April 29, 2020

How COVID-19 is Changing Large Companies’ Use of Non-Employee Workers

Jesse Levin CEO
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I had the honor of helping facilitate the most recent board meeting of the Extended Workforce Strategy Board.  The Extended Workforce Strategy Board is a handpicked group of cross-functional executives collaborating to advance the practices and standards for extended (meaning non-employee) workforce management, in order to ready enterprises and workers for the new world of work.  

I thought you might be interested in hearing how COVID-19 is reshaping how these large companies are thinking about non-employee workers and the supply chains that provide these workers.

The collapse in aggregate demand for non-employee workers 

The economic backdrop of the April 2020 board meeting—the impact of the still evolving COVID-19 outbreak—is certainly unprecedented.  While much of the media attention has been on COVID-19’s impact on employees, the impact on non-employee workers (contractors, consultants, business process outsource staff, contingent workers, temps, etc.) has been similarly dramatic.  Data from Brightfield’s Talent Data Exchange shows that the weekly flow of new requisitions for non-employee workers across the economy fell by more than 90% from mid-February to early April. [See figure.]

Seventeen members of the Extended Workforce Strategy Board (all senior procurement and HR executives at Fortune 250-size companies from a variety of industries) were able to join the three-hour meeting.  For some board members’ companies, customer demand has fallen sharply, leading to furloughs, pay cuts, and other difficult business decisions. For most board member companies the situation is more nuanced, with some business lines booming while others are shrinking.  Members agreed that this is among the busiest times of their careers, but many members shared that they have been inspired by their colleagues and that this has brought their teams and their companies closer together.

The early focus on business continuity and cost-savings 

Many but not all board members’ companies are continuing to pay non-employee workers even if they are currently not able to work.  Board members’ companies have shifted non-employees to work-from-home when possible (and required), just as they have shifted employees to work-from-home. One board member explained the company was “working hard to sync what we are doing with employee workers with what we are doing with non-employee workers.”  One member reported the COVID-19 outbreak has made business partners more aware of and more committed to being involved in managing non-employee workers.

Board members’ initial COVID-19 outbreak response focused on:

  • Ensuring business continuity
  • Analyzing potential cash-savings opportunities related to the extended workforce

On the business continuity front, multiple board members reported scrambling to change policies (often related to information security, data protection protocols, and IT systems access) and support (often related to computer hardware and connectivity) to allow non-employee workers to work with home. One member said, “This has been a big test of our internal risk teams and risk processes—we’ve needed to get a large number of slower-moving, risk-averse colleagues to quickly change processes and protocols.”  Another board member said, “I spent the last three years creating blocks on [IT system/data] access for our extended workforce, and it took just three weeks to blow that all up.”   

Board members report the top three most important/actionable cost-savings opportunities (related to the extended workforce) for their companies are:

  1. Identifying where the company is paying bill rates above market rates (in top-three for 53% of companies)
  2. Identifying where SOW workers could be engaged through lower cost channels (in top-three for 40% of companies)
  3. Reducing non-employee workers’ hours (in top-three for 33% of companies) [See figure.]

Large companies are looking at a wide variety of cost-savings opportunities related to their extended workforce. Brightfield has been helping companies analyze their data to size and prioritize 17 potential cost-savings options.

Rethinking the extended workforce supply chain

Most board members are now shifting their teams’ focus to the more medium- to long-term: managing extended workforce spend across their portfolios of businesses, renegotiating with their workforce suppliers, and planning for post-crisis. [See figure.]

 Members reported spending a lot of time right now on assessing and tracking supplier viability and financial health(including of workforce suppliers).  

For many large companies (roughly half of the board), the COVID-19 crisis surfaced shortcomings in their data for extended workforce supplier management, relative to other spend categories.  Given that for most large companies the extended workforce is a top-three spend category by size (especially for IT roles/projects),these data shortcomings are of great concern to senior procurement, IT, and HR executives.

Brightfield previewed new tools that help companies visualize and analyze their services spend in new ways to identify hidden cost-savings opportunities and improve SOW project quality, efficiency, and risk management. 

Board members report that many workforce suppliers are asking for concessions or support. Members report going beyond backward-looking tracking services (like services provided by Dun & Bradstreet and Rapid Ratings International) and doing more proactive approaches such as coordinated outreach to suppliers.  One board member created a survey to send to suppliers asking for specifics on their financial situation (e.g., Do you know about the CARES programs? What is your cash flow forecast for next 3, 6, 9 months?).  That survey information will then be used to create dashboards and to inform return-to-work planning.  Another board member has created a new supplier mapping that connects supplier information to evolving COVID-19 outbreak locations.  

One member said, “We had poorly profiled the risk of our critical business services, especially those offshore—some were not well prepared at all.”  Members reported varying quality of response from their major offshore BPO providers—from good business continuity plan execution and partnering to very poo preparedness.  Some members are now reconsidering which suppliers to keep based on their COVID-19 response.

One member reported that some larger staffing providers are hitting cash flow issues, and this member is proactively looking at what medium or smaller staffing providers could step in to take on larger volumes if need be.  This member is focused on “how we can protect workers if the staffing firm goes under.”

For those board members that use a Managed Service Provider (MSP), 37% of them report that the current economic conditions are increasing (or might increase) the discussion, assessment, and likelihood of insourcing the company's contract labor category management.

The longer-term impact on non-employee labor markets

There was discussion about the COVID-19 outbreak’s lasting impact on the non-employee labor market.  Members wondered:

  • Will workers be willing to work for less compensation?
  • Will workers flock to the relative stability of larger, more established companies?
  •  If the “scarce skills of today will still be the scarce skills of tomorrow?”
  • How the crisis will cause companies to“rethink what work should be handled by non-employee workers versus employees”?  Some companies are using this as an opportunity to lock-in harder to find skills and to reduce total costs by converting certain roles.

A quarter of board member companies are accelerating or expanding their investment in automation technologies such as RPA.  One board member said, “We are deploying technology (like AI) to automate work that before COVID we would have been hesitant to move away from people.”

There was little consensus on the likely impact on the price of scarce skills over the next 12 months.  When asked how the price of scarce skills(like certain IT/digital skills) will change at some point over the next 12 months, 31% said scarce skills will become more expensive and another 31% said scarce skills will become less expensive; the remaining 38%anticipate no change.  [See figure.]

There was more consensus on the price of non-scarce skills: only 8% are forecasting these skills to become more expensive, 38% anticipate no change, and 54% expect non-scarce skills to become less expensive.

As the COVID-19 recession evolves, Brightfield will be creating frequent updates on how pricing (and volume) is changing for key worker skills, locations, levels, etc. This will help companies ensure they are not inadvertently underpaying or overpaying for critical talent, and hopefully allow more workers to get back to work faster.

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