By Nick Quin, director, public sector, SAP New Zealand.
While government use of the external workforce, which includes freelancers, contractors, consultants and businesses, has been in place for some time now, the pandemic has highlighted the importance of this group of workers and its ability to lend flexibility in a time of profound disruption.
Indeed, the pandemic required many organisations to dramatically increase workforces in a very short timeframe to meet increased demand for services. However, while necessary, it can often be difficult to gain full visibility into this workforce and to manage it effectively.
The hidden workforce
SAP, in collaboration with Oxford Economics, conducted a series of global research studies examining the increasingly important role of both the external workforce and service providers. The Agile Procurement Insights Research noted that only 58 percent of workforce spend is on employees; the other 42 percent is on external labour. And organisations anticipated further growth in these external channels.
This research predicts that the demand for service providers will increase from 63 percent to 73 percent over the next three years and on-demand online marketplaces for freelancers will grow from 25 percent to 85 percent.
Managing an external workforce
While external workforces grow through necessity, only 35 percent of organisations globally have technology in place to manage this growing group. A consequence is a frequent lack of insight into the quality of work provided by contractors and of what access these workers had to confidential information and business systems.
Business functions such as performance management, payroll, and administration aren’t always easily adapted to handle external workers as well as they do internal ones. This can test employee engagement, complicate managerial tasks, and create unnecessary costs across the organisation. There is a risk that the difficulties an organisation faces in managing this ‘hidden workforce’ can also lead to security breaches, compliance issues, potential over spending and even hinder productivity growth.
Analysis of the studies highlighted leaders at a group of organisations – approximately 14 percent of respondents – that stood out from the rest. These executive leaders were found to take three key actions to get the best from their external workforce in terms of better managing spend, reducing risk and unlocking more value. These actions are as relevant to the public sector as they are for commercial organisations.
Three key actions
Gain visibility. You can’t manage what you can’t see. Leaders in the studies have greater visibility into their external workforce than other respondents. Some 54 percent of leaders are highly informed about what access contractors have to systems and confidential information (vs 37 percent of executives in other organisations) and 48 percent of leaders are highly informed about their service providers’ compliance with required certification and licences (vs 32 percent of executives in other organisations).
Awareness of quality of work performed was another area where leaders diverged from the pack. Amongst leaders, 61 percent were highly informed about the quality of work of contractors (vs 32 percent of other executives). Interestingly both leaders and others lacked insight into how service providers were progressing against milestones (33 percent leaders vs 25 percent others).
Manage with Rigour. Greater visibility helps leaders to manage their external workforces more effectively. Non-leaders are more than 10 times more likely to experience issues with contractors and service providers.
These issues encompassed digital security breaches, unauthorised spend, overcharges and duplicate payments, compliance issues and incomplete work or missed deadlines. Some 40 percent of other executives experienced unauthorised spend (vs three percent of leaders); more than a third experienced overcharges and duplicated payments (vs three percent of leaders); and around 40 percent experienced compliance issues (vs none of leaders).
Improve ROI. Our studies revealed that a quarter of all service provider projects are not completed on time or on budget. That leaves a massive opportunity to increase ROI on spend.
Leaders are twice as likely to say that 90 percent of contractors and service providers meet their goals and objectives, and to say that service providers deliver on time and on budget more than 80 percent of the time.
But ROI is about more than just controlling costs. One of the key issues identified in the studies is that organisations often adopt the same approach to purchasing services as they do to purchasing goods, with a focus on the financial aspect of contracts to the detriment of other considerations such as security and compliance.
Managing service providers requires collaboration across procurement, HR, IT and other lines of business. With each function providing data-rich insights, service providers can be managed with greater oversight and control.
External workers deliver significant value and are a critical component for improving organisational performance. They often bring specialised skills and experience from other sectors.
Managing them effectively empowers individuals to excel in their areas of expertise and make significant contributions to organisational success and productivity growth. And that, rather than whether the workforce is employed or contracted, is surely the point. LG