Best Practices for Securing Your Investment in Your External Workforce
In today’s fast-paced business environment, companies increasingly rely on an external workforce to supplement their regular employees. Temporary surges in demand or the requirement for specific skills may not be available in-house. For most companies, turning to external resources is common practice: Global spending on outsourcing hit an estimated $731 billion in 2023.
While an external workforce can be crucial for maintaining operational efficiency, external workforce solutions often come with higher costs and companies may struggle to ensure ROI. Underlying risks, hidden costs, and questionable outcomes are significant issues – ones that require a comprehensive solution for providing clarity on costs and value.
In this blog, we’ll explore the benefits, risks and challenges of maintaining an external workforce, some best practices for doing it right, and how technology can help.
What Is an External Workforce?
An external workforce comprises non-permanent employees hired by an organization to supplement its regular staff. This group includes individuals that are not on the company’s payroll but are engaged to perform specific tasks, projects, or roles for a predetermined period.
External workers are hired on a flexible basis, allowing companies to scale their workforce up or down according to their needs, which is particularly useful for managing seasonal demands or project-specific workloads.
Why? Primarily because there’s a talent shortage. According to a recent survey by the U.S. Society for Human Resource Management, 83% of respondents reported difficulties in recruiting suitable candidates over the past 12 months, with 75% attributing this to a skills shortage among applicants.
This talent shortage is becoming more pronounced, even as some countries experience concerning unemployment levels. The discrepancy lies in the mismatch between the available skills and market demand, making it increasingly important for companies to strategically manage their external workforce to bridge this gap.
While engaging an external workforce can be more expensive per hour compared to full-time employees, it can lead to cost savings by eliminating the need for long-term employment benefits and reducing overhead costs.
Types of External Workforces
External workforces encompass a diverse array of non-permanent contributors who support various organizational needs. Here are a list of external and contingent worker examples:
- Contingent labor firms (workers): Workers hired through staffing agencies for temporary or project-based assignments. These workers are employed to meet short-term needs, such as covering for permanent employees on leave or managing peak business periods.
- Independent or freelance contractors: These individuals offer their services on a project-by-project basis, bringing specialized skills such as writing, graphic design, programming, and consulting. Freelancers are typically self-employed and manage their own schedules.
- Consulting firms: Consulting firms provide expert advice and services across various domains such as management, IT, finance, and human resources. These firms are engaged to solve complex problems, implement strategic initiatives, or offer specialized knowledge that may not be available within the organization.
- Talent as a Service (TaaS): Companies may choose to outsource talent through third-party providers, including offshore or onshore external resources. TaaS providers specialize in delivering specific expertise, allowing companies to leverage top talent without the overhead costs of permanent hires.
- Gig workers: Gig workers take on temporary, flexible jobs typically sourced through digital platforms. This category includes ride-sharing drivers, delivery personnel, freelance task workers, and more.
- Crowdsourced contributors: Crowdsourcing involves obtaining input, ideas, or services from a large group of people, typically via the internet. Crowdsourced contributors participate in various tasks such as data entry, problem-solving, or content creation.
- App Developers: These external contributors create applications and can be engaged on a contractual basis to build, maintain, or enhance software applications.
What Is External Workforce Management?
External Workforce Management is the strategic approach to managing and optimizing an organization’s non-permanent workforce. It involves a comprehensive set of practices and tools designed to oversee the entire lifecycle of external workers, including:
- Sourcing: Identifying and engaging the right talent for specific projects or roles using various platforms and agencies to find qualified external workers.
- Onboarding: Ensuring that external workers are integrated into the company’s processes and culture effectively by providing training, access to tools, and clear communication of project goals and expectations.
- Performance management: Monitoring and evaluating the performance of external workers to ensure they meet the desired standards and contribute effectively to the project.
- Compliance and risk management: Managing contracts to ensure proper worker classification and maintain compliance with labor laws.
- Cost management: Budgeting for external workers, tracking expenses, and ensuring that the costs align with the expected return on investment.
- Technology and tools: Using digital platforms to streamline external workforce management tasks, like tracking project progress, managing contracts, processing payments, and ensuring compliance.
Learn more about Ivalua’s external workforce management software.
What Are the Challenges of Managing an External Workforce?
Managing an external workforce presents several challenges, not the least of which is the lack of communication and coordination between various departments. HR, finance, procurement, and business unit leaders often operate independently, each with their own processes and priorities.
This siloed approach can lead to discrepancies in how external and internal workers are managed, causing delays and reducing overall efficiency. Integrating external workers with internal teams is another critical challenge. External contributors may not have the same access to company resources and tools as internal employees, resulting in barriers to collaboration and potential conflicts.
Compliance and legal issues can also make workforce management complex. Companies must navigate stringent regulations related to worker classification, taxation, and labor laws, and misclassifying workers can result in hefty penalties and back taxes.
Additionally, varying local labor laws and international regulations complicate compliance further for global organizations. Ensuring that all external workers are correctly classified and that their engagement complies with relevant laws requires meticulous oversight and regular audits.
Benefits of Effective External Workforce Management Software
Implementing external workforce management software offers numerous advantages that can significantly enhance the efficiency and effectiveness of your contingent workforce strategy. These benefits include cost efficiency, flexibility, access to specialized skills, scalability, project management, and unified workforce data.
Cost Efficiency and Flexibility
Effective contingent workforce management software helps organizations achieve cost efficiency by streamlining the management of non-permanent workers. These systems automate many administrative tasks, reducing the need for manual intervention and minimizing human errors.
This automation leads to significant cost savings in terms of reduced administrative overhead and more efficient use of resources. Moreover, these platforms enable organizations to quickly scale their workforce up or down in response to changing business needs, providing the flexibility required to handle seasonal demands, special projects, or market fluctuations.
Access to Specialized Skills
External workforce management software provides companies with easy access to a global pool of specialized talent. These platforms often include features for talent sourcing and matching, allowing businesses to find and engage workers with the specific skills needed for various projects.
By leveraging these tools, organizations can bring in experts for short-term assignments without the long-term commitment associated with full-time hires, ensuring they have the right skills at the right time.
Scalability and Project Management
Scalability is another critical benefit of using external workforce management software. These systems are designed to handle the complexities of managing a large and diverse contingent workforce. They offer tools for project management, including tracking progress, managing deadlines, and ensuring that all tasks are completed on time and within budget. This scalability ensures that companies can manage multiple projects simultaneously without compromising on quality or efficiency.
Unified Workforce Data
One of the most significant advantages of external workforce management software is the ability to unify workforce data. These platforms integrate data from various sources, providing a comprehensive view of the entire workforce, both permanent and contingent.
This unified data approach enables better decision-making, improved compliance with labor laws, and enhanced strategic planning. It also helps in tracking performance metrics, managing costs, and ensuring that all workers are aligned with the organization’s goals and objectives.
Best Practices for Optimizing External Workforce Management
Optimizing the management of an external workforce requires strategic planning. Here are five best practices to follow:
- Establish clear objectives and expectations. Setting clear objectives and expectations from the outset is crucial. This involves defining the scope of work, deliverables, timelines, and performance metrics for managing contingent workers, and setting clear objectives to align the efforts of external contributors with the company’s goals.
- Implement robust communication channels. Implementing robust communication channels helps maintain seamless interaction between internal teams and external workers. Regular check-ins, status updates, and collaborative tools can facilitate better coordination and prevent misunderstandings. Ensure that all team members, regardless of their employment status, have access to the necessary communication tools.
- Leverage technology for efficiency. Workforce management software, project management tools, and communication platforms can streamline processes such as onboarding, task assignment, performance tracking, and payment processing. These technologies improve efficiency and provide valuable data insights that can inform decision-making.
- Minimize risks around compliance. Compliance is a critical aspect of external workforce management. To minimize risks, be sure to adhere to labor laws and regulations around worker classification, taxation, and workplace safety. Conduct regular audits and maintain proper documentation at all times.
- Enhance visibility. Have a clear understanding of who your external workers are, what tasks they are performing, and how they are contributing to the organization’s goals. Use comprehensive reporting and analytics tools to gain workforce insights.
Procurement’s Role in Fixing the Talent Shortage
Technology significantly enhances the management of external workforces by automating processes like onboarding and payment, which boosts efficiency and reduces errors.
It also fosters better communication between internal teams and external workers through real-time updates and collaboration tools, while data analytics provide insights for strategic decision-making.
Procurement’s role in addressing talent shortages has broadened beyond cost management and risk mitigation. Historically focused on supplier lists and contractor onboarding/offboarding, Procurement now influences strategic decisions about whether to hire internally or outsource.
It evaluates the necessity of outsourcing based on talent volume, timeframes, and governance, especially when specific skills are rare or non-core to the business, ensuring the right talent matches organizational needs.
Learn how to secure your external talent investment with Ivalua’s External Workforce Management datasheet.
Manage Your External Workforce Effectively with Ivalua
Ivalua’s External Workforce Management software offers a comprehensive solution for managing non-permanent workers, providing a unified platform to oversee the entire lifecycle of external contributors.
This includes everything from sourcing and onboarding to performance management and offboarding. For organizations that rely heavily on external workers, Ivalua’s solution is a digital tool that secures your external talent investment.
The platform enhances informed decision-making capabilities, enabling organizations to engage the right service, supplier, and worker efficiently. It supports all aspects of external workforce commitments, ensuring the right talent is selected at the right cost and time.
The software facilitates swift, risk-free worker engagement and helps execute projects within budget, planning, and quality standards.
Key features include central management of supplier spend, performance, and risk, addressing all processes and dimensions of external workforce management through unrivaled configurability.
The solution offers easier deployment by leveraging synergies from being on the same platform as the rest of our Source-to-Pay (S2P) solution, ensuring seamless user experience and adoption.
Conclusion
By integrating advanced technological solutions like Ivalua’s External Workforce Management software, your company can optimize processes and truly harness the potential of your contingent labor force. Discover how Ivalua can transform your workforce strategy—download the datasheet today!
