CWS 3.0: May 30, 2012

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What’s the Right Contingent Workforce Mix?

The procurement of contingent workers has become increasingly sophisticated in recent years but even the most advanced practitioners struggle to find the right tools needed to properly evaluate their ideal workforce mix. Yet this issue is becoming increasingly important not just as a way of proactively improving company efficiency but as a defensive measure as unions are becoming increasingly vocal on what should constitute the right proportion of temporaries in the workforce.

Legal Action
In February, BMW found itself in a German court after the work council of its Leipzig factory took action against its “extensive use of temporary workers.” Work council Chairman Jens Köhler told a local radio station in Saxony that more than 40 percent of the 1,120 workers at BMW Leipzig were temporary workers. “This is not acceptable,” Köhler said.  Although he does not oppose temporary staffing, Köhler stated that these proportions were not adequate, so the Leipzig branch of BMW stopped hiring temporary workers altogether. BMW management took the work council to court over the issue. While the labor court found in favor of BMW in this particular instance, the case is far from closed, as the court will have until July to look at countless other cases regarding BMW temporary employees. BMW and union representatives are now said to be engaged in “intensive” and “confidential” talks concerning the matter.

In a separate case, the labor court in Frankfurt decided that Lufhansa, Germany’s biggest airline, can carry on with its plans to hire agency workers as stewards. The German flight attendants' union, UFO, had sued the firm over this, claiming that Lufthansa had broken an agreement that prohibits the firm’s use of temporary workers in Germany. The court dismissed this claim, opening the door for the airline to employ around 200 temporary workers for its new base in Berlin beginning in June. 

In March, the largest Union in Germany, IG Metal, published a so-called “Black Book,” which contained a ranking of firms that regularly use temporary employees. Many well-known auto brands were named, including BMW, Volkswagen and Porsche. The “temp quota” in a subsidiary of Daimler AG, SteloTec, was given at 66.7 percent – this, the union insists, was far too much.

It is not just Germany where unions are using this line of attack. In May, a major Dutch supermarket chain, Albert Heijn, came under fire from one of the Netherlands’ largest trade unions, FNV, for allegedly breaking an agreement and overusing temporary workers in its distribution centers. FNV claimed that the company is using around 40 percent to 50 percent of temporary workers in its distribution centers, breaking an alleged agreement that restricts the number of temporary staff to 23 percent. Once again, the court found in favor of the employer on the basis the company had made no firm commitments to the union over reducing the number of temporary workers they use.

Growing Debate
These recent legal wrangles could well signal a new strategy among unions in their approach to temporary agency work. With the EU Agency Work Directive agreed to and pay parity established throughout Europe, the political debate is shifting away from pay and moving to the concept of ‘moral proportions’ of contingent workers in the workforce. The danger with this debate is that there is actually very little evidence supporting what a healthy proportion of temporary workers might be. What is the right proportion of temporary workers — 10 percent? 20 percent? 30 percent? How many independent contractors should be deployed? What about SOW contracts? Clearly, the ideal workforce mix will vary by industry and by individual company, but the objective processes and evidence required to establish the ideal proportions for maximum efficiency are still in their infancy.

While some may take comfort from the fact that courts have supported employers rather than unions in these recent court cases, in the absence of any hard evidence one way or the other, employers may find themselves increasingly on the back foot in this debate. Without a solid business case that can support their workforce mix, unions will continue to argue against temporary work on moral grounds, citing the danger to society from excessive use of ‘non-standard’ forms of work. And with rising unemployment in most developed economies, such arguments are likely to find sympathy in some quarters. Also, whether the case is won in court or not, the accompanying publicity will inevitably have an impact on companies’ reputations.

The Business Case
And if you are not convinced by the union issues, there are also some rather compelling business reasons why companies need to improve their understanding of workforce mix through the use of strategic workforce planning. In an environment of constantly shifting business needs and strong demographic pressures, it is essential that employers re-invent and maintain a best-in-class workforce that attracts the highest quality talent and fulfills their business objectives, while staying both flexible and cost efficient.

The development of strategic workforce planning holds out some hope that this conundrum can be better addressed in the future. It begins with an analysis of the strategic position of the business, its organizational structure, and the requirements needed to achieve its objectives: For example, what specialist skills are essential in each location and to what extent do the strategic needs of the business require short-term changes in the workforce? The results of this analysis will create a gap analysis and forecast of the required labor demand and how this can best be supplied. An assessment of the general labor environment will have to be made as well: how big is the labor force and what are the key population and employment trends that will affect the ability of the business to source the right skills (e.g. skills shortages, proportion of women seeking part-time work; size of temporary workforce)? This work will culminate in the creation and implementation of a three to five year plan which will hopefully deliver the right number of the right people for the business and employed on the most efficient and effective basis.

At the moment, however, it has to be said that strategic workforce planning remains a minority interest and rather more of an art than it is a science. Indeed, according to Towers Watson’s  “2011/2012 HR Service Delivery and Technology Research Report,” only 15 percent of respondents already have workforce analytics tools in place or planned for 2011, 18 percent were planning for 2012, while the 67 percent majority had plans beyond 2012 or no plans at all. Even those that had tools in place questioned their effectiveness. The same Towers Watson report showed that only 18 percent of companies surveyed found technology to be very effective in workforce planning and analytics, 45 percent found technology to be somewhat effective, and the remainder were either neutral or found technology to be ineffective.

So we still have some way to go before any company can say with any real authority that it knows exactly what the ideal proportion of contingent workers is. To be credible, the right workforce mix has to be created through evidence-based decisions and contingent program managers will increasingly be challenged to find that evidence, not only by their bosses but by the unions scrutinizing their business.

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