Eureka!! The New Potential for Scaling a Business with “Contingent Workforce”

oDesk has been very visible recently.  In addition to a New York Times article earlier this week, oDesk also recently released a truly informative survey report on how companies are approaching hiring and using contingent workforce.

Yesterday evening, I attended a Meet-up of sorts and panel discussion (“Talent Wars”) hosted by oDesk. The event was targeted to San Francisco start-up companies and entrepreneurs, who made up a majority of the attendants. The panel was moderated by a journalist from TechCrunch, and it included the oDesk CEO, Gary Swart, and several other folks from the fecund San Francisco start-up ecosystem.

The main discussion topic was really: How start-ups find the optimal mix of core permanent team members and contingent-remote workforce?  And the discussion was quite penetrating and generated some new insights for me.

The crystallization came for me about a third of the way into the discussion when oDesk’s Gary Swart mentioned this:  today, oDesk has about 100 “permanent” employees and about 250 FTEs of oDesk based remote contractors.  As he put it, “We kind of eat our own cooking” (nicely sparing us all the thought of employees over at oDesk forcing down dog food). 

Joking aside—and this is no joke—it hasn’t been too long since oDesk was a nascent Silicon Valley start-up. After a beta period and then a commercial launch in 2006 (see our Online Staffing Segment Report), oDesk really only “got cooking” when the Great Recession hit and sent managers in companies of all sizes looking for new ways to get things done—without hiring!  But it has expanded at an astounding rate ever since—in fact, based on hours billed, it has expanded over 8-fold since Q2 2009. 

 

oDesk’s annualized Gross Services Revenues are now running around a quarter of a billion dollars and growing really (really) fast.  The company grew from a small start-up to a significant SMB company over approximately a 3-year period.  And now, at its current scale, it is getting the work of the business done with a “2.5-to-1” ratio of contingent/remote workers-to-internal perm employees!

I found it somewhat mind-boggling that such a scale could be achieved with this kind of workforce composition.  For me, the observation pretty much turned on its head the assumption that companies like oDesk and Elance, et al are simply providers of incremental “augmentation workforce.” 

In our recent 2012 Contingent Workforce Buyer Survey of CW buyers in the procurement functions of mainly large companies, 1,000 EEs +), the average reported penetration of contingent workforce was 16% (which mostly does not include the spend of “online contractor services” (i.e., like oDesk, Elance) made directly by line managers in the companies—probably less than the 16%).  Remarkably, the implied penetration at an oDesk is something like 70%.   So much for “workforce augmentation” only! 

The event I attended was really about coaching start-up entrepreneurs in a workforce strategy that was neither tactical outsourcing nor staff augmentation.  It was something else.  There was quite a bit of discussion about nascent businesses, at a very early stage of development, acquiring the competencies, discipline, know-how necessary to not only access remote/contingent workers, but how to use them effectively at various stages of start-up firm growth/development (in effect, how to architect a scaling business so that the contingent workforce emerges as an inherent part of the organizational and economic fabric of the maturing business). 

Now granted, it did occur to me that tech companies may be in a uniquely good position to capitalize on remote/contingent workforce, but really--when you think about it--you realize that a vast range of other service businesses (services being the largest sector in modern economies) can do the same in many significant ways.  So this is not such an anomaly.

My take aways from yesterday’s event?  First, contingent workforce (even of a remote, online form) can comprise a much higher proportion of a company’s workforce than conventional wisdom might have us think.  Second, we are likely to see a new wave of companies emerging in the economy which make use of contingent workforce in strategic (not just tactical) ways, and that is perhaps where we are going to see new business architectures and practices tried and taking shape to form the mature, yet agile/flexible and efficient businesses of the future (which could not be created yesterday or today, because neither infrastructures nor workforce nor businesses were ready). 

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Bolton Staffing

Edsel Mendoza 07/29/2013 03:13 am

Hi Andrew,

Indeed, more and more companies will be looking at adding contingent workforces into their business strategies. And our company is embracing this change; we, perhaps, represent the "new business architectures and practices" you were talking about. In fact, we may even be taking it farther than how oDesk is doing things. Instead of online freelancers, we provide remote employees who, amid the geographical difference (we are based in Manila, Philippines), provide quality output that’s more long-term. For a clearer picture of our business model, visit www.boltonstaffing.com.


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