Less is more

With legislation looming over the use of temporary and agency workers, Jim
Matthewman, worldwide partner at Mercer Human Resources, looks at how one
company approached streamlining its management of temporary staff

There are an estimated 1.8 million temporary workers in the UK costing
businesses about £1.7bn a year. Under new legislation making its way through
the European Parliament, that cost may rise considerably.

Under the current proposals, submitted in November and due for introduction
by June 2003, temporary workers would be entitled to the same terms and
conditions as the permanent position they are covering. There is still considerable
debate to be had. The UK and Ireland propose that the regulations should only
apply once a person has been in employment for more than a year, while some of
the other EU countries want the provisions to apply from day one.

But just how widespread is the use of contingent workers – defined as
temporaries, agency staff and contractors – within given industries or a
specific skill group? Contingent workers are found at lower skill levels in
production, packing and labouring roles, semi-skilled and skilled levels in
administration, research and manufacturing and expert levels such as project
management, software design, engineering and interim management.

At current average rates, 100 contingent workers will be costing a UK firm
close to £1m a year. Given current market conditions and significant pressure
to reduce costs, most firms would do well to undertake an audit to identify
where the contingent workers are being used, how many are being used, at what
cost and on what terms and what approval processes are being used.

Of course, use of contingent workers is highly dependent on organisations’
specific business models and associated people strategy. Some industries, such
as consulting engineering, where projects are typically long-standing yet
intermittent, contingents might make up a third of the workforce. Others,
notably retailers, are high employers of temporary staff for the ‘golden
quarter’ around Christmas and the January sales.

The reality of using temps

However, experience shows that where organisations might feel they have a
good handle on using and deploying temporaries, the reality is often very
different. But, why might this be the case?

A recent case study, where Mercer HR Consulting conducted a pan-European
audit, highlights some of these points.

The organisation has a large contingent workforce operating in more than 10
countries across Europe. To our surprise, there were more than 400 separate
supplying organisations ranging from multi-country, large-scale employment
agencies such as Manpower and Adecco, to small boutiques, often providing a
handful of workers.

In some countries, HR took responsibility for sourcing the workers, while in
others it was the role of procurement, and in some, the line managers. This
lack of consistency had allowed a whole series of inefficient processes and
behaviours to develop. While the company had a broadly similar approval process
across countries, there was a lack of agreed, formal policies around usage –
indeed, some managers saw the use of contingents as a convenient way to bypass
limits (and freezes) on permanent recruitment.

The lesson learned was that the processes might be similar but this needs
backing, requiring clear direction and effective implementation. Even where a
major supplier was involved in a number of countries, the service standard
provided was very mixed. The main issue being one of pushing inappropriate
candidates or difficulties in the supplier relationship. Again this points to
the need of a common set of key performance indicators for supplier
performance.

It is common that local operating companies create policies framed within
local legislative frameworks. These do vary across Europe – for example, in
Italy and France there are restrictions in respect of ‘body shops’ and, as a
result, workers are usually supplied under professional service agreements, eg
contractors.

Varying definitions

Internal definitions of contingent workers also varied between countries.
The audit also showed the clear need for a single, agreed definition of
temporary, agency and contracting workers, as well as skill definitions in
order to analyse, measure and monitor usage. This then provides the ability to
identify where, how many and the cost of usage.

In this particular example, the bulk of contingent workers were either low
skilled or skilled. There was no apparent value in continuing relationships
with smaller agencies, as there was little difference in the pay rates and no
difference in the quality of worker.

Additionally, better bulk terms were available through arrangements with
large volume suppliers. An added bonus was the reduction in bureaucracy through
maintaining fewer agency relationships.

We also found there was a difference in definition between true specialists
and experts with readily-available skills. As you would expect, a premium is
paid for true specialists, who are mostly sourced from niche agencies. These
specialists tend to be critical to the business. However, experts in common fields
are available from volume suppliers at better rates and hence another area of
potential savings.

Lack of consistency

We found there was little consistency in the way the contingent workforce
was managed. The division of responsibilities between procurement and HR was
unclear, and varied between geography and business unit. This, combined with
little use of automation, resulted in poor management information and few
controls. As a result, the organisation was incurring additional costs through
lack of pay rate management and process inefficiencies, resulting in an
extended time to hire. Finally, there was little vendor management through the
use of key performance indicators, which could have been used to drive and
monitor cost and quality improvements.

The audit – conducted over a period of eight weeks, largely through
questionnaire but also structured interviews and a workshop – identified some
significant areas of cost reduction.

The main area of potential reduction was smarter sourcing of temporary
worker according to skill level. This was shown to be in the order of £13.7m in
six months, with a similar level annually thereafter. To achieve these, the
organisation needed to address three key areas:

– Consistent use of technology

– Reduced number of suppliers

– Strong management information to drive cost and quality improvement of
vendor management.

Over the past 10 years, e-procurement and e-recruitment systems have
advanced significantly. Technology provides the opportunity to achieve hard, bottom-line
savings by automating the business rules and processes to manage the
requirement, authorisation, attraction, selection, tracking and payment of
contingent workers.

Today, there are in excess of 20 specialist e-recruitment/vendor management
suppliers. Some, such as PeopleSoft, Oracle and SAP have recently added new
modules. Not all, however, provide the full functionality or are truly
pan-European, especially in language versions.

Choosing a supplier

However, the use of a single system across an organisation has compelling
benefits.

The software operating through a management web-based portal would ensure
authorisation processes are both standardised and adhered to.

It can also provide instant updates to line managers as to where candidates
are in the process and, ultimately, be used to monitor invoicing.

Clearly, having more than 400 vendor suppliers, each with a degree of
management resources managing the relationship, was highly inefficient.

The critical question for any organisation is what is the appropriate number
to provide assurance of both quality and timelines to meet the business need?
Three main options should be reviewed:

– Insourced versus outsourced

– A single master managed service provider

– A vendor-neutral option accessing an agreed list of suppliers.

There is a strong temptation to opt for a single master vendor solution. But
as we noted, there may significant service variation between geographies and a
danger that all the eggs are in one basket, resulting in unsuitable candidates
being put forward.

The other major problem lies with implementation. If managers have been used
to sourcing key contingents from niche suppliers, there is likely to be
significant resistance if they are told only one source is now available. It also
likely that the niche suppliers will be reluctant to ‘partner’ with a single
supplier if this inevitably means their rates and margins are squeezed.

In our case study, many of the resourcing managers preferred the idea of two
or three master vendors so they could play one off against another. This is
really avoiding the issue and likely to lead to variable quality.

The third alternative is to consider a neutral master supplier – a supplier
that will co-ordinate a preferred list of suppliers without being one of the
dominant vendors.

The organisation benefits from having just one relationship to manage, and
the line managers feel there is still a reasonable choice of suppliers, albeit
the contact with the suppliers is now removed from day-to-day operations, while
smaller niche providers will feel the neutral vendor is more objective and
unbiased. Probably the hardest and most critical question is how to implement
such a solution.

Given the size of savings, there will be senior management pressure to implement
fast – within six months. But in order to realise these gains, there are a
number of steps which need to addressed:

– While the business case will be compelling at the most senior levels, it
will be operational managers who will find their current, convenient practices
curtailed or restricted. There will need to be an education exercise to win
these people over

– Many of these arrangements are likely to have been built up over many
years with cosy, personal dealings – the exposure of these arrangements may
well be uncomfortable at all levels of the organisation

– Some of the contracts may be long-standing and will need to be reviewed or
even renegotiated, although the likely introduction of new legislation may be a
convenient opener for discussions

– The technology solution will require swift implementation, including
consideration of revised business processes

– Irrespective of whether an organisation chooses a master vendor or neutral
vendor option, the terms of such a relationship need to be clearly agreed with
clarity on expected savings and margins, key performance indicators and
reporting schedules.

So, in the end, the issue is the balance between clear cost savings and
potential risk to everyday operations. In our experience, managing contingent
workers is as much a behavioural issue as a cost equation. The new legal
scenario prompts a re-questioning but it also provides an opportunity to get a
grip on a loose process. In today’s climate, this might be a giant quick win.

www.mercer.com

What do employers think?

Last year, Personnel Today and
Manpower surveyed almost 1,000 employers to see what they thought of the
Directive. Key findings include:

– More than 70 per cent of organisations think it will damage
their businesses through increased red tape and employment costs

– 45 per cent of firms pay their agency staff the same as
permanent staff and 23 per cent pay temps more than permanent employees

– 50 per cent of employers surveyed do not provide their temps
with holiday pay, while only 20 per cent of respondents provide agency staff
with maternity leave, 12 per cent provide paternity leave and 10 per cent
provide pension provision

– 25 per cent of organisations use agency staff for periods of
between six weeks and three months, 14 per cent of firms use them for periods
of between three months and six months, and 8 per cent use agency employees for
between six and 12 months

– 3 per cent of respondents use temps for periods of between 12
months and 18 months, and 2 per cent employ them for more than 18 months

Snapshot of the directive

The European Commission (EC) issued a
proposal for a draft Directive on temporary work in March 2002. Changes were proposed
by the European Parliament in November and, in response, the EC issued a
revised proposal in December.

Under the revised proposal, temporary agency workers will be
entitled to the same working and employment conditions as if they had been
recruited directly by the company for the same job.

There are three derogations to this "equal treatment"
principle. It does not apply to pay where assignments last less than six weeks
or where agency workers are employed on permanent contracts with the agency and
continue to be paid in the time between postings. Collective agreements may
derogate from the principle as long as an "adequate level of
protection" is provided for the temporary workers.

The proposal requires member states to periodically review the
restrictions on the use of temporary agency workers and discontinue any that
are not justifiable. It also provides that temporary workers should be informed
of any vacant posts in the client organisation and, if recruited, the agency
should be entitled to compensation.

The Greek President is seeking political agreement on the
proposed directive at the council meeting in June. Once adopted, member states
are likely to have two years to implement the directive.

www.agencyworkersdirective.uk.com

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