Organizations increasingly depend on external workers, yet many still have management practices, systems, and processes in place that were put in place to handle a largely internal workforce. That shift in what the authors call the "workforce ecosystem" and the challenges associated with it are the subject of new research (publicly available through May 2021) from MIT Sloan Management Review and the consulting firm Deloitte.
Why companies are skilling up with external contributors
This new workplace ecosystem concept isn’t just, or even mostly, about the often maligned trend of gig economy work, such as Uber drivers. Nor is it directly about remote work by full-time employees – although remote presents some of the same kinds of challenges for IT leaders and others. Rather, it includes any workers creating value for an enterprise, including contractors and service providers.
Why the shift? 91 percent of the respondents drawn from a panel of 5,118 managers and leaders around the world "agreed or strongly agreed that upcoming changes to their organization’s business strategy require it to improve access to new capabilities, skill sets, and competencies." The plurality (35 percent) specifically identified “retooling the workforce: digital, data, cloud, security, and soft skills.”
Nicholas Skytland, deputy chief of NASA’s Exploration Technology Office, citing a familiar open source development tenet, is quoted in the report saying "We know from open innovation that no matter how smart you are, the smartest person probably isn’t inside the room with you. That’s why diversity is so valuable." More than half of respondents agreed with the statement that their organization "places significant value on gaining ideas and skills from contributors who do not work for the organization (e.g., external contributors)."
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It’s worth asking why we didn’t have this expansive view of the workforce all along.
One short answer is that we often did. Specialized suppliers such as ad agencies have been around since essentially the birth of advertising; the first one is usually dated to 1786 when William Taylor opened his office in London. When studios “make films,” they’re mostly writing checks. The actual work is being handled by production companies, who are in turn farming out work to a multitude of specialist contractors, both in front of the camera and behind it.
But the report identifies the changing nature of work as an important driver for more widespread change today. It describes how "The mechanistic, process-driven view of work focused on optimizing job performance has largely given way to a team-based, project-based view of work that’s focused on speed, innovation, and relationships. These changes are compelling some leaders to make new decisions about how to orchestrate their workforces."
David Kiron, the editorial director of MIT SMR and one of the authors of the report, identifies the changing nature of the firm as another factor, including the "increasing permeability of company boundaries."
This point is particularly interesting because it gets to one of the reasons that’s often given for why we have firms with employees anyway. In 1937, the British economist Ronald Coase wrote a seminal article titled "The Nature of the Firm"; he would go on to win the Nobel Prize in economics over the course of a long career. In this article he asked questions like "why would you hire someone who you might need to pay even at times when you don’t have an immediate need for their skills and services?"
His answer: To avoid transaction costs associated with using a market-based price mechanism. These ideas were built on by many economists over the years, including Oliver E. Williamson, who once observed that it is much easier to say that the organization matters than to show why or how.
These transaction costs have changed. Kiron argues that "the cost of finding and engaging external workers has dropped precipitously."
Associated challenges: Are you ready?
At the same time, there are challenges associated with this workforce ecosystem change.
First, many organizations are not ready for it. A mere 28 percent thought their organizations are “sufficiently preparing to manage a workforce that will rely more on external participants.”
In the United States, for example, benefits like medical insurance and certain types of retirement savings plans are tied up with full-time employment, just one of the factors that has made the employment status of freelancers a topic of discussion in the U.S. There’s also just the traditional demarcation between employees and everyone else. If the trends discussed in this report continue to evolve, those hard boundaries may become problematic.
As Daniel Rock, an assistant professor of operations, information, and decisions at The Wharton School at the University of Pennsylvania, observes in the report, companies do not want "employees internal to the firm to feel uncomfortable when there are multiple layers of treatment. They don’t want tiered systems where internal employees get the benefits of working for the firm and outside contractors don’t. In addition to generating fairness concerns, that creates cognitive dissonance that’s challenging and costly to manage."
The increased fuzziness of organizational boundaries and roles has other implications as well. For example, employees have historically been the province of human resources departments, while contracting with an outside agency was handled by procurement. The report cautions that "Shifting to a workforce ecosystem calls for an integrated approach to managing internal and external workers. Our interviews suggest that that shift can be fraught."
IT has a role to play as well, the report notes that: "Companies will need to overcome issues such as HR technologies that are aligned with an employee life cycle approach tracking only internal employees, and geographic, legal, and privacy constraints that prohibit certain types of data from being shared."
But some of Kiron’s biggest concerns are in the areas of "quality and brand reputation." He observes that when you get the wrong item or a cold, soggy dinner delivered, many will blame the store or the restaurant, not the delivery service, even if the latter was actually at fault. He adds that it can be harder to ensure the same commitment to quality that an employee might have “when you’re buying pieces of people’s time.”
Is this just a COVID-19 story?
Clearly, the period during which this survey was taken was an unusual time. Are we simply seeing temporary shifts that will soon reverse? Likely not, the report concludes.
The report echoed a familiar theme that we’ve heard repeated time and again by IT leaders and others: COVID-19 has accelerated shifts but generally didn’t create them. "Our survey data and interview responses suggest that many trends driving workforce ecosystems were underway before the pandemic began and are likely to continue after the most extreme effects of the pandemic subside. Still, we recognize that some trends were likely accelerated during the time of the research, and others may have been dampened," the report concludes.
One specific trend directly relevant to IT is in the area of automation. 65 percent agreed or strongly agreed that "The COVID-19 pandemic is increasing the rate at which my organization automates processes and tasks.” More broadly, Kiron says that, as an IT person, you need to ask: “What’s the best approach? How do you govern an information architecture for internal employees and external people, external technologies? For instance, how do you configure access to internal systems for contributors across the workforce ecosystem?"
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