Will Your Company Exist 3 Years From Now Without An External Workforce?

The external workforce will be an essential part of any company three years from now. Without adapting your workforce strategy to embrace freelancers and independent contractors, you’ll likely lose the competitive advantage and your company will struggle. The absence of an external workforce by 2025 is an existential threat. Here we explain why you can’t survive on permanent employees alone.

Strategic workforce planning for the future needs to happen now

This may seem an alarmist thing to say when businesses are still facing the economic shocks of the pandemic and the global talent shortage. However, business leaders must take their future workforce plan seriously to place their business in the best possible position to compete in a changing talent market.

Finding the optimal talent mix between external and internal workers for your organization may seem an arduous process at first, but technology is here to help. In fact, a vendor management system (VMS) is essential to planning, maintaining and engaging candidates across your entire workforce.

Adapting your business strategy

There’s no better time than now to increase your workforce planning efforts. Over the last few years, the talent market has fundamentally shifted from loyalty to a single employer to people choosing when and how they work to ensure good work-life balance.

I am sure you, like most businesses, have dealt with the effects of the Great Resignation over the last couple years. However, you cannot make the mistake of assuming it will suddenly stop.

In fact, this has been an indicator of a fundamental shift in the talent market. Organizations need to be prepared to adjust their strategic workforce plan to embrace external workers in order to avoid a complete dearth of skilled talent in their business.

Research has found that 39% of the entire US workforce engaged in freelance work in 2022 and contributed a total of $1.35 trillion in revenue to the US economy.

As contingent workers represent such a large part of the current workforce, businesses cannot afford to ignore them. Business objectives and workforce planning activities must be reassessed towards finding the optimal talent mix between internal and external workers.

Why it’s been difficult for employers

Many have struggled to transition their workforce away from employees on permanent contracts to the external workforce. Increased regulation and internal resistance to change has made it hard for employers to reshape their current workforce and successfully implement an external workforce model.

Frictional cost to transition

Firstly, there is a large frictional cost in the transition away from permanent employees, due to labour rights which require careful management of any reshaping of roles.

This is not to say that this process itself is an easy one. Over the last decade, many companies have struggled with internal workforce restructuring, designed to better overall workforce productivity and efficiency.

Internal restructuring is difficult and expensive

Many of these have been unsuccessful as having a large proportion of your workforce as permanent employees is not the optimal talent mix for many organizations. Furthermore, workforce restructuring is not only a time-consuming process, but also an expensive one.

As permanent employees have strict rights within the workplace, any reorganization often demands large operational costs. As a result, organizations have been unable to effectively manage their workload through the employment of permanent employees alone.

Permanent employees are costly

The total cost not only includes employees’ salary, but also the various perks and benefits associated with their employment, including any taxes, health plans and pensions. This means that employers are typically paying out more than just the labour rate for their workforce, making conducting business that much more expensive.

What are the benefits of hiring external talent?

While there are some business critical roles that are best suited to remain permanent positions, many other tasks and activities can be better completed by external workers.

Once organizations have found the optimal talent mix for their workforce, they’re able to enhance their efficiency and productivity. Furthermore, it reduces the total costs of workforce spend.

Equipment and Logistical Costs

As many businesses are shifting towards a hybrid working model, they have to ensure that their permanent employees are equipped to work from home. This includes supplying the right technology and services to ensure they can work in the best possible way.

According to study by Accenture, 83% of workers deem a hybrid working model as the best option for their career path.

But these resources don’t come cheap. When trying to scale these costs across an entire workforce, and especially across large organizations, this can tremendously increase the already large costs associated with maintaining a workforce predominantly comprised of permanent employees.

In contrast, independent contractors and freelancers come fully equipped to fulfil tasks. They are responsible for their own equipment costs, including sourcing the technology and services they need to perform their role.

Retention is essential

Retention is especially important for these roles and should be prioritised in a workforce strategy plan. These roles are often highly skilled, which means employers have to offer significant benefits to maintain employee loyalty. Furthermore, organizations need to implement a flexible working policy to remain competitive and compete for top global candidates.

Providing training and support

Permanent employees require extensive support and training to prepare for their duties. In order for an organization to reduce an existing skills gap, they must spend a lot of time, money and effort training an employee for them to take up a new skill or function within the business.

This is not the case for freelancers. As they are hired based on their suitability for a specific role, companies don’t need to resource training and develop skills to fill any gaps.

Having the right mix of internal and external workers enables companies to reduce overall operating costs and drive success.

How to integrate the external workforce into a business strategy

When an organization’s external workforce is managed properly, it is extremely hard to compete against. This makes it essential for businesses to rethink their strategic objectives and prioritise finding the right talent mix. However, it does not mean simply changing marketing efforts or business policy to attract external workers, but also investing in the right technology and digital skills to support this transition.

Technology is key to workforce planning

Luckily, technology exists that makes workforce planning easier. Vendor Management Systems (VMS) have now evolved into something that would be completely unrecognisable to those using the first VMS iterations.

Rather than relying on a simple spreadsheet to manage the overall contingent workforce spend, modern VMS are fully fledged platforms that can effectively manage the entire workforce supply.

They can assess the entire talent landscape and provide insights into the labor market, enabling organizations to better compete for skilled talent. They offer businesses access to artificial intelligence and predictive decisioning, reducing the burden on HR teams and hiring managers.

A career, not a job

As external workers are looking to develop a career, rather than take on multiple jobs, a modern VMS needs to be able to support this. This means tracking the development and growth of candidates as they work for and progress through your business. Part of this comes from being able to offer candidates the right education and training for their role. This does not mean hiring freelancers with insufficient skills, but rather supporting those already skilled to develop further in your business.

Here, a modern VMS will be able to create a talent pool of candidates that have already come into contact with your business. These are the people who have been either recommended by trusted workers, worked with you previously, or were silver medal candidates, etc. You’ll benefit from a ready supply of skilled workers ready to fill new positions. This will allow you to offer the training and support needed building a long-term relationship with candidates.

Partnering with an expert technology partner will ease the pains of your workforce planning process

To get this right, it’s best to partner with an external expert organization or technology provider (such as Simplify) to ensure that you do not incur any extra costs or risks by making mistakes in the process of implementing an external workforce.

Talent technology platforms are now so sophisticated that finding the right one for your business strategy can be transformative for the overall success of your contingent workforce.

Why you need an external workforce

Businesses cannot ignore the external workforce. As the talent market has undergone huge changes over the last few years, the demands from workers have also changed. This means that if organizations want to attract top talent to gain a competitive advantage, they must take contingent workforce planning seriously.

The best way to do this is to invest in the right tools and technology. Partnering with an experienced technology partner can provide you with the optimal route toward finding the right talent mix that will help you succeed. Without this, your company may well not exist 3 years from now.