More than 1,000 professionals have participated in SIA’s accreditation program for contingent workforce program management to date. The driving force behind this trend is the significant penetration/usage rates of contingent talent in an organization’s workforce. Those rates in turn equate to significant spend levels: Some of the largest organizations can spend hundreds of millions of dollars on contingent labor annually, if not more than a billion. As a result, many large organizations have a department dedicated to managing this non-employee workforce — their engagement, cost-effectiveness and mitigating the risk of their use.
An organization’s contingent workforce penetration rate is simply the percent of their overall workforce that is contingent. This non-employee labor typically includes staff augmentation, agency temporary workers, statement-of-work consultants, independent contractors and workers involved in outsourcing engagements — almost any non-employee talent engaged by the organization to create, produce and/or deliver the company’s value in the marketplace.
Why is the contingent penetration rate so important? And depending on their usage, what should companies be doing differently?
Each year, SIA asks large organizations — those with 1,000 or more employees — to estimate the percent of their workforce that is contingent. In 2018, on average, organizations reported that contingent workers comprised 22% of their workforces, roughly the same as in the prior two years, as shown in the accompanying chart. The median was 20% for the third year in a row. [As the mix of companies participating in the survey varies from year to year, we consider fluctuations from one year to the next with caution — particularly small changes. Looking back over a larger time period, however, the substantial increase from 2009 to 2016 is indicative of a general growth in the use of contingent workers.]
Penetration Rate & Innovation
This use rate of contingent workforce talent is even more striking when considering specific high-innovation organizations and industries. Take technology organizations, such as software, computers or mobile technology firms, whose penetration rates can be found (anecdotally) to reach 50%. Biopharma organizations can be found to be managing contingent workforce penetration rates of 35% to 45%. And we have heard anecdotally through our research of a multi-billion-dollar energy firm with more than 60% of their total workforce comprised of contingent talent.
Additionally, specific functions within an organization can have high rates of contingent workforce usage. It is not uncommon to see penetration rates within IT or marketing functions of 75%, with high rates of SOW engagements.
Different Ball Game
These kinds of penetration rates call for a significantly different approach to strategic workforce talent management and skill development beyond the standard costs and risk management policy focus of today’s contingent workforce management program. If half your total workforce is contingent talent, how do you control the competitive development of your workforce talent that is producing and delivery the organization’s value to the marketplace. What happens to all the talent development and performance management investments made to create a sustainable competitive workforce, if half the workforce is not engaged in those development investments and tools?
New Strategic Approach
There are some interesting considerations that need to be addressed when contingent workforce penetration rates rise to a third or half of the total workforce. For example, one technology organization with more than a 50% penetration rate deployed “contingent workforce” HR business partners throughout its organization to support the effective and competitive leverage of CW talent. This is similar to the common use of internal, HR business partners that support business unit leaders and hiring managers with full-time talent needs and requirements.
Additionally, how does one account and manage the growth in perma-temps, those who reside in an organization for 10 or more years? And then there’s the millennial generation talent, which, typically, are not keen on working for one organization their entire career. Many are not really interested in working for the organization for more than one year as they grow their career, skills and talent across multiple engagement opportunities with multiple organizations. Then there are some elements of high-performing talent helping to drive increases in penetrations rates because they sell their hard-to-acquire skills to the highest bidders in the marketplace for a temporary period of time.
Each type of worker brings its own set of risks the contingent workforce program that must manage and mitigate. But if the workforce model is heavy leverage of CW talent, then overly conservative risk mitigation can seriously damage a competitive CW workforce strategy.
At the engagement manager’s end, hiring freezes and tight budgets have driven some to be creative and engage contingent talent more aggressively. With the continuing growth of penetration rates moving forward, it is becoming increasingly critical to manage this talent population more competitively beyond cost-effectiveness and risk mitigation. As innovations in CW program management grow, it is up to companies to more strategically direct this effort and take these management programs to the next level.