Six (Research-Supported!) Tips for Building an Effective External Workforce

Who is the external workforce?

Before we can manage and engage these types of workers, we need to define who they are.

Broadly, “external workers” are individuals who work for a company in a temporary, independent, or contractual arrangement (such as contingent workers or independent contractors) rather than as part of that organization’s permanent internal workforce. But it’s important for organizations to reflect on the specific labels companies apply to these workers – and what can be implied or inferred from them.

And there are many labels to choose from. One recent research paper cited 99, and a Gallup report on the gig economy identified five specific categories: contract firm workers, independent contractors, on-call workers, online platform workers, and temporary workers.

We endorse using the term “external workforce” to collectively describe any and all workers who fulfill a myriad of temporary, contractual roles.

Aside from addressing the ambiguity and confusion around how to refer to this segment of your workforce, it’s critical that your organization understand how to source, manage, and engage these workers.

For this reason, SAP has partnered with SHRM on a collaborative research program designed to provide comprehensive guidance, resources, and tools for companies looking to effectively manage external workers. Based on our early findings, we’ve identified six key “realities” companies must face as they seek to source, manage, and engage their external workforce.

1. The use and importance of external workers has increased significantly.

Here are some key statistics that support this assertion:

• The external workforce accounts for a significant percentage of labor size and cost, with 36% of the U.S. working population reporting involvement in an external work arrangement and an average of 44% of a company’s workforce spend being channeled toward its external workforce
• Executives view their external workforce as essential to core operations, with 65% rating this segment “critical to operating at full capacity and meeting market demands”
• Executives say their external workforce delivers on strategic goals, with 68% calling their external workforce “important for developing and improving products and services”

Simply put, this part of the workforce is growing larger and more important. We need to gain a better understanding of the optimal external worker experience to support both overall business goals and workers’ professional success.

2. Employers and external workers have different reasons for choosing to engage external workers and for deciding to work externally.

As psychologists for the SAP SuccessFactors Human Capital Management Research team, we began our research by investigating external work from a psychological perspective. This meant determining why employers hire external workers and why people decide to pursue external work.

In its simplest form, you might say that one company hires external workers reactively – to “plug holes” – in the face of inadequate resources, while another hires external workers strategically to source unique expertise for business advantage. Similarly, while some people choose to be an external worker because it aligns with their professional goals and personal life (and offers benefits like increased flexibility and autonomy), others must take a role as an external worker because they don’t have the option to take a permanent position.

The overarching idea is that thinking about the reasons why your company hires external workers, as well as considering why your external workers are employed in that capacity, could lead you to use different practices to manage and engage your external workforce.

3. Several stakeholders are often involved in external worker sourcing and management, with minimal collaboration.

Just as there are different reasons why companies employ external workers, there are different “owners” of external workforce strategy and management.

So far, our focus groups, interviews, and surveys have found that business operations, procurement, HR, and external partners (such as staffing agencies) all play a role in managing external workers, but there is little role clarity amongst these stakeholders or communication across these units. In fact, many research participants called the external workforce their organization’s “hot potato.”

Overall, it’s become increasingly clear that HR, procurement, business partners (like vendors), and business operations need to find better ways to work together. And they must determine who owns each piece of the external workforce puzzle before they attempt to solve it.

4. Employers are confused and concerned by the legal landscape when it comes to managing and engaging external workers.

Originally, our research program didn’t attempt to address legal issues around external workers. But  participating companies repeatedly told us that legal concerns influence how they manage and engage external workers. As such, best practices for how to manage and engage the external workforce cannot be developed without taking legal restrictions and guidelines on the use of external workers into consideration.

For instance, many companies we spoke to felt that distinguishing between internal employees and external workers required them to ostracize external workers to some degree. This can negatively affect external workers’ professional experience, as well as their perception of the organization and job performance.

Questions also surfaced about the potential legal ramifications around offering external workers simple benefits, such as complimentary flu shots and food during meetings, or allowing them to participate in social activities like birthday celebrations and holiday parties.

In short, most organizations aren’t sure what’s legal myth versus reality when it comes to external workers. But companies need clarity in order to build an effective strategy for managing and engaging external employees.

5. Embedding external workers both operationally and culturally can boost their engagement, motivation, and performance.

Organizations make choices on how far they “embed” their external workforce in their operations and company culture, and those choices impact the external workers’ “psychological embeddedness,” or the extent to which they identify with the company, want to embody its values, and choose to exert themselves on the job.

Just take a quick look at Glassdoor, where you’ll find numerous stories from external workers who feel they were treated as “second class citizens” or isolated from the rest of the organization. Situations like that have undesirable consequences for external workers’ motivation, engagement, and performance.

On the other hand, research suggests that engaging your external workers in the company’s mission, values, and goals – and treating them with the same respect that internal, permanent employees are allotted – maximizes their contributions to the business. And as the demand and competition for external workers grow, organizations must position themselves as an employer of choice by offering these types of workers opportunities for increased participation and engagement.

6. Technology needs range from tactical visibility to strategic total workforce planning, management, and engagement.

In our work so far, we’ve observed that employers’ current use of technology for external worker management varies widely. For instance, many companies have voiced a foundational need for visibility, such as knowing how many external workers are contracted, how much access to enterprise systems those workers have, how long their contracts are set to last, and what each worker is supposed to be doing.

Alternatively, others expressed their desire to have an integrated view of internal employees and external workers for better total workforce planning, management, and engagement. In a survey of 982 SHRM members we conducted as part of the SAP/SHRM research partnership, we found that certain key challenges around effectively utilizing external workers – such as finding and sourcing the right capabilities, identifying when to use externals or internals – could arguably be solved with intelligent, integrated technology solutions that offer a holistic view of candidates and the total workforce.

So, what does it all mean?

Initial findings from our research with SHRM indicate that external workforce management and engagement is a critical topic of concern for today’s companies. The six “realities” above reflect several recurring themes that have surfaced from our research – and several topics to consider when building your organization’s external workforce strategy.

As we continue to collaborate with SHRM and SAP Fieldglass to study this area and create resources, tools, and technology for companies like yours, we look forward to continuing this dialogue and providing further recommendations on how to effectively manage and engage external workers – and your total workforce.

To learn more about total workforce management, register for our HCI Webinar, Closing Talent Gaps with an Effective and Engaged External Workforce.