The Case for an External Workforce Strategy

The mix of external vs. full time talent will soon rise to nearly 50% globally.
The external workforce isn’t just ‘bandwidth’, it’s a source of deep expertise.
Hidden in this workforce are brand ambassadors with crucial tribal knowledge. Yet ‘external’ talent operations continue to be tactical, reactive and short sighted.

Last November, I resigned after working for my employer for 15 beautiful years. It had been a fabulous ride across continents, roles, industries and memories to last me a lifetime. My relationship with my employer was my identity and my support system. So why did I leave? I had reached the young adulthood of my career and wanted to leave home to explore what’s out there. Oh, I forgot to mention I actually didn’t have another job. I was really, truly just going to explore. The possibilities were endless. So explore I did, with big dreams and courage. In a few months I realized it might be a while before I find the perfect next thing. So I did what most of us would do when concerned, call home. In 48 hours, I was back in. This time as a contractor.

It was a very interesting role - helping implement a compelling new business strategy across a global audience. I was bringing so many facets of my resume to the table each day but more importantly tribal knowledge that one develops only by well, being part of the tribe that long. I was super grateful that I was re-included, had income and now even interesting work. Just one thing secretly pinched me a tiny bit, my role title on the company portal went from ‘Managing Director’ to ‘Regular Contractor’. With a deep breath, I had to remind myself it was a choice I had made and gracefully owned my re-branding. But it got me thinking, I had stumbled into being an RC (strangely sounds cooler when abbreviated) but who else is an RC and why? I casually looked up my fellow RCs. What I found made me recalibrate everything I had ever thought about contract work:

• RCs were a key part of the workforce. Engaged thoughtfully for a finite amount of time to support a specific but important business need.
• They were seasoned, deep experts in their field, precious assets to a services business. Definitely not extra bandwidth to support a business spike.
• Like me, they had been friends of the firm. Alumni, clients, partners, past applicants, interns, referrals, silver medalists and returnships. The firm had managed this external talent network elegantly, I just hadn’t realized.
• Many of them chose to be RCs. Unlike my accidental journey, most of these professionals chose contract work. They thrive on contributing to multiple businesses, learning from diverse experiences, and owning their own schedule.

It was suddenly cool to be an RC. It was like I was part of a community of free-spirited explorers, who didn’t care about what a company called them but established their own personal brand. The experience helped me break out of decades of conditioning on my relationship with work. For the remaining three months of my contract, I owned it.

The ‘external’ workforce intrigued me. I saw in it the promise of deep expertise, hope of flexibility, struggle of complex regulations and a dream of a future workforce with badge-less superstars who leave their legacy at more businesses than my generation could ever imagine.

In the fall of this year, I took a job at an HR-Tech start-up that has successfully built and scaled an AI powered talent intelligence platform. My mandate is to focus on ‘external’ workforces — build a version of the product to help businesses attract and manage their ‘external’ workforce and build a durable book of business partnering with clients on this new product. Over the past few weeks, I have had the opportunity to speak with every type of stakeholder there is in this ecosystem — workers, talent supply agencies, managed service providers (MSPs), vendor management systems (VMSs), payroll providers, contingent industry analysts, employment attorneys and of-course enterprises that engage an external workforce. Below are my reflections from this discovery process as an industry newbie. Perhaps this is a restatement of the obvious to some but it’s my humble attempt at calling attention to what I believe has been a bit of a blind spot for many business and HR leaders — an external workforce strategy.

The force is getting larger, entirely by choice

In 2018 the external workforce was a little over 35% of the global workforce. Depending on which data source you embrace, this number will be 50% anytime between 2021–2023. The more interesting aspect is this growth is not driven by the economy. We know unemployment rates are at a record low globally. This wave is driven by personal choice. An increasing number of workers are choosing alternative work arrangements to learn from diverse experiences and own their flexibility needs. The growth is also not isolated to the simpler end of the skill spectrum such as industrial workers or ride share drivers. It is just as steep among highly skilled knowledge workers who are exercising the right to choose the projects they want to work on. That disrupts the myth that most people who work as contractors do so because they can’t find a full time job. Perhaps that was true a decade back when the composition of this workforce was different, not so any more.

Our lens towards the external workforce has a lot of catching up to do.

A collection of things, carelessly lumped together

I cannot decide if the external workforce has more classifications such as contingent, contractor, gig worker, consultant, crowd, temp etc. or more names used to describe it such as flex, liquid, external, extended, supplemental etc. The list is long and the confusion is real. While the classification is quite clear in the minds of employment lawyers, the lines are blurred when it comes to hiring and managing this workforce. Traditionally, organizations have used an over simplistic classification of just full time employees and basically ‘all others’ regardless of role or skill complexity. The ‘all others’ bucket is far from being homogenous. It ranges from skilled experts like data scientists or researchers to simpler-skilled workers like retail store employees or hospital support staff — all engaged and managed by very marginally differentiated processes, technology, policies and regulation. The easiest analogy that comes to mind is a tool box that includes everything from an industrial chain saw to a travel sewing kit. You need them all but should they be in the same box and handled just the same?

The devil will be in the detailed calibration of the external talent strategy.

The shift from role titles to skills

The idea of contract work originated with more tactical jobs. For decades, the key considerations for these roles have been availability and affordability. External workforce programs have traditionally rolled up to procurement organizations that nurtured an ecosystem of talent suppliers and focused primarily on reducing time to fill and optimizing hiring costs. This modus operandi works just fine so long as a role title is universally amenable to just one interpretation. For example, if I say server or stock room stacker you know what I’m talking about with 80–90% accuracy. But the composition of the external workforce has changed dramatically to include niche experts in almost every discipline. So now if I say customer success manager or digital marketer you probably have a thousand questions on the role, skills, success criteria, experience, industry acumen and so on. Procurement functions are partnering with their MSPs today to address this added complexity. They are having hiring managers write up job descriptions and recruiters diligently screen resumes to find the chosen one. But is this screening process able to truly validate the required list of skills and expertise? Maybe so when the hiring manager takes ownership and invests the time. Other than that, who in this lifecycle centrally owns quality of hiring? Who’s accountable to minimize rehiring due to poor quality? Who’s keeping an eye on what is the overall skill graph of the enterprise and how it needs to evolve? Which of those skill families need to be developed internally and which ones should be incubated externally.

More CHROs are leaning in to partner with CPOs to plan and manage the external workforce but nearly not as many as I would have hoped. This won’t be optional much longer.

Reset, reboot and start from scratch. Every single time.

The current external workforce hiring process works much like an assembly line. Requisition created, job description developed, supply agencies notified, resumes submitted, screening done and hiring complete. Next time, the exact same cycle is repeated. Individuals workers are temporary support and then forgotten at speed when the job is complete. Re-engagement is often not even a consideration given co-employment regulations and the simplistic business processes that govern the function today. So instead of investing in the relationship, organizations hit the reset button once a job is complete. Wait, you just wiped out a key part of your talent network. An expert, an employment brand ambassador and potentially the holder of tribal knowledge you will spend months building in the future. Why wouldn’t organizations nurture their external talent network just the way they think about their potential employee network? It won’t take a lot to keep them engaged through campaigns, content, events etc. Especially if they belong to a skill family that’s crucial to the company’s future. In addition to preserving this expertise within the talent network, the business case that can delivered by re-engaging contingent workers (within the guardrails of co-employment regulations) is huge. It could mean at least a 40–60% drop in both — hiring costs and time to fill.

Until organizations make the transition towards taking a holistic view of their total talent network — internal and external, this reset button will getting hit.

Co-employment, a protective regulation or a bad excuse?

Through the weeks of roundtables and conversations I’ve had on the topic of co-employment I have taken away just one thing - there are a lot of shades of gray in there. The regulations were designed to protect the rights of the worker and they continue to evolve to manage the changing conditions of work and worker engagement. AB-5 is probably the most current example. With each change, big and small, emerge even more interpretations and implications depending on who you speak with. But there’s one consistent theme I see with my fresh pair of eyes— Co-employment has inadvertently increased the distance between employers and workers. I understand why and I know it is viewed as a necessity to protecting both sides, but it now comes at the expense of simple and direct communication with the worker. The analogy that comes to mind, is the game of whispers we all played as kids. Vital information about requirements and qualifications are going from hiring manager to procurement to MSP to talent supply agency to recruiter to worker and back. Can you imagine the potential loss in translation? Will an employer or the worker ever establish their value proposition to the other or will they each be forgettable to the other. I know many of you are wondering why it even matters at all with contract work. I imagine a not so distant future where RCs will proactively manage their engagements across the top few brands in their category. An average employee changes 11 jobs by the time they are 50 today. My hypothesis is that number will be much higher for the future workforce with a larger proportion of RCs, and the number of RC boomerangs through repeat contracts will be significantly higher than full time employment. All within the guardrails of the regulations. Employers are engaging top lawyers and MSP partners to venture into direct sourcing, carefully. This is an encouraging trend as long as all parties are clear this is a short term assignment and who the employer of record is.

I’m not a lawyer and I wouldn’t have been a good one if I tried. But I still know there’s are shades of gray in the co-employment landscape where employers and workers can and should stay connected as part of each others network. The direct, well-intentioned engagement will generate more intelligent referrals, more diversity of thought, and faster re-engagement when required.

Perhaps I have rose colored glasses on and I’ll learn to be more cautious over time. For now, I’m wondering why so much hype and intelligence is being applied to full time employment (which is super encouraging) and yet the other 50% of the workforce isn’t even viewed as an asset to establish and evolve over time. The tools and practices already exist, it’s just a matter of shifting mindsets. Hey CHRO, are you reading this? What’s in your external workforce strategy?