Traditional Workforce Models are Constraining Business Growth — Here’s How Procurement Can Fix It

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Businesses operating in today’s disruptive economy need innovative thinking and agile teams to meet rapidly changing customer demands. Yet standard models of workforce engagement remain antiquated and inflexible, limiting companies’ ability to respond to new opportunities.

The rise of the knowledge economy and the explosion of new technology applications, however, have created new opportunities for organizations to rethink how mission-critical, highly skilled talent is sourced, managed and consumed. Accordingly, new models of workforce engagement have begun to emerge, allowing organizations to break free from their legacy processes and tap a new source of innovation for the enterprise.

To do that, procurement must cultivate new methods, tools and processes to deliver critical talent, knowledge and services to stakeholders. The changing human capital environment has created this unique procurement opportunity — now,  procurement can play a leadership role in accelerating business performance through workforce innovation.

The Changing Human Capital Environment

For over 150 years we have lived in a world of increasing automation and technological advancement. We have also witnessed the ascendance of the so-called “knowledge worker.”

Since 1980, knowledge work occupations in the U.S. have grown rapidly — by about 1.9 million jobs per year. What’s more, based on the compensation of workers in different occupational categories, the aggregate of value added from labor in developed economies has significantly shifted from low-skilled, often manual labor to knowledge work.

Put simply, the growth and value creation of businesses and the economy are now totally dependent on an increasing number of knowledge workers. And if businesses want to capture that value, procurement and HR need to attract and engage those workers on their terms.

Implications for Businesses and Procurement

Despite this shift toward knowledge-based work, the longstanding industrial paradigm of how enterprises structure their engagement of workers has not changed and is ill suited to engaging the full range of this kind of talent. Procurement must begin to consider where there are constraints on and opportunities for keeping pace with the changing human capital environment.

All of this raises multiple implications for businesses and procurement practitioners with respect to how they source, manage and consume work — especially the services provided by knowledge workers. Some of these include:

  • Established contingent workforce sourcing and engagement models are at a stage of diminishing marginal returns and are limiting sourcing opportunities.
  • An increasing number of knowledge workers prefer independent work arrangements rather than employment with a single employer.
  • Sourcing of the appropriate knowledge workers for specific applications in a business requires a more nuanced and exacting approach to differentiating expertise, skills and capabilities.
  • The way work is delivered and consumed can now take different forms, such a blending of internal and external talent (i.e., total talent management) or shorter time frames.
  • Such sourcing requires the use of advanced technologies, such as data analytics and machine learning, as well as digital intermediaries, including online marketplaces, crowdsourcing platforms and online work services platforms.
  • Finally, a different approach beyond spend management and risk control will be needed; greater emphasis on new value creation, innovation and collaboration with internal stakeholders and external intermediaries will be necessary.

The upshot of all of this is that longstanding traditional approaches to sourcing talent — whether recruitment of full-time hires or the engagement of contingent workers through staffing firms — are no longer sufficient. To ensure that businesses can leverage high-value, mission-critical talent, procurement must grasp this unique opportunity to develop and put into practice innovative, value-oriented sourcing methods, tools and processes to acquire and deliver critical talent and knowledge to the enterprise in entirely new, cost-effective forms. 

The Path Forward

Advancing beyond current institutionalized human capital models won’t be easy. But it will be necessary. A first step will be identifying what the limitations and challenges are to evolving toward new, higher-value models.

First among those challenges is that, even as the use of contingent workforce and outside services increases, the dominant human capital model remains that of “traditional employment.” While traditional employment will remain the fundamental way of engaging human capital for the foreseeable future, it can blind businesses to the evolving models and approaches to how the value of human capital can be maximized going forward.  This is true of the staff augmentation model as well.

In addition to poor visibility of external trends, corporate structures remain siloed. Notably, HR and procurement are typically worlds apart. These silos limit the evolution toward total talent management approaches that blend internal and external talent, rely on innovative sourcing approaches or offer new modalities for consuming human capital (e.g., online talent, on-demand knowledge-as-a-service, idea crowdsourcing, etc.). They also reinforce the two functions--HR and procurement--as entrenched closed systems, limiting the potential for change and  innovation.

Finally, the dominant procurement perspective that is focused on compliance, control and cost efficiency is crowding out the appreciation of the significant, additional value contribution that alternative workforce models and innovation can provide. This will eventually impede a business’ long-term performance and competitiveness.

The Next Step: Embracing New Models

By acknowledging these limitations and challenges, procurement organizations will have taken the first step toward overcoming them. But to move to the next step, practitioners must embrace new ways of thinking.

Supported by new service providers and emerging digital technologies, work can be organized and managed in smaller chunks that can — relatively quickly and efficiently — be assembled and disassembled, almost like Legos. Flexible, just-in-time, “projectized” work and services are increasingly what businesses need. Consider, for example, how a business in the U.S. today can find and engage the hard-to-find expertise of a data scientist in Germany within a day or two, or how a company can hire a project manager to lead post-merger integration work streams across a single year without a longer-term commitment.

To best serve stakeholder needs, procurement must pursue better, higher-value models for sourcing and making use of indispensable human capital and knowledge. In the second installment of this series, we explore these new models and consider how businesses will need to change to fully take advantage of this opportunity.

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First Voice

  1. Suresh Parakoti:

    thought provoking and food for thought for all the procurement leadership teams. glad to have visionaries like Andrew Karpie who is pushing the envelope for procurement transformation

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