Quality of hire is always a subject of much debate. Some argue that most of the measures in use actually measure the quality of the hiring process versus the quality of the actual hires made. We agree that some of these hire-quality measures are more process oriented, but one thing that cannot be disputed is that the vast majority of models in place today ignore the total workforce (all forms of labor that execute work in the organization’s name), focusing instead just on regular employees.
The significance of the contingent workforce is ignored in a wide variety of places. Whether you believe it is true or not, the statistics tell us that, regular employees are comprising a smaller percentage of the modern enterprises workforce. In the United States it is widely reported that between 8-10% of the workforce is contingent, but like most government-supplied data, that figure is flawed.
The 8-10% figure represents only the portion of the U.S. workforce that is employed through a temporary staffing firm, most notably in security, facilities, maintenance, and administrative roles. It doesn’t account for the millions of people that work as independent contractors, work for consulting firms, or that work for service providers.
Service Providers Must Be Counted
Analysts with the Aberdeen Group estimate that a more accurate estimate of the contingent labor force in the US is 20-25%. We argue that even that figure is conservative! Sitting in the cubicle across from you, or in the office down the hall, or on the other end of that routine Monday morning conference call is a person who isn’t employed by your company, but for all intents and purposes influences your ability to deliver and is indistinguishable as a resource from an employee. That person is employed by a service provider contracted by your organization to complete work on the organization’s behalf. While there is much talk linking outsourcing to offshoring, the truth is that the vast majority of the trillion plus dollars spent on outsourcing in the U.S. is spent on domestically staffed contracts.
When you take service provider labor into consideration, it’s quite possible that more than 50% of the work executed for your organization to deliver its goods and services to market is accomplished by a non employee. The migration to a more contingent workforce didn’t happen overnight. Following every economic contraction in the last 30 years, the use of contingent labor as a component of the total workforce has increased, often by double-digit year over year rates. While this article pertains primarily to the U.S., the same trends can be seen in the UK, Europe, and Southeast Asia.
A Trend We Must Respond to
While the use of contingent resources is dramatically changing the organizational design of organizations and the nature of work itself, the HR function played virtually no role in the transition. Weary of co-employment risk, many HR leaders have adopted a compliance-focused hands-off approach, opting to tell managers what they can’t do instead of finding innovative compliant solutions to help them do what they need to do in order to be globally competitive. Research from Aberdeen, Gartner, Deloitte, and others tell the story: less than 1 in 5 HR leaders today accept accountability for planning, sourcing, managing, and releasing “all forms of labor” in use by the organization.
It is nearly impossible today to find workforce planning processes that helps managers determine if they are organizing work in the most optimal way to take advantage of current and emerging contingent labor options. When it is time to source labor, most organizations force managers into a fractured sourcing model in which employees are sourced by staffing, contingent labor is sourced by procurement, and service providers are sourced by finance/legal. There is no uniform process for evaluating performance of resources, no accounting for labor spend ROI, and there is no process to make sure those with the most valuable intellectual capital to the organization are not transient.
All talent management systems that ignore the “total workforce” are woefully out of date and indicative of leadership that needs to be displaced!
Leveraging Performance Management as the Foundation of Total Workforce Management
Everyone hates the performance management process, not because they hate getting feedback, but because how it is approached in most organizations is downright silly and ineffective. Organizations need a foundation on which they can build a new suite of talent management offerings that speak to the needs of the total workforce and that navigates the murky, protectionist regulatory landscape. We argue that performance management can and most likely will become that foundation.
Performance management is ultimately about setting clear expectations and evaluating whether procured work, goods, and services actually perform at or above the level expected. It’s something we do in nearly every aspect of our lives, be it with our personal relationships, employer/employee relationships, or with the service provider/consumer relationship.
To enable robust labor spend ROI analysis, we need a model for performance management that can be executed across all forms of labor. We know from past practice that the employee performance appraisal isn’t that model; assessing the performance of contractors is a good way to find yourself on the losing end of a labor complaint. However, the model used to govern service provider relationships could most certainly be used to govern the employer/employee relationship.
The Statement of Work as an Assessment Tool
If you have ever worked on a project to procure services, you have hopefully had to craft or be involved with crafting something called a “Statement of Work.” The SOW is essentially a narrative description outlining expectations in detail. When you hire a contractor to complete a project for you, any task not specified in the statement of work is out of scope, and not something you can hold the contractor accountable to deliver. The SOW is the ideal framework to build a total workforce performance management framework around because:
- A well-designed SOW template can function as an excellent discussion guide between a manager and a labor resource regardless of the labor resources engagement model.
- Unlike an annual performance appraisal, SOWs can be tied to the actual lifecycle of the work to be performed and triggered on a project basis. An employee who works on seven projects reporting to three managers throughout the year would be governed by relationship-specific expectations versus generic expectations outlined in the static job description and annual goal/objectives setting session.
- The SOW spells out much more than basic requirements, detailing what levels of quality, timeliness, and volume of output are expected and what measures will be used to evaluate the performance. This model makes it possible for a mix of both quantitative and qualitative measures to be employed in measuring the performance of all resources.
- The contractor engagement model shifts the collection and reporting of performance measures off of the employer and on to the resource, again making much more robust performance measurement possible. No manager could track 3-5 measures of performance across 55 direct reports, but an individual resource could track their own performance using 3-5 agreed-upon measures. Performance reports in question could be validated by an independent audit team.
- A decent SOW calls for periodic discussions about status relative to the nature of work being performed. If a resource is working on an extremely sensitive project, performance discussions may happen weekly, if the project has longer term deliverables, a bi-monthly discussion could be planned.
Leveraging SOWs Enables Total Workforce Quality-of-Hire Measurement
If the talent management function were to develop a robust SOW template that could be deployed across the wide spectrum of labor engagement in the modern organization and hold managers accountable for executing them, the organization would have a robust foundation on which:
- The performance of resources with like skills provided through different engagement models could be compared
- Total labor spend could be accounted for
- Labor ROI could be calculated
- Labor utilization could be optimized
- Insight into resource performance/potential could become more granular
- More routine feedback could be given
Specific quality-of-hire measures focusing on individual performance could include:
–Percentage of performance targets met/exceeded individual measures for:
- Volume of work completed
- Quality of work completed
- Timeliness (deadlines met)
- Stakeholder satisfaction (excellent time to use automated 360° surveys)
–Performance delta compared to:
- Past hires
- Average of alternate labor types
- Previous time period
–Bonus awards (Assuming bonus amounts tied to weighted SOW performance criteria)
Specific quality-of-hire measures focusing on the performance of the labor sourcing function could include:
- Percentage of hires that met/exceeded SOW-stated performance expectations
- Labor spend reduction not resulting in organizational capability/capacity decrease
- Labor ROI (dollar or revenue per dollar of total workforce spend)
- Involuntary Turnover Rate Reduction (performance-related cause)
- Voluntary Turnover Rate Reduction (all nature of work causes)
- Vacancy Reduction (total labor hours) organized by: major job families; mission-critical roles; revenue-producing roles; location
While regulators, politicians, labor unions, the underemployed, and poor performers everywhere may fight the continued adoption of contingent labor by organizations, the trend is clear, and talent management leaders need to respond with a new breed of management solutions that acknowledge the shift. Contingent labor not only provides organizations with agility, it enables organizations to tap more specific talent on a project-by-project basis ensuring that skill gaps that often result in inefficiency and ineffectiveness are minimized. A square peg will fit in a round hole if the peg is significantly smaller than the hole, but it will leave gaps. All too often organizations craft holes that no labor peg can fill perfectly, so why not try crafting smaller holes that labor pegs more than fill?
Contingent labor also brings organizations a bevy of new insight, often from individuals who have seen how talent competitors are tackling the same the same issues, which can assist efforts to innovate immensely. Remember — if you are going down the contingent road — that you need a performance management framework that looks at the total workforce.