When Did Temporary Become Permanent?

March 21, 2011

by Jim Ware

Everyone knows the workforce is becoming far more diverse—whether you look at gender, generational differences, cultural and ethnic backgrounds, or geographic dispersion. However, workforce demographic diversity is not the focus of this article. Rather, we are seeing an even more critical kind of diversity emerging in the way organizations get their work done and in the resulting variety of employment relationships.

However, as important as it is to recognize and manage workforce diversity, we believe it is even more critical to manage employment diversity.

The economic turmoil over the past eighteen months has led to new rounds of layoffs in many organizations, producing what is clearly becoming another permanent reduction in the percentage of the workforce holding down full-time jobs.

Business Week reported in January 2010 on the rise of the “disposable worker”—the growing number of temporary and part-time employees who can be easily “disposed of” (read, “laid off at low cost.” See “The Disposable Worker” for details).

Organizations are increasingly seeing the concept of long-term, full-time “guaranteed” jobs as inappropriate in a dynamic global economy.

In fact, of course, relying on part-time and temporary labor is nothing new; it’s been a way of life in the commercial construction industry for decades—especially for large-scale projects like bridges, dams, military installations, and center-city skyscrapers. Of course, those mega-projects usually take many years to complete, so the work often doesn’t feel temporary at the time—but everyone involved knows there’s no such thing as a “permanent” construction job.

Variable employment has also been common in aerospace and defense; workers migrate from one company to another as employers win or lose federal contracts. And there are other examples as well in many “civilian” industries like advertising, film production and entertainment, public accounting, and other professional services sectors.

What is new, however, is the dramatic increase in the number of firms relying on part-time or contract labor, and in the percentage of the workforce holding “nonstandard” jobs. The Iowa Policy Project, a nonpartisan think tank, estimated that “26% of the U.S. workforce had jobs in 2005 that were in one way or another ‘nonstandard.’ That includes independent contractors, temps, part-timers, and freelancers” (reported in the Business Week story referenced above).

In fact, National Public Radio (NPR) reported last fall that in the fourth quarter of 2010 fully 68% of U.S.-based hiring was contingent or contract workers.

While the growing reliance on a “disposable” workforce puts most of the employment risk on the shoulders of individual workers (and usually deprives them of health care and retirement benefits), we believe the underlying concept is not only right for business, but will ultimately generate an explosion in innovation, economic growth, and even quality of work life (However, leveraging this new business model requires significant change in management practice and organizational design, a topic we’ll address in a later issue of the newsletter).

We believe building a “just-in-time” workforce is a natural consequence of the strategic push towards corporate agility and the desire to drive fixed costs as close to zero as possible—something that has almost become a business imperative in recent years, as the economy went global and most domestic businesses have found themselves competing directly with overseas firms enjoying dramatically lower labor and real estate costs.

With each round of economic recovery organizations learn to increase their investments in technology and redesign their business processes to create higher total-factor productivity, enhanced speed of delivery, and better product/service quality. Along the way they become less and less dependent on labor, especially the full-time kind (for example, just think of all the web-based self-service applications that have essentially put thousands of reservation agents, customer service representatives, and retail sales clerks out of full-time work).

These are also the basic dynamics behind the explosive growth of outsourcing and subcontracting over the past two decades. Because the future is so uncertain and variable it has become prudent to shrink your full-time workforce as much as possible—to what you consider to be the essential, or strategic, elements of your business: the people who define your strategic identity, generate your knowledge capital, and make your organization unique.

Almost everything else can be (and in most cases should be) contracted out because it’s not central to your brand, your product development, or your market position. Furthermore, the rich interconnectedness of the worldwide web has made outsourcing and other forms of contracting work to others much simpler and less expensive than ever.

As one small example, one of our Future of Work Associates recently told me that she found a Ukraine-based web design firm through eLance (an online job posting and bidding site) that redesigned and rebuilt three corporate websites for under $1,000. That’s awfully hard to beat with a traditional workforce.

Perhaps even more importantly, this new way of thinking about creating value can lead you to tap into all kinds of resources that are outside your own organizational boundaries—resources that might never want to join your firm on a full-time basis.

Consider, for example, the Procter and Gamble “Connect and Develop” program, which has a goal of getting fully 50% of P&G’s new product ideas from outside the company.

To that end, P&G recently formed a partnership with Innocentive, an R&D company that maintains a network of over 90,000 scientists around the world who work on a contingent/commission basis to solve challenges posed to them by Innocentive’s clients.

A.G. Lafley, P&G’s recently retired CEO, launched this so-called “crowdsourcing” approach to product development several years ago, when he realized that the company’s product development staff of 7,000 full-time employees couldn’t begin to compete with the millions of smart scientists who were working elsewhere. Today P&G reportedly has access to over 1.5 million people in its extended network.

And just one more example of the power of crowdsourcing: the iPhone App Store. Apple built the iPhone as a platform, and then opened it up for independent software developers to be as innovative as they wanted to be. And today there are over 350,000 iPhone apps downloadable from the App Store, a major reason why the iPhone has become the dominant—and most “cool”—smart phone on the market. Apple quite literally thinks of the iPhone developers as an extended global community.

This new business model for the agile production of value requires a fundamental rethinking of what an organization is, what kind of business processes it relies on, and what it means to be a “member” of the organization.

There is no one right form of organization, or one best blend of workers. Each industry and each individual business requires a unique configuration of full-time employees, subcontractors, outsourcers, and business partners.

Organization design is a far more important component of business strategy than in the past. To be blunt, it is past time to re-examine all of our basic assumptions about how an organization produces value.

Please send your comments directly to us, or post a comment here. We look forward to learning from you.

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