The External Workforce: The Key to Navigating Labor Shortages

More than a year and a half into the COVID-19 pandemic, as a society, we’ve collectively learned a lot of lessons. People will panic buy toilet paper. Dining al fresco is the new “in” thing. Supply chains weren’t as resilient as we thought in 2020. And lastly, the way we manage workforces may never be the same again.

The pandemic shed light on the workforce’s ability to be agile under times of immense uncertainty and disruption, as companies discovered and tested new ways to work and recruit talent. In particular, the external workforce (also known as “contingent workforce,” “freelance workforce” and “gig economy”) is now a rapidly evolving segment of the labor market as organizations continue to face persistent labor shortages.

Key economic findings suggest that it’s imperative for organizations to tap into their contingent workforces as a means of overcoming the current labor shortage crisis – as well as future disruption – and effectively ensuring business continuity going forward.

When considering investing in the contingent workforce, organizations are faced with the following concerns they must address: How much funding should be allocated towards acquiring contingent workers? What ROI can we expect through these hiring efforts? In terms of timing, when can we expect to see the results of our efforts and how soon can we expect contingent workers to contribute to our overall mission?

Despite a reported 42% of workforce spending going towards a company’s external talent, many executives are unable to manage this large and critical spend category effectively, as they’re lacking complete visibility into it. Procurement and human resource functions must and should attain cost-efficiency within any organization. To ascertain that the external workforce is capable of providing cost-effective value in the long run, there are four tactics that play into the financial investment decision.

Looking Forward

The ramifications of a wrong hire can not only be dire but also costly. To ensure a speedy and more productive hiring process, businesses must determine which roles and tasks call for certain skillsets, and match them to the right external talent.

It’s imperative to avoid letting workforce planning sit on the back burner – it can take time upfront, but it will be more useful in the long run. Without proper outlining, quality of work is sacrificed for the sake of speeding up the hiring process, deterring the quality of the talent pool in its entirety.

It’s crucial for businesses to take a more strategic approach by working with workforce vendors to best select and procure suitable talent. The effects of doing so are especially conducive towards the overall trajectory of an organization, as they help to conserve time, money and effort while arming businesses with a means of addressing future demands as they occur.

Cutting Costs Can Be Ineffective

In times of economic turmoil, businesses frequently adopt cost-cutting measures to manage the bottom line, which can be short-sighted and detrimental. When considering investing in the external workforce, this should always be assessed through the lens of a more long-term solution as opposed to a short-term, cost-cutting measure.

Businesses should provide constructive performance feedback and increased access to digital capabilities with the aim of increasing engagement and productivity. Investing in upskilling can produce greater results and prevent organizations from having to acquire new employees. Not only will this cut back on costs in the longer term, but it will also ensure current workers are more valuable and motivated to take on new projects and improve throughout the trajectory of their careers.

Considering MSPs Over In-House Management

While the benefits of external workforces are numerous, organizations often lack suitable technology to manage them effectively, mistakenly putting too much focus on managing routine, administrative activities. For these standardized tasks, businesses should consider Managed Service Providers (MSPs) instead.

MSPs can provide expertise and advice around the best technology solutions to implement, own the program and then provide leaders with visibility and insights into who is doing the work and where they are located. Making sure an organization is aligned with contract terms can help to reduce overhead costs. Further, MSPs can help to ensure companies remain compliant with required licenses and certifications.

Ensuring Complete Visibility into the External Workforce

Speculation will always be the enemy of effective management. Industry leaders need complete visibility into the external workforce to make more calculated, timely decisions to combat unprecedented challenges and risks.

Research reveals that organizations are widely lacking visibility into this critical spend category and are ineffective in their management approaches. This only further reduces business agility, creates compliance and security risks, and means organizations are leaving money, and more critically – their overall value – on the table.

Digitalizing and automating processes and improving visibility can help organizations reduce redundancies in their external workforce management, thereby cutting costs and gaining the most value out of existing talent resources.

Here To Stay

The external workforce was not a new phenomenon during the pandemic. However, it is picking up steam as more and more leaders are realizing the benefits – reduced workforce costs, improved productivity, agility and resilience, increased access to quality talent and more.

For companies looking to better manage their external workforce, they can achieve a greater ROI through strategic workforce planning, streamlining processes, decreasing time spent on administrative tasks and increasing the digital capabilities of the program. With an estimated 70% of executives anticipating they’ll hire more onsite temporary workers and freelancers over the next two years, compared with pre-COVID levels, the external workforce will continue to remain a top priority across organizations.

As global markets continue to face unprecedented labor shortages across industries, the time to master external workforce management and maximize talent is now.

Authors

Vish Baliga

Vish Baliga is the Chief Technology Officer of SAP Fieldglass and has been with the company since its inception. He plays an integral role in SAP Fieldglass' award-winning solutions, establishing product strategy and managing the application's design, development, testing and delivery.