Rethinking talent management

Part I: The rise of contingent talent

Talent Management

Posted by Michael Gretczko and John J. Gillen on December 3, 2014.

HR’s identity is built around managing the people side of the business — recruiting, hiring, developing, and retaining the workforce needed to keep the organization up and running. But now that workforce is fundamentally changing. Contingent workers — “non-employees” not legally employed by the companies they work for — make up close to 20% of the workforce, and their numbers are growing at a brisk pace.1 What does this mean for organizational talent management overall and for HR specifically? We’ll explore this trend and its implications over three posts; this one on the rise of contingent talent, the second considering the need for HR to reengage with the non-employee workforce, and the third looking at ways some new freelance management systems (FMS) are changing the way talent is acquired, assigned, managed and rated.

Part I: The rise of contingent talent

Contingent workers (i.e., “non-employees” who are not legally employed by the companies at which they work) have been used to staff vacancies for decades. Contingent workers were once limited to “temps” covering absences for vacations and illness and supplementing during seasonal peaks. But for much of the last 20 years, contingent workers have also been used as a way to cut employment-related costs and risks and provide a more flexible workforce that can be increased or decreased more quickly in response to changing economic or business conditions. In addition, the practice of turning over entire functions (or portions thereof) to business process outsourcing (BPO) providers and integrated service providers covered by statements of work (SOWs) continues. Most recently, more companies are turning to non-employees to fill critical skill gaps or staff strategic special projects, either because needed talent is scarce or the work is of limited duration and doesn’t require taking on the burdens of being the employer.

Two major components of the contingent workforce are differentiated by how they contract with the company: (1) temporary assignment workers, who are typically employees of temporary staffing agencies that are designated providers for client companies and serve as the intermediary between the worker and the company to which they are assigned, and (2) independent workers, who include contractors, freelancers, and others who contract directly with the organization, often with a hiring manager or process owner.

Exploding growth in non-employee hiring

Staffing Industry Analysts (SIA), a research organization serving the staffing industry, estimates that the average company’s contingent workers currently make up 18% of the total workforce.2 That percentage has doubled in the past seven years alone and is expected to continue to rise, growing 30% in the next three years.3 By 2020, estimates are that 40% of the average company’s workforce will be composed of contingent workers.4

The talent paradox and the contingent workforce

The “talent paradox” describes the situation where relatively high unemployment rates and low voluntary turnover rates mask critical skills shortages by giving an illusion of a plenitude of workers.5 While many lower-skilled and middle-skilled workers face long-term unemployment as demand for their skills wither or those skills have been automated, at the other end of the spectrum are critical employees whose skills are in high demand. The need for critical skills, though, is not limited to roles like software engineers. Deloitte identifies critically skilled workers broadly as “employees [who] often fill roles with barriers to entry (e.g., length of training, arduous certifications, legal issues such as citizenship requirements), take a long time to develop the requisite experience, and are in limited supply.” 6 Much of the focus on these employees is about how to create talent management initiatives to attract and retain them. While that focus addresses the issue of finding employees, some of these critically skilled workers are forsaking traditional employment altogether and joining the independent workforce, necessitating a different attraction and retention approach.

One of the outdated notions of independent workers is that they are working independently temporarily until the job market improves, or out of necessity until receiving another offer of full-time, regular employment. While that is still true for some, most independent workers have begun working that way by choice, not by necessity. 7

The talent paradox creates a situation where many of the lowest-skill workers are supplied by a temporary services provider, typically chosen through a competitive bidding process that likely awards the vendor contract to the lowest cost provider(s). These temporary services providers commit to providing temporary assignment workers at pre-negotiated bill rates. On the other end of the talent spectrum, some of the highest skilled employees are forsaking full-time employment and, essentially, selling their valued services to the highest bidder or to the company that offers them skills, opportunities, and experiences more aligned with their own goals and values.

What does this mean for HR?

What might HR’s role be in the future of the workplace if many workers are no longer the company’s own employees? As companies have become more comfortable with business outsourcing (and as remaining employees have become more accustomed to working with a vast array of non-employees), organizations will likely continue to explore more ways to contract work to non-employees. Contingent workforce strategies are now being used as a strategic tool to provide organizational agility, flexibility, variable cost structure, diversity, and new skills necessary to compete successfully in industries requiring nimbleness and innovation to stay competitive. Indications are that the growing use of non-employees to perform an organization’s work is a structural rather than cyclical change.

Once hired on only a temporary basis for a fixed and limited period of time, contingent “temporary” workers have become an integral part of an organization’s workforce — a permanent part of life in many organizations. Using contingent labor is also no longer merely a tactical measure used to drive down employment-related costs in an increasingly global labor marketplace; it is becoming a strategic tool to help increase organizational agility and, more importantly for HR, as a way to acquire critical skills and talent that are increasingly harder to find in the available employment market. HR leaders concerned about talent of the future should include contingent talent as a part of a larger total talent management strategy. In Part II of our series, we’ll discuss some of the challenges they face in doing so.

Michael Gretczko Michael Gretczko is a principal in Human Capital at Deloitte Consulting LLP and is the US leader for its Human Resources Service Delivery (HRSD) practice. He focuses on large, complex global business HR transformation.
JohnGillen John J. Gillen is a specialist leader in Human Capital at Deloitte Consulting LLP. He brings more than 20 years of internal corporate and business unit HR experience to help solve clients’ contingent workforce strategy and human capital issues.

1 “The Evolution and Promise of Integrated Talent Acquisition Management Solutions,” Staffing Industry Analysts, webinar presented June 26, 2014, p. 13.
2“The Evolution and Promise of Integrated Talent Acquisition Management Solutions,” p. 13.
3Dwyer, Christopher J., “The Next Generation of VMS Technology,” Ardent Partners, February 2014
4Intuit 2010 Report, October 2010.
5“The Talent Paradox: Critical Skills, Recession and the Illusion of Plenitude,” Deloitte Review, Issue 10, 2012, p. 78.
6“The Talent Paradox: Critical Skills, Recession and the Illusion of Plenitude,” p. 81.
7“Freelancing In America: A National Survey of the New Workforce,” Edelman Berland, 2014, p.7.

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