Organizations are seeking ways to manage all components of their workforce.
By Russ Banham
First there were fulltime workers. Then, there were part-time workers and fulltime workers. Then, there were temporary workers, part-time workers, and fulltime workers. Today, there are so many different categories to describe a worker that companies are having a hard time keeping track of them.
Why is it important for organizations to stay abreast of the total workforce? Not only is this wide-ranging data important for contracts and employment law compliance, drilling deeply into this information gives insight into the business from a human capital standpoint, allowing for more cost-effective use of people resources. Indeed, any system that can assist individuals to more efficiently produce business capital can be a competitive differentiator.
If only the ability to collect and monitor this information was as clear as the promise. “If you follow just SOW (Statement Of Work) labor from beginning to end, it can be a very intensive transactional process,” says Matt Rivera, director of customer solutions at Yoh, a provider of talent, HR outsourcing, temporary staffing, contract consulting, and management solutions. “There is a need to define the specific work activities, as well as the deliverables, timeline, contract terms and conditions, and the pricing that the vendor has agreed to perform for the client. Then, there is the need to capture all this information from a regulatory and governance standpoint.”
He adds, “Obviously, companies quickly realized it would be easier to simply bundle up all these SOW contracts and have someone else handle the invoicing and other work.”
While strides are being made by managed services program (MSP) providers to assist companies with their internal and external SOW labor management needs, the ability to offer such services on a global basis largely remains in the future. Multinational corporations, for the time being, must wait.
Nevertheless, companies like Siemens are collaborating effectively with MSP providers (in its case Randstad Sourceright) to develop tools with SOW components. “We’ve been at it for two years now, and it is a journey that continues,” says Doug Cutrell, director of the professional services group for supply chain management at Siemens USA, the U.S. subsidiary of Siemens AG, a global provider of electronics and electrical engineering systems to the energy, healthcare, and infrastructure, and other markets.
What was the impetus for this journey? “From a visibility standpoint, we needed to know how many SOW workers we had, what they did, and what they were being paid,” he says, “When we asked procurement, which is part of my group’s responsibility in the U.S., the answer was, `We don’t know—we need a tool.’”
That got the ball rolling.
The Full Picture
Driving Siemens and many other companies to obtain this visibility into SOW labor are several factors, among them the need to get a firmer grasp on total labor spend and the desire to simply have more human capital transparency throughout the organization. “For most companies, temporary labor or traditional staff augmentation has long been under some sort of managed program, typically a traditional master vendor program,” says Teresa Creech, president of managed services provider and contingent workforce solutions at Randstad Sourceright.
“But, management has been looking for the next pocket of value, and that is the SOW segment, which I break into two groups—the whole project-based or deliverable-based work that requires transparency around worker management and contractual compliance, and then the subset of this work that directly relates to independent contractors, which creates additional worker classification challenges.”
The problem with SOW labor is that companies “often have little or no governance around the way their hiring managers procure project-based labor,” Creech says. “With this lack of governance comes a lack of visibility, and if you follow the logical thought-process through, you inevitably end up with a lack of control. Hence the move to true MSP programs.”
Another factor behind the development of SOW tools is the changing nature of the workforce. Although CEO Marissa Mayer recently banned telecommuting in an effort to have all the company’s employees rubbing shoulders, most organizations are embracing truly novel concepts of labor, including retirees coming back to work on a short-term project.
“We have regular fulltime employees working alongside part-time retirees, virtual employees working at home, and different types of contractors we use on a project-by-project basis,” says Lisa Buckingham, chief human resources officer at Lincoln Financial, a provider of insurance and other financial services products. “The challenge for us and many other companies investing in such total workforce solutions is to develop ways to effectively manage these new forms of workers in this evolving dynamic.”
She is not alone in experiencing this difficulty.
“Companies are looking for systems and tools that can help them view their talent holistically, not just SOW labor or contingent labor but all labor,” says Karen Browne, president of global staffing firm Advantage xPO. “Companies don’t need just fulltime employees anymore. In a way, the Affordable Care Act encourages companies from a health benefit standpoint to consider labor that is more part-time and project-based (which relieves them of paying for these workers’ health insurance). This will drive a need for more professional contractors, which in turn will compel world-class organizations to seek out workforce solutions providers to help develop their talent pool.”
The need for a total workforce solution is no longer just an HR concern—it now commands the attention of the C-suite, says Rivera. “If you go back a bit, MSP caught on pretty quickly as a way to outsource management of clerical work, then light industrial, then more higher-level professional work,” he explains.
Now this work is more and more strategic in nature, which has upped the ante. “MSP was very transactional in the beginning and then as it became more strategic, it caught the interest of CXOs, particularly the CFO, who recognized this growing spend that was going on in procurement,” Rivera explains.
He calls this recognition an ‘a-ha! moment’ for finance. “Their strategic antennas went up—now that procurement was more involved, they wanted to know how to strategically manage this part of the workforce. They saw the risk of managers hiding headcount and spend in these SOW contracts. If procurement is spending all this money, were they leveraging it, too? That became the big question driving the call for improved management.”
Creech posits an array of other what-if risks that popped up on the radar at the C-suite. “What if procurement contracts with a company to produce some sort of work product, and the company is not financially viable?” she says. “Or what if this company, it turns out, is not able to indemnify the work it’s performing? Or what if, for whatever reasons, procurement has not managed the contracting process to ensure that the company’s intellectual property is truly protected?”
There are also regulatory risks that must be considered. For example, under recent final rules to the Health Information Technology for Economic and Clinical Health (HITECH) Act governing data breaches, SOW companies are considered business associates, and are thereby required to comply with the requirements of the security and privacy rules of Health Insurance Portability and Accounting Act (HIPAA).
Under the rules, external parties must implement “reasonable and appropriate policies and procedures” that incorporate administrative, physical, and technical safeguards securing electronic medical records in transit and in storage. If such companies inadvertently or maliciously cause the release of personally identifiable information, the employer is liable.
At the state level, regulators also “are much more active now in their pursuit of wrongdoing, as related to worker classification,” says Creech. “It used to be that companies in past only feared the IRS in this regard, but now the states all have these auditing bodies, are upgrading their investigations and increasing enforcement.”
The stricter compliance has compelled companies like Siemens to quickly get a handle on just who is working for them. “In the past, had I asked the business units across the company who were our suppliers, how did we pay them and what was the focus of their work, they couldn’t tell me,” Cutrell concedes. “You can’t have a strategy around cost if you can’t measure what the costs are.”
Siemens is still struggling with the problem, but the future looms brighter—Randstad Sourceright is currently building the infrastructure to assist Cutrell with the insight he seeks. “We have an existing application we own the license for, called Fieldglass, and we worked with Sourceright to modify the tool to better procure and manage the contingent labor services that are arranged through SOW, as well as independent contractors and specialized talent pools. As our MSP provider, Sourceright is responsible for the configuration of the app.”
The upgraded tool is being slowly incorporated across the organization, starting first with IT, then HR and engineering. Says Cutrell, “It’s a pilot right now with custom demos. The ultimate goal is for me to have one portal within Siemens to see all the statements of work going through the system—both front end and back end reporting coming out of a single platform.” He anticipates the tool will be fully rolled out across the enterprise in two years.
A Worldwide View?
While SOW services on the domestic front are becoming more readily available, similar services and their utility across the globe are considered problematic. Although more companies are “talking about the need to capture the spend and mitigate the risks” associated with SOW globally, Creech says “We’re just not there yet.”
She elaborates: “Imagine how hard it is right now to capture all this in a kind of `Wild West’ place like the United States alone. Now imagine if you apply that same level of complexity across even a dozen countries—all with their own decision-making processes, sourcing mechanisms and varying talent and skill shortages that drive the work toward SOW labor in the first place.”
Nevertheless, Creech notes that there are “pockets” where this is occurring—in Western Europe, Australia, New Zealand and Singapore. “But, we’re really talking about the adolescent stage of development,” she quickly adds. “To say we as an industry have mastered the ability to procure every type of project or deliverable-based labor around the world is impossible.”
Rivera has a similar view. “Globally, things are slow, but picking up a bit in Europe,” he says. “MSP in general has been a cultural shift for many countries—they really didn’t understand a lot of what we were all providing. We seemed like some third party in the middle. … Some countries have had a hard time warming up to the idea of MSP, and this will probably slow down the adoption of SOW work.”
Further impeding a global view of the total workforce is the varying contract and employment laws dotting the landscape and adding woefully to the overall complexity. Browne, for instance, says she is “curious how one can drive global compliance in SOW work in a MSP tool. It’s just so complicated.”
Rivera remains optimistic, however. “When this does happen more, it will likely be on a country by country basis, with the MSP in Australia running it there and the MSP in India running it there,” he says. “The world is always getting smaller.”
Russ Banham can be reached at www.russbanham.com