Several mainstream academic and corporate researchers are reporting a trend in employment, shifting from an employer-employee relationship with fixed costs to a non-traditional or contractor based workforce, where costs rise and fall as needed to fill business needs. American Express recently announced a huge layoff; other business organizations are also scaling back employee hours or executing mass layoffs. Since the New Year (2013), several business organizations have announced reductions, under Federal Government pressure, making full-time employees become part-time employees with less than 20 hours a week scheduled. Before implementing mass layoffs and the inherent drain of knowledge resulting from those layoffs, business leaders would do well to research shifting from employees to knowledge-based contractors, which has proven profitable and unencumbering to the ebb and flow of transition and to the uninterrupted, well-ordered processes of success as well as solving the unintentional consequences of unresolved patterns of cost escalating loss.
Consider the costs, not simply dollars and cents, but intellectual cost, productivity costs, time lost, and more that is now draining the resources of these organizations. The fixed employee costs are too egregious to be borne, but the need for the work of the employee remains. The fix to the problem continues to lie in disconnecting the employee and connecting that same worker to the organizational brand as an independent contractor.
For example, Company A employs 200 people. Federal Government Regulations declare that the new fixed income costs have risen to $10,000 per employee, totaling $2 million annually. Company B is a direct competitor to Company A and employs the same number of people, but 175 of these employees are contractors with various length contracts for specific work projects, hour of the day specified, and wages. Company B, according to the IRS, employs only 25 employees at the same cost per employee of $10,000 totaling $250,000. The advantages are obvious, realistic examples abound, and the process is slowly advancing. It is past time to hasten this work.
Consider the loss of intellectual power during a mass layoff. This is a potential (Blue) cost and the impact is measured in final (Green) cost outlays. John Q. Worker, has been with Company A for three years and has moved from production labor to supervisor, mainly by his competency in keeping production running smoothly. John and his senior team members have been groomed as subject matter experts and are recognized for their professionalism and work knowledge. John’s team is laid off along with several lower ranking members of other teams. The knowledge drain in production creates a debt into which training, time, and other company resources must be poured to recover the loss of knowledge when John and his team were laid off. In a down economy, how does Company A recoup the loss of knowledge? What happens if John and his senior team members, who all work well together, approach Company B and offer their knowledge for sale?
This single cost reflects a vast amount of organizational resources that will require double the cost outlay to replace. How is the investment doubled? John was just one person; however, the doubling of the investment comes from the immediate lack of knowledge coupled with the need to train a replacement on the job. Layoffs only work in boosting short-term profit margins but remain a permanent lose-lose situation for the business organizations due to the intellectual drain, the doubling of costs to replace and restructure, and the need for business to continue. Needs of business do not go away when employees are laid off. Yet, how many of these now doubled costs would be an issue if John was changed simply from an employee to an intellectual worker, in fact, all those who were laid off. John and his team would remain in their current roles performing their skills and talents with freedom and independence, and the company would gain a powerful resource for improving production as well as taking a straight loss and turning it into a permanent gain.
This is the power of the independent contractor model. Layoffs are straight loss scenarios: employers lose, employees lose, communities lose, states lose, and ultimately the entire society loses. Jobs lost in New York make for tougher times in California. Collins (2001) wrote, in his book ‘Good to Great,’ about this cycle of layoffs and the destruction caused. If American Business cannot or will not choose a different model to embrace, other than employee/employer, the American Experiment is doomed to fail; doomed because the same problems inherent in ‘Right to Control’ are the root causes to runaway government power grabs, compensatory spending problems, and theft of public resources for personal gain.
Other thoughts from Collins (2001) include the following gems for consideration, regardless of your level of leadership.
“Mergers and acquisitions play virtually no role in igniting transformation…” This means that changing organizations through merger or acquisition does not correct the core problems in an organization.
“Technology … has virtually nothing to do with igniting transformation…” Adopting new technology does not change core problems.
“Greatness is not a function of circumstance. Greatness … is largely a matter of CONSCIOUS CHOICE.” [Emphasis mine]
The final quote from Collins (2001) is the perfect thought: choose greatness, free the employee to become an independent contractor. This brings about the final conclusion discovered by Collins (2001): “… Good to great companies paid scant attention to managing change, motivating people, or creating alignment…” Collins (2001) declares this is possible because the workers were empowered with the dual culture of entrepreneurship and discipline. Other authors and business researchers are drawing the same conclusions. When the employee is empowered, truly empowered, the organizational leaders are free to drive the company because the people problem is solved and the freedom to use their skills and talents as a contractor perfects the processes and procedures.
Shift the paradigm, free the employee, and watch the business become great.
How does Company B from our example manage all the contracts? The HR team contracts two-contract lawyers for contract design. One full-time IT person engineers the contract website where the prospective contractor creates a contract using options personally motivating to the contractor. Upon legal endorsement of the validity of the newly created contract, the head of the HR Team, working in concert with the head of the department, makes operational changes to meet essential requirements, which are presented to the potential new contractor for negotiation and agreement. Upon reaching an initial agreement, the document goes back to HR Legal Team for final review and approval. Once completed, the new contractor signs with the department head and work begins.
Collins, J. (2001). Good to great why some companies make the leap… and others don’t. (1st ed.). New York, New York: HarperCollins.
© 2013 M. Dave Salisbury
All Rights Reserved