Defining staff to flex ratios: We have identified that the talent paradox poses a significant risk to corporations going forward. To prepare, talent must be added to a company’s integrated risk portfolio and managed with the same rigor and methods that apply to other key risk categories.
Business strategy dictates a set of service and work delivery requirements, which in turn, determine the talent risk-management strategy. As with all risk management approaches, an important first step is to establish a risk threshold against which all talent management decision making can be consistently tuned.
To address talent management, companies can either hire staff directly or pursue one of four flex options:
- Supplement with contingent/flex staffing.
- Employ consultants.
- Outsource: global offshore/nearshore.
- Outsource: domestic.
Each alternative offers distinct capabilities, service qualities, costs and risks, which must be assessed, monitored and balanced consistently and holistically over time from an enterprise-level perspective. The first challenge with talent risk management is defining a model for setting staff to flex ratios that is consistent with business objectives, market realities and the established risk threshold.
Define staff to flex ratios.
Economic conditions ebb and flow, making it critical for every company, including each function and department, to have a defined staff to flex ratio. To understand why this is so important, we simply need to review our history and the extraordinary pain and costs associated with shedding seven million jobs during the Great Recession. The first three years of economic recovery were marked by strong (often double-digit) growth in corporate profitability yet extreme reluctance among corporations to create replacement jobs. Now that is shifting. “We are starting to see the pendulum swing in the direction of more direct hiring,” observes Remster Bingham, VP of Recruiting at Genesis10.
What’s motivating the swing, Bingham says, is a shift away from the defensive, cost-cutting and risk-averse corporate behaviors that were motivated by global economic slowdown to more long-term growth and investment-oriented postures. “Companies are beginning to think they’ve gone too far to the flex side. They’re worried about having insufficient domain knowledge internally and the impact that could have on their abilities to be competitive and grow over the longer term. They are also watching unemployment rates decline – especially in areas such as IT, where unemployment is already dramatically lower than the national average. Corporate leaders are thinking it’s time to hedge the risk of being overexposed on the flex sides of their ratios.”
Corporate leaders are, likewise, witnessing the extreme rapid rate of technology evolution and worrying the market will be unable to deliver the specific types of talent they require going forward. “Already, we are seeing companies who would like to hire a person with 2-3 years of experience having to settle for someone with just one year or less because the technology is simply too new and changing so rapidly,” Bingham says. “Companies are realizing they need to invest more in training and development; if they’re going to do that, they want employees to be theirs so they will have greater chances of earning loyalty and returns on their training and development investments.”
Decisions to create permanent staff positions are also influenced by factors such as:
- Core competencies,
- Security of intellectual property and business information,
- Employee demographics,
- Leadership succession planning,
- Availability of qualified contingent resources,
- And whether or not the work in question touches customers directly or can influence long-term business performance imperatives such as revenue and market-share growth, innovation, brand building and so forth.
While companies may be shifting back toward more direct hiring, they are also more experienced, and therefore, smarter about what they can and should continue to outsource to achieve desired balance between staff to flex ratios and managing financial targets. Work considered essential but not directly influencing customer experience or satisfaction — for example, upgrading, changing or consolidating IT infrastructure — will continue to fall increasingly to the flex side. The same is true for work that may be long-term in nature, spanning many months or even several years, but which ultimately has a discrete lifespan, such as executing a merger or acquisition or ramping up a new product or service offering.
In managing staff to flex ratios, functional managers are likely to find themselves taking hard looks at the ways in which both existing and new jobs are structured, breaking off certain movable portions and pushing chunks of work to the flex side in order to free up time and brain power on the staff sides of their ratios. As markets for specific types of talent continue to tighten, companies may find themselves going to flex options for very different reasons than in the recent past. Rather than being motivated by fixed cost reduction and pure labor-cost arbitrage, they may find themselves outsourcing to:
- Meet unexpected surges in demand.
- Alleviate lengthening recruitment, hiring and onboarding lead times.
- Create a talent pool to address skill set or talent availability shortages.
- Leverage as a short-term strategy while working to execute longer-term staffing strategies of building and retaining greater domain knowledge (note: some outsourcing firms will support hiring of their consultants, which can accelerate such a strategy).
- Cope with tightening or inflationary real-estate markets.
- Diversify talent mixes (for example, augmenting with veteran talent to help train and develop less experienced direct hires).
- Or, tap into veins of talent that are remote to their physical locations.
Once desired ratios of staff to flex are established, the four flex alternatives can be evaluated and balanced on bases of costs, quality and risks associated with each. In our next blog, we will touch on key differentiators of traditional staffing, consulting and outsourcing providers and share important factors to consider when determining which talent channels to employ.