The nuances and complexities of managing workforces have changed. More attention and resources are being allocated to external labour, which includes contingent workers and service providers that support your Government. Whether they be contractors, freelancers, temp workers, consultants, outsourcers or call centres – this workforce remains critical to many Government departments, agencies and ministries and can often be forgotten or neglected due to their employment status.
SAP Fieldglass, in collaboration with Oxford Economics, conducted several global research studies examining the increasingly important role of both the contingent workforce and services providers in the way work is done in the modern world.
The Agile Procurement Insights Research noted that only 58 per cent of workforce spend is on employees; the other 42 per cent of workforce spend is on external labour. These trends are reflected in Government spending. Within New Zealand, in 2019-2020, Public Service agencies spent a total of $974.9 million on contractors and consultants – an increase of 6 per cent on the 2018-2019 spend of $923.2 million. This total has more than doubled over the past decade.
Considering this growing trend, a lack of visibility, accessibility, and support can make it challenging not only for these external workers, but for the internal staff managing them. This can also reduce the public sector’s operational agility while creating compliance and security risks.
Business functions such as performance management, payroll, and administration aren’t always as easily managed for internal staff as external, which can test employee engagement, complicate managerial tasks, and create unnecessary costs across the organisation.
These issues are also evident in the way the C-Suite think about the external workforce. In a recent study between SAP Fieldglass and Oxford Economics, more than half of executives (55%) say their organisations would be unable to conduct business as usual without an external workforce. The external workforce also helps organisations source the skills they need. In fact, 61% of executives say external workers are important to meet business needs for specialised new IT and digital skills, and 58% for industry-specific skills.
Lisa Zak, Director of Strategic Sourcing at Medtronic, the world’s largest medical device company, sums it up well: “Many C-level executives don’t have the external workforce on their radar because they are not aware of the extent to which it comprises their total workforce mix and fuels growth and innovation of their business.”
The Hidden Workforce Revealed
The Oxford Economics study anticipated growth in these external channels as demand for service providers jumps from 63 per cent to 73 per cent over the next three years, staffing agencies will rise from 45 per cent to 80 per cent, and on-demand online marketplaces for freelancers will increases from 25 per cent to 85 per cent. Given the fact that New Zealand Government is currently spending record numbers on the external workforce, it is expected that these records will continue to be broken.
Whilst records will tumble through necessity, it is worrying that the report found that only 35% of companies globally have technology to manage the external workforce. This fact stands next to the growing trends for use of contingent and services workforce and especially affects those working externally, as their isolated role and employment model can slip through the digital cracks when offering support, oversight, and communications. The inability to manage this ‘hidden workforce’ can also lead to security breaches, compliance issues, and potential overspending.
Who is tackling this and doing it well?
Analysing the findings from this study also highlighted a group of organisations – approximately 11 per cent of respondents – that stand out from the rest. Labelled ‘Pacesetters’, these organisations demonstrate three critical characteristics: visibility of services providers, effective management of services providers, and competitiveness in a digital world.
While Pacesetters are still in the early stages of effectively managing external labour forces, these businesses are more rigorous in managing external workers and service providers, producing results, and meeting objectives on time and within budget.
Based on analysis of the research data, the study identified four key actions organisations can take to overcome the challenges of this massive shift in the way work gets done.
First, illuminating invisible workforces. While effective management requires clear visibility, less than half of respondent were highly informed about the basics of their services providers, such as contract terms (48 per cent), where they’re located (44 per cent), and who’s doing the work (44 per cent). Even fewer have a clear view of quality of work at the supplier level (25 per cent) and progress against milestones and/or deliverables (27 per cent), making it very challenging to demonstrate let alone maximise return on investment.
Second, managing with rigour. To gain more value from services providers, organisations must apply the same discipline to managing these business as they do employees – monitoring quality of work, progress against milestones, and more.
Lack of management rigour exposes companies to risk – for example, many respondents cite challenges sometimes, frequently or in nearly every engagement with managing digital security (44 per cent), compliance (43 per cent) and unauthorised spend (41 per cent).
Third, rising above organisational silos through intelligence. To view organisations more holistically and comprehensively, executives must embrace digitalisation to effectively manage across various silos, departments, and functions.
Managing services providers requires collaboration across Procurement, HR, IT, and other lines of business. With each function providing data-rich insights, services providers can be managed with greater oversight and control. This is an important focus area, as only 22 per cent of respondents rated collaboration between HR and Procurement in managing services providers, ‘highly effective’.
Fourth is seeing this contribution in a new light. Service providers deliver significant value and are a critical component for improving business performance. Proactive, effective management of services providers empowers individuals to excel in their areas of responsibility and make significant contributions to organisational success and growth.
ANZ Governments Managing with Intelligence
Ministries and agencies must view and manage services providers as an extension of their workforce. Across the ANZ region, we’ve seen the Australian Tax Office (ATO) standardised and automate its contractor engagement process to achieve greater visibility into costs and supplier performance. This provides the ATO with more organisational agility to mobilise workforces faster in an environment that requires strict onboarding activities and rigorous ongoing management.
With strict compliance guidelines and a diverse workforce, the ATO needed a solution that could simplify contractor engagement. Implementing SAP Fieldglass VMS (vendor management system) and using it to manage the ATO’s IT Contractor Panel has resulted in in cost savings of approximately AUD $210K per month, while avoiding costs of around AUD $5M by implementing tighter management fee controls and a tenure-based reduction for supplier management fees.
The ATO also saw improvement across contractor engagement, retention, and performance. The government agency increased its IT contractor headcount from 180 to 370 – almost doubling spend from AUD $32M to AUD $70M. However, despite significant increases in recruitment activity, on-boarding and payments, the IT Panel Management Team increased its headcount by only two temporary staff.
Similarly, Queensland State Government implemented SAP Fieldglass to centralise its management of contract workers across its various departments. Since implementation, Queensland Government has realised 5-11 per cent cost savings related to contractor bill rates. In addition, departments no longer compete for the same worker unknowingly and contractors cannot leave contracts mid-term, which resulted in 100 per cent completion rates.
With the advance of organisational digitisation, It isn’t a far-fetched objective for Government to operate in a way that provides greater visibility over the total workforce they deploy, better value for tax-payer money and safe-guarding public data from risk. As more government departments and agencies across Australia and New Zealand build compelling business cases for more rigorous management of the external workforce, many sadly lag far behind.
Discover more insights and learn how SAP Fieldglass can deliver intelligent management of your external workforce to your ministry or agency through a discussion with one of our experts.