Human Capital 3.0: Contract workforce is the new outsourcing
Those who think tectonic shifts in business paradigms move slowly need only look at the pace of the automobile's rapid conquest of the transportation industry. In New York City, for example, 4,600 companies were making horse-drawn carriages in 1900. By 1913, that number had fallen to 150. Importantly, the tipping point – the 'magic moment' at which the demand for automobiles reached critical-mass, spiking exponentially and effectively ending the age of the horse-drawn carriage - occurred in 1910, when automobiles only had an 11% market share.
We've recently reached a tipping point in the outsourcing industry, where 5% of skilled 'office' jobs, like paralegals, accountants, financial analysts and administrative employees, are being commissioned to independent contractors. Artificial intelligence and machine learning technologies are allowing companies that once employed people in these professional positions full-time to shift to paying talent as-needed.
In many minds, the fact that 5% of professional jobs are now contracted hardly makes a persuasive argument for the inevitability of a fundamental shift to a contract workforce in the near-future. I disagree; I believe we've already hit the point-of-no-return.
Natural forces, like climate change and the Coronavirus pandemic, and man-made economic disasters, like the 2008 financial meltdown and recession, inject pervasive uncertainty into the global business ecosystem. Jobs are destroyed, and some of those jobs never come back. As companies emerge at the other end of events like these, many typically seek to minimize risk, and one element of that risk is full-time payroll cost. They increase their dependence on contract-talent, and as more companies follow suit, the culture shifts into a new normal.
In fact, in the last two years, we've gathered anecdotal evidence suggesting that many Newmark clients are anticipating that 25-30 percent of their professional positions will be contract positions by 2025. And, at a recent International Association of Outsourcing/Offshoring Professionals (IAOP) conference I attended, even bigger numbers were being used – 40-50 percent.
Did you know?
Natural forces, like climate change and the Coronavirus pandemic, and man-made economic disasters, like the 2008 financial meltdown and recession, inject pervasive uncertainty into the global business ecosystem. Jobs are destroyed, and some of those jobs never come back. As companies emerge at the other end of events like these, many typically seek to minimize risk, and one element of that risk is full-time payroll cost. They increase their dependence on contract-talent, and as more companies follow suit, the culture shifts into a new normal.
In fact, in the last two years, we've gathered anecdotal evidence suggesting that many Newmark clients are anticipating that 25-30 percent of their professional positions will be contract positions by 2025. And, at a recent International Association of Outsourcing/Offshoring Professionals (IAOP) conference I attended, even bigger numbers were being used – 40-50 percent.
As companies emerge at the other end of events like these, many typically seek to minimize risk, and one element of that risk is full-time payroll cost. They increase their dependence on contract-talent, and as more companies follow suit, the culture shifts into a new normal.
In fact, in the last two years, we've gathered anecdotal evidence suggesting that many Newmark clients are anticipating that 25-30 percent of their professional positions will be contract positions by 2025. And, at a recent International Association of Outsourcing/Offshoring Professionals (IAOP) conference I attended, even bigger numbers were being used – 40-50 percent. 8
What the tipping point means
Though we may see little evidence of it right now, the watershed moment arrived a while ago. From here forward, the transition from an outsourced low-skilled workforce model to a contractor-based professional workforce model is going to unfold rapidly. It's incumbent upon employers, employees and outsource companies to pay attention and plan.
Outsourcing providers that haven't planned will find themselves scrambling to fill a service gap as their clients awaken to the contract workforce model. They'll be under increasing pressure to adapt, to evolve into providers of contract professional-level workforces rather than just an outside source of low-cost offshore labor.
Outsourcers may actually go into the contract-talent business, employing professionals, like paralegals and accountants, and placing them with a company on a contract basis. They become the owners of a talent-access platform, where independent contractors can find contracts and employers can find temporary employees. Through the platform, the outsourcing company could, for instance, assemble a team of contractors to provide professional-level talent for a particular project and disband the team after the project is complete. These skilled contract workers would most likely be on-shore, but highly specialized contractors could be globally sourced.
Companies will need to consider all the ramifications a higher percentage of contract and, increasingly, virtual employees will have on their workplace and location strategy. For their part, employees need to develop the knowledge required to establish and market themselves as an independent business. They need to learn technologies that will give them the edge over their competition - every other independent contractor in their field.
For decades, companies have been outsourcing and offshoring routine, repetitive tasks, call centers, customer service and some IT support personnel and functions. Sophisticated technology has automated much of that work, making outsourcing those non-core business functions less and less necessary.
The tipping point is here. Outsourcing companies and employers are adopting new models to exploit a contract workforce in the front-office. Long-held paradigms are changing and the inevitable is happening; the contract workforce will soon be what outsourcing once was. Are you ready?
