January 26, 2004

Tomorrow's Workforce

Tomorrow's workforce of contingent, offshore and outsourced employees has arrived. For HR at the largest companies, this requires a whole new way of looking at things.

BY ANNE FREEDMAN

The economy is growing. U.S. jobs are being added at a rate not seen since the 2001 recession ended. And corporate America--and many of this country's workers--are in the footloose-and-fancy-free mode.

The down economy of the last several years tamped down but did not extinguish a unique uptrend in the late '90s: the growing reliance of businesses on free agents--and the workers who love being them. Contingent workers, independent contractors, consultants, job sharing, offshoring and outsourcing--these are all elements of the same phenomenon. It ain't the 1950s anymore. And it's doubtful it ever will be again.

"More and more workers want an unhitched lifestyle," says Steve Bercham, vice president of the American Staffing Association of Alexandria, Va. "They don't want to be attached to one specific employer."

The same is true of employers. According to interviews with HR leaders of some of the nation's largest employers (see this year's Top 100 chart starting on page 34), more and more companies enjoy the flexibility of using nonpermanent employees. It's easier and less expensive to add consultants or contingent workers when you need them, and easier and much less painful to dispose of them when you don't. It's also often cheaper and more efficient to use outside service providers to handle non-core business processes than to develop that talent inside.

Demographics play into this trend. With many experts predicting an upcoming shortage of skilled workers, employers may need to manipulate the make-up of work teams so as to accommodate skilled workers who, for whatever reason, do not want to take full-time jobs. And making it easier for workers to move around is the portability of pension and health benefits.

"This is a time of change like none before for the U.S. workforce and the global workforce," says Dennis Zeleny, senior vice president of human resources for DuPont, the $30 billion science company based in Wilmington, Del.

As corporations staff up in this growing economy, human resource executives should include job sharing, outsourcing and offshoring plans as well as the hiring of contingents and consultants in their workforce planning. And while they ensure their companies are legally isolating consultants and contingent workers as non-employees--per the famous Microsoft case of a few years ago in which the courts ruled long-term consultants should have been properly classified as employees due all rights and benefits--they also need to embrace their fragmented workforces in terms of corporate culture, training, security, communication and performance management.
Fuzzy Math

The free-agent momentum that gained traction in the late 1990s was, without a doubt, slowed by the uncertain economy of the last two years. According to the American Staffing Association, the percentage of U.S. workers in temporary staffing positions doubled in the 1990s, increasing from 0.99 percent to 2.54 percent in 2000.

Hit hard by the economy, that number dipped to 2.06 by 2002, but--always a leading indicator of the economy--staffing has been up for the past six months. Temporary workers, of course, are only a portion of the free-agent workforce, and it's difficult to get an exact picture of the number of consultants, contractors and others who make up that group.

Kelly Services, based in Troy, Mich., puts the number of free agents as high as 33 million, and growing--or one in four American workers. The U.S. Bureau of Labor Statistics puts it at about half that in statistics from 2001, but it's not conclusive data.

"I think it's fair to say," says Larry Kanarek, a director at management consulting firm McKinsey & Co. in Washington, "that American business has figured out there are multiple ways of getting the job done."

Demand for temporary workers historically has been highest in financial services, health care, telecommunications and information technology, according to the Labor Department.

Today, however, contingent workers encompass such diverse slots as teachers, scientists, engineers, physicians and company managers.

At the same time, businesses have taken the lessons learned in the 1980s--when so many manufacturing jobs were shipped overseas--and applied those lessons to white-collar service workers, says Kanarek.

Able to tap into a pool of well-educated, English-speaking workers overseas, U.S. companies--particularly financial and IT services, call centers and business processes--are using today's telecommunications networks and the Internet to significantly reduce costs and, in some cases, increase production by taking advantage of the 24-hour clock. For example, a company can transmit data to workers in India and, because of the time difference, can have that work completed by the time U.S. offices reopen the next morning.
A Firm Core

"I think HR policies, HR strategies, HR practices ... follow what's going on in the marketplace, and companies just try to respond," Zeleny says. "What employers do from a people standpoint really is a reflection of this greater economic reality.

"I think there's always going to be a place--and this is true in DuPont and true for companies in general--that it will always be critical to have core employees as part of a company. I think that, by and large, there will be a large chunk of [permanent] employees, but I do believe there will be continued use of outsourcing and these kinds of consultants or auxiliary workforces that companies use."

At DuPont, which has about 79,000 employees (although it recently announced plans to reduce its workforce as part of a strategy to cut $900 million in costs over the next two years), that means outsourcing many IT services--"over the last three years, maybe about 1,000 people"--as well as pension-claim administration and benefit-claim administration, Zeleny says.

HR needs to be part of those strategic workforce decisions, he says. "I think we need to come to our business leaders with solutions," he says. "You need the right balance. You need to know what you have internally, what skills you need to have internally and what skills are nondifferentiated, and you need to go to the outside.

"I think the bias is that critical value-added work stays within the company; the things we get paid for doing, the things we get paid for knowing, stay inside the company. I don't think those are up for grabs," he says.

As for short-term hires, they are left to line executives, but DuPont's HR tracks such usage by cost, and often works with the line to determine the best way to solve short-term needs.

"There is dispersion in terms of how those decisions are made, but I think setting good guidelines and then following up every now and again by looking at the data helps you course-correct," Zeleny says.
Unique Business Model

At FedEx Ground, the company's very business model was formed around "an independent contractor-delivery workforce, which is kind of unique in our industry," says Lee Holly, senior vice president of HR for the $3.6 billion, Pittsburgh, Pa.-based subsidiary of Federal Express Corp.

"I think the time has passed when one size fits all," Holly says. "You really have to be open and receptive to coming up with a variety of offerings such that employees can really design their own relationships [with companies] to the [greatest] extent possible."

Holly's 43,000-employee company is dependent on its team of 14,300 independent contractors, who work as either pick-up and delivery contractors or as long-haul contractors. During peak season, the company will add up to 2,800 temporary drivers and up to 2,000 part-time package handlers to work in facilities.

And whether those employees are independent contractors or temporaries, they are trained and onboarded by FedEx Ground via a combination of classroom time, hands-on instruction and observation to "engage [them] in our mission, which is to be the best small-package carrier in the market, [a mission that gives us] a relatively singular focus on the customer," Holly says. "We go to great lengths to make sure our people know what is happening with the business on a day-to-day basis."

That includes a variety of communication techniques including intranet sites, posted weekly updates, monthly newsletters sent home as well as formal presentations and contractor roundtables.

"[The use of independent contractors] really doesn't take away from the company mission," Holly says. "If anything, it really helps, we think, because if they do right by our customers, they're going to be able to grow their business and be successful businesspeople, so we have structured the relationship in a manner that maintains the independent owner/operator structure but fully supports what we are trying to accomplish in the marketplace."

There is always a need for corporations to assess the most efficient way to deploy resources to accomplish business objectives, says Joseph Bonito, vice president of global leadership effectiveness for pharmaceutical giant Pfizer Inc. in New York.

At Pfizer, that means keeping core competencies internal but being open to outsourcing skills that are outside of that scope, such as the recruiting function, IT desk support services and the managing of clinical trials, even though Pfizer conducts clinical trials internally.

"If you hire consultants and contractors," Bonito says, "you have to focus both on the expertise they have as well as, 'Is it the right cultural fit?' if you want to ensure that you get great alignment [on business goals]."

Companies need to create selection criteria for service providers that emphasize values and leader behaviors as well as technical skills, he says.

Zeleny agrees. "The one thing we are very careful about," he says, "is people, whether they are on-site for a short period of time or whether they interact with our employees by phone or whether it's a permanent or temporary relationship with us ... we make sure people understand our core values," including integrity, respecting people and the environment, diversity and more. "We just won't do business with people who don't share our core values and who we believe are not 100 percent ethical in terms of the most stringent standards."

Service providers also need to have an understanding of the businesses' strategies and key imperatives. Pfizer spells out the scope of work and business objectives in its requests for proposals and contracts, and discusses corporate values with agencies supplying talent to the organization. It also is proposing the creation of an intranet-based database to collect post-mortem information from internal leaders on the effectiveness of various consultants and the like, says Frank Callaghan, director of global sourcing.

But at this point, says Susan Raffetto, director of global strategic staffing for Pfizer, making overall workforce decisions is an art, not a science. "I don't know if other companies have figured it out," she says. "We have a labor force that consists of many different types of workers and ... it's really driven by the business needs. There are no set policies and guidelines which, I think, is probably going to be the way of the future."
Temporarily On Board

Expectations are key to effective project staffing, says Robert W. Lincoln Jr., senior vice president of global human resources for Manpower of Milwaukee, Wis. Onboarding or orientation sessions are important, he says, because temporary workers need to "feel like they belong." They need to understand how their contributions fit in with the company's goals.

Manpower takes it upon itself to transmit its corporate clients' cultures and business objectives through orientation and training sessions, but companies should not assume that all of their nonpermanent workers are getting that kind of attention.

That's rarely the case with consultants, says Laura Sue D'Annunzio, vice president of A.T. Kearney, who is in the Southfield, Mich., office of the Chicago-based management consulting subsidiary of EDS. Because understanding her clients, their values, objectives and culture are necessary for her to do her job, D'Annunzio takes ownership of the onboarding process.

But whoever is responsible for that transfer of knowledge, it is important that it gets done, she says. At one company D'Annunzio consults with, the company uses contract workers as administrative staff. "Yet," she says, "they really represent the voice of that company in answering phones and scheduling meetings for executives. I think it's very important for them to understand the company that they work for and that they represent."

Protecting the company from liability as it regards harassment, discrimination or other security concerns is also a reason to onboard contingents and consultants, says Monica Barron, research director of AMR Research of Boston, Mass. Unfortunately, all too often, HR leaders embrace the "put-your-head-in-the-sand approach and hope something doesn't happen," she says, "and something will happen."

For many HR leaders, on-site temporary workers--and most companies probably have more free agents on-site than they realize--are invisible. HR is often left out of the loop as line executives go directly to procurement when needing temporary help. In addition to liability issues, that invisibility affects overall workforce planning, performance management and communication.

"If you are using a contingent worker, you still need to be very aware of, 'Are you getting the deliverables you are supposed to be getting?' the same way you would with an existing employee," she says.

"Companies, I think," says Barron, "are starting to realize ... that they need to take a more holistic view of their workforce. What is my workforce made of? How much is it costing me? And is it really the best make-up for what I need to get done?"

Communication is an important aspect of managing free agents, but that's really no different than tailoring your message to diverse employee cultures, ages, motivations, home circumstances and whatever else, says Jim Porter, senior vice president of HR for Carlson Cos. in Minneapolis.

"We have different segments of the organization that we are dealing with all the time regardless of the [job status]," he says.

At Carlson, the company has put "a lot more emphasis on alternative work arrangements rather than using contractors or temps," Porter says. That has been particularly important in its Minneapolis headquarters, a city that has a very low unemployment rate, and among the company's headquarters' workforce, which is about 70 percent female, he says.

While Carlson will probably look seriously at some overseas outsourcing--probably of call centers--over the next few years, Porter believes it's important for companies to keep employees on staff as opposed to mixing varieties of workers.

"I think one of the things you try to avoid is having two people sitting in cubicles next to each other doing the same work and each having different employee classifications," he says. "It creates so much more complexity ... to build your team. I am not sure that [given] the money you might save, you really get the payoff over the long run."

That's not to say Carlson--a hospitality and leisure company that includes such well-known companies as TGI Fridays and Radisson Hotels and Resorts as well as Carlson Marketing Group--doesn't use consultants or contingent workers at times, but it tends not to use them in "a mass way," he says.

They are probably going against the corporate grain in that attitude.

"I think generally as the economy recovers you are going to start to see more alternative or flexible labor models just because it's going to get more and more difficult to find qualified people," says Jeff Silber, a stock analyst following the staffing industry for Harris Nesbitt in New York, "so you are going to have to [push] the envelope in finding the types of people and skill sets you need.

"You will see demand flock to where the skill sets are; temporary staffing moving upscale."

This new workforce is a dose of reality, says DuPont's Zeleny. "I think the fact that corporations are more open today is a ... good thing. I think it allows companies to be more nimble, to have a better view of what the landscape of talent is," he says.

"I think it's an advantage for the corporation."

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Cover Story - Staffing Up BY ANNE FREEDMAN

Posted by Craig at January 26, 2004 05:34 PM