The death of contracting as we know it

Here’s a prediction for you… the number of opportunities for contractors will significantly reduce by the end of the decade and will be replaced by a radical new model for managing fluctuations in the demand for staff.

Don’t get me wrong. Clients will still need to use temporary staff to manage the growth, ebb and flow of their organisation’s staffing needs. However, and we’re already seeing it, clients are now making some extra demands that, to be frank, will seem impossible to meet using the old school staff augmentation/body shopping models.

You see, staff turnover, whether permanent, consultant or contractor, is bloody expensive.

Clients spend money, time and effort recruiting, training and acclimatising the temporary staff to the methods and culture at their organisation, and then as soon as they have finished their assignments – and proven their worth – they commence their next assignment elsewhere and are no longer available to the client when they need them next. And so the cycle begins again.

The first stage of the swing away from using contractors is gaining momentum here in Oz.

We’re seeing clients turning towards the third tier consultancies for their staff augmentation needs to achieve greater consistency and build a stronger, less transactional, relationship with the vendor. As a result, in addition to the reduction in contractor demand, over the coming few years you’ll start seeing the resourcing companies announcing their own consulting divisions to try to stem the flow.

The second stage will be a doozey and will dramatically change the staff augmentation landscape.

We’ve recently observed clients starting to demand the same proven consultants back. They’re wanting the benefits of permanent employees but with the flexibility of contractors.

In fact, one of our clients raised this with me and asked if there was any way we could keep their consultants, in effect, “on the bench” for him and available exclusively to him as and when needed.

And just to make sure I understood his needs, he added “And I don’t want to pay any more for them than I do today – oh, and I want them to be experienced, no young wannabes – I want grey hair and scars on their backs”.  For a moment I thought I heard the jingling of a sleigh and someone singing Here Comes Santa Claus… but I digress.

From a client’s perspective this is close to nirvana. Staff available on-demand, that know their business, the systems, the cultural fit, who to talk to, already on-boarded and are productive from day one.

Now, it doesn’t take a CPA to tell you, given current models and margins, this is unsustainable for most consultancies. Sure you could try to load up your rates, run the gauntlet and place them elsewhere, or even hire less experienced (read cheaper) staff; although, I doubt your client will put up with that for long. No, to meet this demand a new model will need to be developed.

So there’s my prediction: contractors will be [mostly] replaced with a new flexible workforce model that provides clients with the benefits of permanent staff with the flexibility once provided by contractors. That’s different.

What do you think? I’d love to hear your thoughts.

Tippo

Oh, and yes, we did secure the business. 🙂

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14 Comments

Filed under Business, Everything else, Philanthropy, The Different Company, Uncategorized

14 responses to “The death of contracting as we know it

  1. Paul Horne

    That’s logical, Mark. But I don’t know about a preference for the grey-haired. Employers want all of that in someone aged 35 – they call it ‘cultural fit’. That is, if you wince at the sight of plastic suits and hanging apostrophes, best to not let it show.

    • Good point, Paul. The grey hair was just one particular client’s requirement.

    • estaphan@hotmail.com

      The article interests me from an entirely lega l perspective .In a recent case employees became independent contractors but it is alleged chose (mostly) to continue working exclusively at their former employers workplace .Judgement is now reserved but one of the issues to be considered is whether if such an arrangement exists whether it should be regarded as a lawful and genuine contractual one.

  2. Diane Fisher

    Mark, The concept and the trend are clear concepts, what intrigues me, is what the replacement model looks like. You’ve highlighted the trends, do you have a feel for the solution?
    There has been a tendancy towards repeat requests, benched experienced resources for sometime now (it helps the consultancies to craft an edge over the ‘body shop’ suppliers) – in broad terms what does the new model look like?

  3. I see it somewhat differently.

    The model you describe already exists in professional sports. For me the closer analogy is with Major League Baseball.

    You (customer) have a need for a specialized skill. There are few “quality” players available unless you are willing to pay. The separation in pricing from the performers versus the average is significant. The organization must make a decision to forego other positional needs or pass and remain less competitive. Consultants are quickly creating the same tier of pricing to performance in their relative skill set.

    The answer was not the free market alone. Teams that are successful build farm clubs to establish the incubator for their specialized needs.
    The outcome of this overall effort allows teams to trade developed talent they may not currently need for talent they desperately need.

    Offense traded for defense, pitching for infielders ad infinitum.

    The question for my industry (IT) specifically is will the client invest and partner with us to build the prospective farm team. They have to be willing to open their business model to allow for the cultural development to occur. As projects shift with the economic needs of the organization they will be able to dispense with skills that are dated and bring in new talent to address the current needs.

    For those of us in recruiting (think talent scout), the trick is to identify evolving talent and then find places for them to mature. The strategic direction will always be set by the customer but we can help them with tactical deployment. This means the client would no longer call the fire department every time they encounter a need. Human capital suppliers could be sitting at the table with them providing input on the better direction of implementation. The requisite skill of the supplier is another layer of discussion.
    We could then act as agents to find the next team for our proven players to perform where the need is highest.
    Back to the future. When Ross Perot was building EDS, a core component of that organization was the SED (System Engineering Development) candidate school. Graduates in the local Dallas area were valued at 2 to 3 times the experience of their peers in traditional hiring markets. Believe me when I say Mr. Perot imposed a cultural fit. While that mentality may not fly in today’s work society, the central idea is intact. Contract companies abandoned that philosophy in the late eighties because of compression between rates and employment overhead. Sound familiar?

    Just as there is a finite pool a talented players in the world of baseball there is a parallel in IT and other industry skill markets. Globalization continues the current dilution.

    • R

      I’m a consultant. What I see repeatedly is that companies need limited infusions of high-level expertise because:
      a. they are entering into new areas.
      b. they have not considered something important so have not developed the capacity internally.
      c. they don’t want to add to head count.
      d. management has made bad decisions and needs to make rapid changes.
      e. qualified employees are not available.
      f. the employees currently available are overworked, and the company is not sure how long the need will continue. This is especially true if the need appears to be project-based (i.e. related to a specific project).

      in some cases, consulting fees total more than the cost of a full-time employee, but usually it’s worth it because:

      a. you cannot find an employee with the same level of qualifications at a price that you want to pay.

      b. you cannot find an employee with the best, high-grade qualifications period. People with that level of skill are only at first-rate consulting organizations.

      c. the full-time employee will become involved in the office culture, including conversations about sports, vacations, and so on, while the consultant’s efforts are very targeted.

      by the way, my hair is gray. i used to think this was a liability, but I’ve learned that it has definitely value.

  4. Steve

    Interesting article and yes while I agree businesses need more flexibility someone needs to pay for the bench time. Where I have seen this work is where the client either pays a premium for the days the contractor works with a minimum guarentee of x days per month or the client pays a small retainer for the contractors down time. Either can be a win win as the client ultimately pays less to complete a project and the contractor enjoys a better work life balance. Where it doesn’t work is where the client wants the flexibility but isn’t prepared to offer anything in return. In that scenario the contractor will always be looking for a better deal.

  5. thatstevenbaker

    “contractors will be [mostly] replaced with a new flexible workforce model that provides clients with the benefits of permanent staff with the flexibility once provided by contractors.”
    Seems to me that contractors are going to be replaced with contractors!
    I think the only difference needed is the way recruitment agencies charge, and perhaps the rates contractors get.
    If it were easier for people to contract directly, then doesn’t an existing definition contractor meet your new definition?

  6. Excellent article and equally excellent comments by several readers.
    R makes some very practical points drawn from experience which I found of great interest and value. Bobby Byrd’s reply was also interesting, although quite often the high salaries paid to pro athletes occur as a result of a bidding war amongst owners clamouring for the services of a free agent, and we all know the public auctions tend to bring the highest prices in prospective bidders caught up in the excitement of the process.
    From my point of view, I see the payment arrangement for a consultant’s services changing and becoming more based on future performance of the business as being a metric in paying for the services of the consultant – that is, results will be measured and compensation based partially on future business performance.

  7. Everyone wants their cake and eat it too! There are only serfs or freelancers. The serf wants and needs security. The freelancers thrive in risk. Never the twain shall meet. Freelancers have taken advantage ot their unique abilities for fulfilling a need since the dawn of time. I do not see the demise of that model anytime soon! However a trully intelligent AI could make some difference. But some believe that too can never be. It relies on a technology that is still magic to us.

  8. Jared

    Article had me intrigued until the end. Reminds me of one of those movies you watch that has a great plot developing and then bang it ends with more questions than answers.

  9. Mark, I’d generally agree with your assessment of the situation. Today’s labor markets create a “whatever the buyer wants” mentality). That point aside, would you be suggesting that federated networks of consultants begin to emerge? By this I would be suggesting something more formalized than a link exchange network, more akin to an agency model?

    You brought out another point… that customers don’t want to “pay any more.” In your assessment, would they be willing to commit more over the contract life? In the end, there has to be some fair exchange of value for that added benefit, right?

  10. Hello Mark
    I found your article interesting but not new. Charles Handy in the “Cloverleaf Organisation” predicted all this – must be 10 or 15 years ago. The model is business focused but not user friendly and is another way of looking at skills as a sort of “just in time” type of resource. Construction has been doing this for decades particularly big construction. According to Handy, society is going towards a three tier model. The top tier is CxO level with executives and top level management. These people will be, basically, bought and paid for by the company, 24×7, paid well, good perks but always ready to be replaced by or sent down to the middle tier. So they are always keen to please, work hard, devote their lives to the company, family life comes 2nd or third and the company always comes first.

    The second tier is the professional, whether that be professional business or IT, or doctor, lawyer – you get the picture. They won’t be hired by the company except as contractors. We are already seeing companies that want their cake and eat it too with contracts for 6 months or a year at full time salary rates. The easier trend (the one you have predicted Mark) is that companies will agree to engage resources from, say, the top tier consultant companies, who supply professional talent, not just consulting talent and make sure that talent is available to the client when they need it. In the past such companies have got in the door with excellent talent then stayed in the door with mediocre or newbie talent (many times at the same price as the original talent) – that won’t happen much anymore. The market has swung in the direction of the hiring organisation (at least for the last few years) and until the pendulum swings the other way (i.e. that talent is in short supply) then we can expect companies to demand (and get) more for less. This second tier works very hard because of the amount of competition. The best are wannabes for tier one, and so work like tier ones. The rest vary between the very talented who just want a comfortable living to the charlatans that have emerged from tier 3 or are destined to go to tier 3. Again family life comes second, but more as a choice, rather than a necessity.

    The third tier in the cloverleaf model is all the other workers; the cooks, cleaners, receptionists, bank clerks, truck drivers, ad agency workers, typesetters, and so forth. All of the roles that keep society running. These people will be hired through agencies and the agencies will compete hard against each other, cutting wages to the bone, work conditions to the minimum, and will bend over backwards to satisfy the hiring company because they know they are at the bottom with only the unthinkable left. Family life fits inbetween work and bills.

    The fourth tier, which, if I remember, Handly did not talk about, are the transients – expect a lot more transients over the next few years. These are the lowest of the low, with few skills and even less money. Labourers that can’t find work, hairdressers working for change, store clerks working for discounts, soon (well – 20 years) even labouring will disappear through robots. These are the people who are competing against robots. Good luck. Most won’t even have families or at best disfunctional ones.

    So, unless the economy improves, that is the world we are destined for. There will be some who dance between the raindrops, but not many.

    I think the bigger question, is what happens to the workforce and society when we reach the global maximum population sometime around 2075. What happens when society will no longer be growing but shrinking? We have based society on perpetual growth, what happens when that model fails us – there is only one period I know where mankind has gone through this – the Dark Ages after the collapse of Rome. Unless we find another planet or two, I’m not sure what the future will look like for the New Year’s eve celebrations for 2100.

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