causing disruptive changes to other crucial aspects of HR. Most companies are aware that they will need to adjust to these changes, but are still not prepared to deal with the deeper implications. Those who will succeed in the long term are those who are already starting to adapt and take advantage of the vast pool of talent that exists as a competitive advantage over those who delay. Tweet This!
Very soon, we may see a workplace with more freelancers than W2s, and even start to see organizations that are 100 percent temporary. The beauty of mixing inside and outside talent in this way is that an extraordinary amount of learning and development can occur just by meeting new people, whether virtually or in person. But, this change will undoubtedly present some challenges. For example, what is the best way to share information between teams and departments with a mix of employees, both permanent and temporary? Knowledge transfer will quickly become a major issue. How can organizations put processes in place to ensure workers hand over the baton efficiently and effectively?
Waggl and Medius Advisory Group recently invited hundreds of HR and business leaders to share their experiences and thoughts about preparing for the on-demand workforce. According to respondents, 90 percent of organizations are currently hiring independent contractors or freelancers to perform work on an on-demand basis. However, only 49 percent of organizations have systems and processes in place to ensure a smooth transfer of knowledge between on-demand workers and other employees.
When asked to share their biggest concern related to the on-demand workforce, participants offered the following responses:
- “Lack of connection to our company. That they don’t feel connected to or a part of the culture and that disconnection impacts their level of engagement and enthusiasm with our projects.”
- “Cultural alignment and loyalty to the business, its people and brand.”
- “Managing the balance of serving the client and serving themselves. We expect the ‘loyalty’ and ‘connectedness’ of an employee without the security.”
This research indicates that it’s critical to prioritize communications with on-demand workers. Culture is another complexity that will need to be addressed. How will your organization’s culture be impacted when up to 50 percent of the workforce comes and goes? What is the best means of getting on-demand talent up to speed quickly? Is your culture ready for an increasingly transparent kind of communication?
What aspects of HR need to transform in order to create a faster, more agile organization?
Originally, the HR profession was founded as a compliance department. Much of what the department were charged with in the Industrial Age was to mitigate chaos and risk. That was a good thing since the Industrial Age success metrics were built around efficiency, routine and productivity. In the Digital Age, however, success metrics are tied to innovation, speed and agility. These are concepts that conjure up chaos, risk, and ambiguity in traditional organizations. But in progressive companies, HR is now charged with finding successful ways to manage chaos and risk, because without these two attributes it is almost impossible to become innovative and agile. Mitigating and managing chaos and risk are very different constructs, requiring distinct leadership skills and cultures.
As human beings, we are wired for status quo and stability. This makes it easy to shut down the notion of a highly leveraged on-demand workforce. It will require a lot of learning and experimenting with new HR processes, products and tools in order to reimagine a new way of working.
Part of the solution is finding new ways to incentivize workers to share information with one another, rather than relying on the organization to serve as the centralized base for communication. If one of the underlying goals of an agile company is to share knowledge as quickly as possible, companies need to rethink how they reward for knowledge sharing inside and outside their company. This is especially true with on-demand talent who come in for a specific time period, to work on an identified project.
Unfortunately, most existing performance management systems do just the opposite. They put people and teams in competition with one another via the traditional performance and pay distribution curve. This actually creates an incentive to avoid sharing since “knowledge is power.”
“Have you ever heard a colleague proclaim ‘If I’m the only one who knows how to do this, ‘they’ can never fire me’? We’ve all heard similar comments and perhaps even nodded along, or said the words ourselves. But what is the actual cost of this kind of environment of knowledge hoarding? Research in fact suggests that it cuts much deeper than just the upfront issues with bottle necks and heavy retraining costs. The most serious costs of a knowledge hoarding culture are that the institution is stifled when it comes to innovation.”
In this example and from what we can project based on the data, all foundational processes and infrastructure will need to be transformed in order to support an agile environment.
Embrace the challenge: Adopting an on-demand mindset
Instead of viewing the on-demand workforce as a problem, businesses need to start adopting an on-demand mindset, from the hiring managers to HR leaders to the C-suite. After all, successful change management starts with an open mind.
Here are a few key issues your organization should be thinking about in order to prepare for the on-demand workforce:
1. Workforce planning. Most progressive companies are already transforming the way they execute workforce planning in an on-demand talent marketplace. A flexible, on-demand workforce has many advantages over the traditional full-time staffing model. “It improves workforce planning as companies can more easily budget for assignments and projects,” says Pete Sanborn, Managing Director, Human Capital Advisory, Aon. “And it encourages workers to continually improve their own skill sets.”
The on-demand approach enables companies to tap into a limitless pool of pre-trained talent with highly specialized skills when they need it without having to increase headcount and pay for those skills when they aren’t being fully utilized. There aren’t concerns about “letting people go” because on-demand workers come and go at will. If approached properly, workforce planning can give your organization a huge competitive advantage, and serve as the foundation for future success.
2. Talent acquisition. The on-demand approach will also have a profound impact on the recruiting process. There is already stiff competition out there for the best on-demand talent, and in the very near future, the people who don’t work for you may become more important than the ones who do. Research shows that in many high demand, expensive positions, incumbents use their high level skills only 30 percent of the time with the rest of the time tied to administrative work. Therefore, instead of your company paying a premium to get routine work done 70 percent of the time, you could hire the highly skilled person as a fractional share, obtain the high level of skill and knowledge you need and then have someone else with commensurate skills complete the 70 percent administrative work.
Traditional headhunting is on the wane, so if you want your organization to become more agile, you need to take new measures. Think about whether you want to continue to handle your recruiting and hiring in-house or hire an outside firm. Many new types of staffing agencies are emerging that combine an old school sourcing model with an on-demand freelance bench. This is already common in the technology industry for developers and software engineers, and will quickly become common for many other kinds of talent, including HR.
3. On-boarding/Off-boarding. With so many people coming and going, there needs to be a formalized structure for on-boarding and off-boarding. Before hiring on-demand workers, organizations should consider whether the on-boarding process needs to be different for someone who is coming in to working for 3 weeks or 3 months versus a longer-term engagement.
The assimilation process also needs to be based on which department the new hire will work with. For instance, understanding the culture and the values might matter more when someone is coming in from the outside to work with the C-Suite versus someone coming in to complete a specific project with no executive contact.
In addition, now would be a good time to create a plan for off-boarding. Is there knowledge you need to obtain before workers leave? Should you give them formal feedback? You’ll probably want to keep a strong relationship with high performing on-demand workers so that you can attract them back as needed. Plan to communicate with them throughout the year even when they aren’t working for you at that moment.
4. Compensation structure. The best on-demand talent on the market is typically compensated very well for striking out our their own. Freelancers can demand several times more than their full-time counterparts, because they often come with a diversified skill set and a wealth of valuable knowledge that their employers need to tap into. In fact, 90 percent of hiring managers say that they are happier with the skills of freelancers than their most recent full-time hire. This has created a very different dynamic than that of the past, in which freelancers went out on their own only out of necessity.
So, be prepared to pay accordingly, and also be prepared for the kinds of shifts that may cause internal workers who are compensated differently. Collaborate with each on-demand worker to identify measurable objectives and KPIs for their engagement. The more specific you can get, the higher the likelihood of success. Having concrete goals will help all parties get on the same page, and will help to avoid crises of expectation.
5. People Management. It’s also important to facilitate team dynamics between internal and external hires. Humans are tribal in nature; when faced with a new or vulnerable situation, we tend to gravitate to what we know best and seek the company of people most like us. New people come in with plenty of ideas, but their spirits will be quickly crushed by internal staff if they are outnumbered. In-house talent has the benefit of institutional knowledge, and they understand how to get things done within the culture, but could potentially feel threatened and want to obstruct new ideas. It takes time for the team to start flowing, since they won’t always know how to leverage each other’s skills, knowledge and opinions. If the people dynamics are not respected and managed, they can become much more challenging. So, view this as an investment, and protect it accordingly.
Above all, make sure that you set your on-demand workers up for success. Ensure they have clear roles, responsibilities, and defined outcomes. And, make sure they are equipped with the tools and knowledge they need. In some cases, that may include having access to multiple points of contact within the organization, including senior executives. It’s critical that they are able to learn, communicate, and integrate into the organization, and that they know where to seek help if necessary.
If speed, agility and innovation are a key part of your business strategy, the trend toward an on-demand workforce represents an enormously important opportunity. Freelancers offer a way to infuse the organization’s culture with new learning, new ideas, engagement and energy. What’s more, freelance talent can help corporations to save money and build efficiencies.
The pool of talent is boundless, and is it sitting right there, waiting for you to take advantage of it. The key is starting to prepare for the on-demand workforce now, so that you won’t be behind the curve.