When acquiring help from a vendor in the extended-staffing model, a firm must decide which type of customer-supplier relationship will work best.
Extended or contingent staffing alternatives include the following four types of customer-supplier relationships, each of which has advantages and risks:
- Product vendors.
- Temporary employees.
- Project employees.
- Long-term contract employees (“perma-temps”).
Product vendors sell deliverables, not a person’s time. A “deliverable” can be a good or a service. The vendor is procured with a contract that defines clear, measurable results. This contract defines the limits of the vendor’s (current) relationship with the organization.
Use of product vendors embodies the classic “make or buy” decision. This relationship is simply a matter of economics, with no implied loyalties on the part of the vendor other than to fulfill the contract in a manner that earns future business.
In outsourcing, product vendors take on entire staff functions, contractually reporting to a corporate executive who may not have sufficient depth of expertise in the necessary specialties to manage them well.
Under extended staffing, product vendors are considered part of the staff of the appropriate internal group. In other words, clients buy the product from the internal organization, which, in turn, procures it from the vendor. Internal staff adds value by testing vendors’ claims, inspecting their deliverables, ensuring clear mutual understandings throughout the delivery process, correcting any vendor deficiencies and integrating vendors’ products with the existing organizational environment.
Temporary employeesare the most costly, and, in turn, provide the most flexibility. Concomitantly, these employees are the most mobile. Their loyalties are to their employer, the vendor, not your firm, which has hired them. Furthermore, they rarely have enough time to accumulate expertise in a particular industry and job, or to contribute to strategic initiatives that require an ongoing commitment of time. Thus, temporary employees are better suited to lower-skilled jobs.
Temporary employees should be used to fill short-term requirements that result from peaks in demand. Their day-to-day work should be closely directed by internal staff.
Project employeeswork for the duration of a project, and then the team is disbanded (and the contractors are assigned to other projects for other companies). This relationship characterizes most management consulting projects. Because the consultants have no future with your firm, there is little loyalty beyond that of a professional customer-supplier relationship.
The benefit they offer is rapid access to highly qualified specialists; and, if they’re willing to bid the project at a fixed price, they share the risks of project overruns. Since the commitment is for an entire contract rather than day-by-day, the rate is generally better than a comparably skilled temporary employee.
These contractors are best managed by an internal project manager who accepts full accountability for the project and has the necessary authority to manage it.
This category includes consultants who work with internal staff on projects with the intent of transferring skills and accountabilities. This type of contractor should be acquired and managed at the discretion of each internal staff group.
Long-term contract employeesare employed by a contract-services company but are assigned to work for you. (This excludes individuals employed directly by your firm, not via another company, under specialized employment contracts such as part-time schedules or incentive-based pay.)
These so-called “perma-temps” are the closest to internal staff in both cost and commitment. Long-term contract employees may become more deeply involved in the organization’s success. But they still maintain another allegiance — to their direct employer, the external vendor.
Given the stability of longer-term agreements, vendors (and freelance individuals) are generally willing to offer more favorable rates than other categories of contractors. In fact, some firms find that the cost of long-term contract employees is lower than permanent employees, particularly when employees incur an unusually high burden of overhead for benefits that contract workers don't receive.
In the long run, however, most find that you get what you pay for. In trade for a bit less money, the firm gets people who are a bit less committed to the firm. Given their greater mobility, contractors are less inclined to consider the long-term consequences of their decisions than permanent employees.
Furthermore, teamwork is hampered when staff — some permanent, some on contract — perceive two “classes of citizenship,” and relationships suffer. Employees resent the higher salaries that contractors receive (often forgetting that their benefits close the gap, and that contractors must be compensated for foregoing job stability). Staff also recognizes that contractors don’t have their depth of commitment to the firm. As a result, some employees treat contractors poorly, who, in turn, become resentful. The costs of poor teamwork quickly absorb any savings that might be gained.
This kind of extended-staffing relationship is generally used to circumvent artificial caps on headcount or salaries, or a compensation system that isn’t flexible enough to respond to market forces and can't attract qualified employees. As soon as the systemic problems are fixed, employers and long-term contract employees alike often choose the permanent-internal-employee relationship.
If long-term contractors are needed, then leaders must consider how to minimize the interpersonal tensions that so often arise. To emphasize the need for teamwork, staff should be made accountable for deliverables, and then be given contractors as resources to help them, rather than assigning projects directly to contractors.
And to minimize mutual resentment, long-term contractors should be treated with the same respect as employees. While long-term contractors don’t receive the same benefits or investments in their professional development, they can be invited to staff meetings, included in communications, and listened to with the same consideration as permanent staff.
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