Multinational firms saddled with huge people costs are considering downsizing their permanent workforce and hiring sub-contractors on a scale never seen before – presenting an “enormous” management task for HR.
IT giant IBM told Personnel Today that the firm’s global workforce of 399,000 permanent employees could reduce to 100,000 by 2017, the date by which the firm is due to complete its HR transformation programme.
Tim Ringo, head of IBM Human Capital Management, the consultancy arm of the IT conglomerate, said the firm would re-hire the workers as contractors for specific projects as and when necessary, a concept dubbed ‘crowd sourcing’.
What is crowd sourcing?
Crowd sourcing is the act of taking a job traditionally performed by an employee and outsoucring it to an undefined group of people on a project-by-project basis, in the form of an open call.
Firms wishing to follow this model could encourage employees to set up a company with 10 or more colleagues, and buy back their services as and when needed.
Source: Burnt Oak
“There would be no buildings costs, no pensions and no healthcare costs, making huge savings,” he said.
Outsourcing experts said employers from both the private and public sector were increasingly using the model as they looked to squeeze people costs post-recession.
When asked how many permanent people IBM could potentially employ in 2017, Ringo said: “100,000 people. I think crowd sourcing is really important, where you would have a core set of employees but the vast majority are sub-contracted out.”
He stressed the firm was only considering the move, and was not about to cut 299,000 jobs, as staff would be re-hired as contractors.
High-profile employers in the oil, manufacturing, IT and services industries are considering downsizing their permanent employee base and instead using contractors, according to outsourcing experts.
Robert Morgan, director at Burnt Oak consultancy, said the trend stemmed from American-owned companies trying to improve the ratio of how much money per employee per quarter they can make.
“If you can dump your staff that improves your ratio, and then the analysts tell investors to buy stocks in the shares,” he said.
“The UK service industry is competing against low-cost countries such as China. It also competing with new forms of technology, so the last thing organisations want now is people [costs].”
He said the potential IBM model would “encourage employers to follow suit”.
However, Morgan warned the move was fraught with potential problems.
“Employees just sitting there will think the axe is coming to them. This could force employees to leave, giving them a case for constructive dismissal.”
Bernard Brown, head of business services at consultancy KPMG, warned firms should be wary of the “enormous” HR issues at stake.
“How do you encourage these people to stay working with you? The retention issues are huge. Staff morale could also be affected.”
Other problems included the contractors not always being available when firms needed them, and the quality of work suffering.
Ian Brinkley, associate director at the Work Foundation, said: “It’s really important that companies don’t just look at cost savings when considering [the IBM] model. They have got to be prepared to invest a lot of management time into handling relationships and networks and the long-term applications of it all.”
However, an IBM spokesman denied the firm was about to shrink its permanent workforce by three quarters in seven years.
He said: “The comments are without merit. This was pure speculation about future job movements without any basis in fact. In fact, the comments run counter to IBM’s history of growing its global workforce over each of the last eight years.”