The Leap From Contingent Workforce to Extended Workforce and Services

This Plus brief proposes that an organizational shift is taking place from (a) enterprises that source and consume a limited set of labor/talent resources (contingent workforce) through certain processes and technology solutions to (b) enterprises that are advancing to another stage (extended workforce) in which a broader array of labor/talent-based services can be accessed by internal business consumers. Some of the pieces of the extended workforce ecosystem are already present, but major gaps in technology and processes must be filled, and procurement must become interested in moving beyond its limited contingent workforce view and take an interest in making extended workforce a reality for their businesses.

Context

In accordance with the predictive theory of Nobel laureate Ronald Coase, firms and their boundaries are formed because the transaction and other costs of contracting with third parties, competing in presumably efficient external markets, exceed those of conducting activities within the boundaries of the firm. However, the converse also holds true: As internal costs and rigidities of a firm increase and the transaction and other costs of contracting with third parties decrease, the boundaries of the firm recede and more activities are performed by suppliers and providers.

Over the past several decades, this is a trend that has been occurring, to a lesser or greater extent, in most industries. Information and communications technology (ICT) has been reducing transaction costs, increasing ability to manage extended processes (e.g., supply chains), and creating cost arbitrage opportunities. Accordingly, all of these trends have made it necessary for enterprises to establish procurement functions.

For many years now, enterprises have been relying more on external resources and capabilities to produce customer value with increasing efficiency and agility. This is probably no more evident in manufacturing, where some firms consist only of brands, other intellectual property and a small number of people, then outsourcing all the rest of the supply chain. The total number of people engaged in work for Apple, for example, is some multiple greater than the number of actual employees. It is true that many of these people are engaged in manufacturing activities directly producing products or components and not providing their labor services directly to Apple as a firm. But some number are engaged in delivering labor services of various kinds directly to Apple as a firm, frequently through a range of different suppliers/service providers delivering various labor-based services (e.g., management consulting services, legal services, property management services and so on).

The Contingent Workforce

This gets us to the matter of contingent workforce and its position of often being the largest part of total services spend (and in some companies, even total spend under management).

I once had a conversation with a sourcing specialist at Facebook who told me that contingent workforce consisted of 60% of the company’s total spend under management. It seems likely that in services businesses — the largest sector in developed economies — contingent workforce will, at the least, account for some very large shares of total services spend.

All of this certainly explains why, across the whole spectrum of services spend, contingent workforce has tended to get the most attention over the past 10–15 years. During that time, contingent workforce disciplines and programs have emerged, along with vendor management system (VMS) technology solutions and managed service providers (MSP) process outsourcing businesses, slowly penetrating the enterprise market and gradually extending the program reach within given enterprises. As such, when contingent workforce is referred to today, it tends to mean large amounts of spend on temp workers from staffing suppliers, a trickle of spend on a relatively tiny number of independent contractors engaged directly and in past years a fast growing and now large amount of spend on statement of work (SOW).

Contingent workforce really refers to the direct use of specific worker’s labor services and the acceptance of an organized project and outcome delivered by an SOW supplier, which also provides the workers to conduct and complete a project. Somewhat confusingly, SOW is often referred to as “services,” though it only refers to this specific service of delivering projects. In effect, contingent workforce management programs today tend to focus on a limited set of categories across the services spend spectrum. While this may have been adequate under circumstances to date, new developments in how organizations are thinking about and leveraging labor-based services will begin to challenge the status quo in favor of broader services perspective.

The Extended Workforce

More and more, we are beginning to hear businesses and solution providers talk about “the extended workforce,” which, relative to contingent workforce, describes a much more extensive paradigm for enterprise use of external labor/talent based services. Accenture, perhaps the leading observer and interpreter of the concept and trend of extended workforce, notes concisely in one of its reports:

“Instead of a single enterprise with full-time employees and a recognizable, enduring hierarchy, companies will increasingly be comprised of formal employees and an ever-shifting global network of contractors, temporary staff, business partners, outsourcing providers and members of the general public.”

Extended workforce, according to Accenture, not only encompasses these conventions sources labor/talent based services, but also:

“…A variety of sources – including cloud-based platforms of freelance workers, online social networks, alumni/retiree networks, outsourcing providers, business partners and crowdsourcing platforms.”

Clearly, the concept of extended workforce is much broader than the current scope of contingent workforce as discussed above. It certainly implies a much larger and more diverse set of sources and suppliers than would normally be included and managed in the contingent workforce paradigm:

In the extended workforce paradigm, more conventional services and providers are now managed as sources and suppliers. In addition, other new digital types of sources and suppliers will also be managed — and these sources and suppliers will enable new modalities for consuming labor/talent services (e.g., online access to remote workers all over the world, on-demand services, crowdsourcing). In effect, the shift from a contingent workforce paradigm to an extended workforce paradigm really shifts the fundamental focus or procurement from sourcing and managing people/workers from suppliers to sourcing and managing capabilities and services from providers (including a broader field of individuals, conventional and new digital suppliers).

The extended workforce paradigm not only implies more sources and suppliers and new modalities of labor/talent services but also means supporting more choices for internal consumers of those services. It implies a user experience where internal consumers can find the service they need, select them and purchase them on the spot. For example, let’s say an internal business consumer needs to draft a fairly simple contract but can’t wait for inside counsel to get to it. The business consumer should be able to access a procurement services interface and find a set of options:

1.    Engage a procurement approved law firm
2.    Get a temporary attorney from a legal temp agency
3.    Work with an attorney through a digital platform like UpCounsel
4.    Access services through a partly automated/self-services platform like Rocket Lawyer

The business user should be able to know the cost of each service option, the time frames involved, the risk levels, etc. Admittedly, this may seem a little bit like science fiction to contingent workforce managers, but it can be noted that such processes and user experiences are now available for non-services procurement business consumers. Most important, in the emerging extended workforce world, we are talking about more services options for business consumers.

What Is Needed?

The pieces of the enterprise extended workforce model are already coming together. There is a broad range of conventional service providers and a growing number of digital platform-based ones as well. Enterprise demand is becoming consumerized, and talent shortages are driving internal business consumers of labor/talent-based services to want options.

What is really missing right now is the technology (including a new services taxonomy) — on par with that in non-services procurement (supplier networks, source-to-pay, online catalogs, etc.) — that will knit the processes together. Some technology solution providers, including a few VMS players, are already taking baby steps in this direction.

Procurement is also missing from the mix. Contingent workforce managers must start to re-envision themselves and the strategic focus of what they do as realizing the extended workforce paradigm in their businesses. To start, this might involve small projects in which procurement partners with some internal business users, a forward-looking technology solution provider and some suitable service providers build a model of how sourcing and consuming labor/talent based services can happen differently.

In fact, if we accept Coase’s theory of the firm and its boundaries and see how technology is able to make more and more third-party services economically accessible, then it is only a matter of time before this whole paradigm develops, with enterprises that have gotten there first being the big winners.