Novartis’s workforce includes 110,000 employees and 50,000 contractors and temporary workers. Cisco has 83,000 full-time employees and 50,000-plus contingent workers of various types.1 Both companies rely substantially on a workforce ecosystem that includes many kinds of external contributors, including tens of thousands of individual contractors, to achieve their business outcomes. They are not alone.

Our global executive surveys show that a majority of companies — of all sizes — rely significantly on external contributors to build and grow their businesses.2 These contributors might include long- and short-term contractors, professional services companies, gig workers, crowdsourced contributors, app developers that complement a company’s product or service, and even certain technologies. Organizations vary in terms of how much, or whether, to include external workers in definitions of “their” workforce.

As organizations deepen their dependence on external workers, many executives are struggling to determine the extent to which they should integrate both the management of employees and external contributors and the systems and processes they use as they engage workers with different employment arrangements. Our ongoing research highlights a variety of possible approaches, emphasizing greater or lesser degrees of integration.

A common challenge afflicts most approaches: entrenched organizational behaviors. Companies that are starting to take a more deliberate approach to managing their employees and contract workers together often find that the functions responsible for employees and contract workers are siloed and have different, uncoordinated approaches. Allocating work among employees and external contributors can be a challenge as well. Leaders may struggle with determining which tasks to insource or outsource and where to look for needed skills. What’s more, workforce planning becomes a far more complicated task when the percentage of external contributors in the overall workforce increases, forcing shifts in organizational dynamics, especially among HR, finance, procurement, and business unit leaders.

These challenges are amplified when the numbers of external workers contributing to an organization’s performance extend into the tens of thousands and/or become a significant percentage of all workers. Managers in organizations with these extensive external workforces tend to encounter a range of organizational inefficiencies and compliance issues. In such cases, as we discuss below, managing interactions with external workers in just this part of a workforce ecosystem requires the company to address a complex set of organizational obstacles.

For example, Cisco has more than 50,000 contingent workers — a substantial part of its entire workforce ecosystem. The company is in the midst of establishing new practices to manage contingent workers across both functional silos and its many disparate business units. It’s the beginning of a broader, more coordinated approach to integrating the management of people and work processes across its workforce ecosystem.

A close look at Cisco’s efforts yields several insights about how companies can better manage a large contingent workforce within their workforce ecosystem and improve value creation in the pursuit of their strategic goals and objectives.

Managing External Workers at Cisco

Cisco has a history of growth through acquisition. As of 2023, the global networking company had acquired 238 businesses.3 In addition, Cisco relies extensively on its contingent workforce to meet its goals. It considers contingent workers to be anyone other than an employee whom it pays to do work for the company. So all contractors are included, as well as professional services providers (such as attorneys and consultants). It includes project-based work as well as hourly-based contracts. It does not include alumni, retirees, interns, or anyone else who is not being paid to contribute.4

This group comprises individuals who work for global subcontractors, such as Infosys, Tata, Adecco, and others that contract with Cisco to supply workers. While some contractors provide maintenance and food services, the vast majority are professional and technical workers. Cisco’s contingent workers include independent contractors, freelancers, consultants, advisers, and other outsourced workers hired on a per-job and nonpermanent basis. These workers are typically highly skilled and trained for a specific job (in other words, they don’t require on-the-job training). Within Cisco’s contingent workforce, there are three major buckets: (1) resource augmentation, which addresses shorter-term needs, like maternity coverage; (2) managed projects, which are term-based, such as initiatives to deliver a certain type of software code; and (3) managed services, such as call centers.

Until recently, Cisco had a somewhat ad hoc, disconnected approach to managing its large, global contingent workforce. Recently, it embarked on an enterprisewide initiative to create and execute a contingent workforce strategy aimed at managing those workers in a more structured, organized, coordinated way. The initiative is led by Patricia Hanaway, vice president of global contingent workforce strategy, and sits within the procurement function (which itself is housed within the finance function). The procurement function at Cisco is primarily responsible for engaging the company’s contingent workers. The complex, global effort, which is overseen by a cross-functional steering committee, involves 10 distinct workstreams: governance, technology, people and communities, finance, commercial, provisioning, legal, business intelligence, controls, and global procurement operations.

Siloed Approach

Because Cisco has grown mostly through acquisitions, the company has many dispersed business units around the world with significant autonomy to operate in their own way. While this enables the organization to preserve creativity and flexibility, it also leads to challenges, including inefficiencies and compliance issues related to its contingent workforce.

Hanaway works closely with Bram Daly, Cisco’s director of contingent workforce strategy and programs, who describes some of these challenges: “The culture here is siloed. Each business unit is in essence doing their own thing. We have too many suppliers, too many managers with relationships from a past employer, too many friends. There is a lot of hiring without bidding. And they are just bringing them in and using them to support their needs, which presents some challenges: Enterprise standards may not be consistent, supplier program gaps persist, and engagements for the same type of work are splintered.”

In addition to sourcing contingent labor through inefficient and potentially biased processes, without a centralized approach, the organization can miss beneficial synergies. “We need to be that helpful internal adviser, saying, ‘Would you like it for a third less in Costa Rica versus San Francisco? Because another Cisco group has already established something in Costa Rica with business unit X, but since you are business unit Y, you aren’t aware of that.’ That is one type of use case that I see as advisers helping the businesses,” Daly says.

The silos may also lead to inconsistent policies and safety concerns. For example, who is deciding which facilities workers can access? Or which online systems and data they can access? Who gets to decide? Is this the task of the lower-level manager who engaged the person, or should there be a centralized system that incorporates and takes into consideration local labor laws, local policies, different types of work, varied suppliers, and more?

HR Not Being Responsible for All the Humans

The contingent workforce strategy sits within the finance organization in the procurement group. Because Cisco’s contingent workers come into the organization via subcontractors and other contracting activities, their engagements are managed by a non-HR organization. Cisco HR is responsible only for matters associated with full- and part-time employees; its span of control does not extend to contractors.

When contractors are a mere 5%-10% of an organization, this management structure is probably fine. But when contingent workers account for a third of a workforce ecosystem, does this split (having procurement within finance responsible for managing one-third of the workforce) still make sense? The situation is further complicated by labor laws, which can restrict certain opportunities for contractors (such as performance management) and limit HR’s role — especially in the U.S. — with respect to a contingent workforce.

Faux Flexibility

Cisco’s contingent workforce includes both short- and long-term contract workers. Some have been with the company for more than a decade. In some cases, the premium paid to staffing agencies for long-term contractors exceeds the benefits paid to Cisco employees. Daly explains what his team sometimes finds as they start working with business units: “Wow, 12 years. They’ve been a contractor that long? That’s a long time. We’ve been paying a big margin for 12 years, you know what I mean? These are really hard-core people; we’d love to have these people as employees, because what they are doing is part of our business strategy. This is literally the future of the company, and they’re not working for us. These are core technology business advantages, and this is an IP [intellectual property] issue.”

If a person has been in an organization for a very long time and has become critical to certain workflows, are they truly contingent? Or is it a flexible work arrangement in name only?

Three Approaches to Managing External Contributors

New processes are already improving Cisco’s management of contingent workers. We identified three sets of initiatives that are critical to managing the company’s contingent workforce and, more generally, to orchestrating workforce ecosystems:

1. Governing with a cross-functional steering committee.
2. Changing technology systems.
3. Emphasizing values, culture, and diversity.

Notably, these initiatives cut across the organization, touching many functions within it. Transforming the management of a large external workforce requires transforming internal functions as well.

Cross-Functional Steering Committee

Hanaway and Daly’s team is responsible for executing the company’s contingent workforce strategy. Although the team resides within the procurement function, its efforts require input and engagement from the many functions and business units affected by the new strategy. For example, the contingent workforce strategy team is drafting, implementing, and communicating new policies that span the entire enterprise and touch all functional areas. With support from Cisco leadership, the team created a cross-functional steering committee that meets monthly to provide guidance and oversight. The committee’s members are just below the C level and represent all functional areas, such as finance, HR, IT, and operations, as well as business units. The group plays a governance role with decision-making authority, in addition to providing guidance on topics such as which functions can have significant numbers of contingent workers and which should have fewer.

Daly explains that he engages with the steering committee to understand guardrails: “This really means I meet with the steering committee and ask how they want to operate at an enterprise level. Is this a role that should never be outsourced? Since our enterprise is a networking company that is evolving further into cybersecurity, are there certain core capabilities and strengths and brain power and IP that we need internally to keep growing?”

Cisco also uses the steering committee to resolve questions related to policies that need to span the entire organization. “Eventually I need to get to the steering committee and basically say, ‘What’s the rule, and is there an exception?’” Daly says. He is able to get the backing of the steering committee both for policies that keep the company out of legal trouble (like adhering to globally disparate labor laws) and policies that further the organization’s business objectives.

The steering committee is also working to create a unified taxonomy that would standardize job titles across employees and contingent workers. In addition to representing current roles, this taxonomy will be helpful in other situations, such as when contractors are hired as employees. This is especially important as more countries and regions put together a patchwork of national and local practices and preferences related to managing and administering contingent workforce programs. Having a unified, enterprisewide taxonomy serves as a guardrail for potential workforce risk in terms of worker classification, expectations, and treatment.

With the backing of the steering committee, Hanaway and Daly’s team is striving to take on more of an advisory role, helping business leaders with their contingent workforce needs at earlier stages of the strategic planning process. Take, for example, a business leader who is considering situating a project in a certain geographic location or basing a project on a specific technology. The contingent workforce team could help them gain visibility into what else is happening in the organization and assist them in making more informed decisions about the project location and the technologies that would optimize their ability to leverage contingent workers. As Daly explains, “We can be advisers if we understand their strategy and help them make better and more consolidated people decisions.”

Changing Technology Systems

One of the key workstreams involved with implementing Cisco’s contingent workforce strategy is technology-related. The contingent workforce team recognized that existing IT systems could not support the changes it needed in order to source and manage the company’s worldwide contingent workforce. Rather than modifying existing systems, the team chose to work with a new vendor focused specifically on contingent human capital management. The vendor needed to be able to accommodate Cisco’s scale, which encompasses many types of systems and compliance requirements across 95 countries. Cisco didn’t want to build and customize its own technology, so it prioritized working with a company that already had a system ready to go. As Daly explains:

In essence, we wanted to be more out of the box. So customization, no; configuration, yes. Basically a lot of “make it simple, make it safe, make it fast” is really the construct. We are taking away managers pulling out a contract in their email that’s four years old. Those are the kinds of things that cause problems: where clauses are wrong because it’s some old thing. It’s just a lot of sloppiness going away, because you take that away and give them a fluid, quick, automated process.

Still, the contingent workforce strategy team is tasked with figuring out what that software configuration should be. When should a manager in Mexico be allowed to outsource core labor? (Answer: Never, due to labor laws.) How many quality-assurance statements of work are there across the organization, and can the company get a better price by consolidating them? Eventually, a contingent labor management system will be able to provide guidance for managers, telling them when and how they can (and can’t) engage with external contributors.

Values, Diversity, and Organizational Culture

Cisco’s contingent workforce strategy has evolved to address various cultural issues that emerged while executing the strategy. Hanaway makes clear that thorny questions related to values, diversity, equity, and inclusion are important to address:

I think values are huge. And what I mean by values is that contingent workers should get paid the same as employees. Contingent workers should have the same benefits. It’s incumbent on us to make sure we are working with supplier partners that we can screen and make sure we know what they’re actually providing to their employees who are working with us. We should have knowledge of their human rights footprint and what they are doing in that space. Diversity’s [also] incredibly important. And so as a value, I’m looking for partners that can bring a diverse slate of candidates to the table every time and have good tools to think about ways to remove bias from their process.

Labor laws can thwart efforts to create a consistent culture across internal and external contributors, especially in some geographies. Hanaway notes, “Culture is a tricky one, because the way our co-employment laws are written today, particularly in the United States, it makes it very difficult to inculcate the contingent workforce into your culture.”

Still, without the ability to offer customized training courses and treat contractors like full members of a team, culture-building suffers. “I just think we’ve got this mental model of trying to create these bright lines between the contingent workforce and employees,” Hanaway says. “And we do it at Cisco because we have to, because it’s the law. But I think it’s wrong.”

Cisco has many options to address these issues: It could, for example, adopt policies for middle managers and the procurement staff that articulate how to include contingent workers in the company’s corporate culture. These policies might cover mental health, equitable compensation, or the option to participate in certain corporate activities. Cisco could also institute a governance committee to monitor and assess whether the policies are properly implemented, and adjudicate or address emergent issues from contingent workers and managers.

Conclusion

The goal of Cisco’s contingent workforce strategy, says Daly, is to “deliver human power more efficiently, effectively, and quickly” to achieve the company’s broader strategic goals.

For companies that are beginning to consider how to manage their entire workforce ecosystem as a single structure, it can make sense to start where Cisco did: integrating the management of the contingent workforce. Tackling this part of the workforce ecosystem can offer a range of lessons on how, and whether, to integrate the people, processes, and technologies that make work possible across the enterprise. While reducing inefficiencies, costs, and compliance issues, this approach may also shed new light on how to spur growth by redesigning and reallocating work across organizational boundaries.

The authors of this article wish to dedicate it to Patricia Hanaway, who passed away in March 2023.

The post "Managing External Contributors in Workforce Ecosystems" appeared first on MIT Sloan Management Review