When a CEO/CFO/COO (CxO) hears that 30% or more of the firm’s work is done by external resources, the reaction is rarely “that’s wonderful! We must really need all that help!” More like “are you kidding me? What the heck do we need all those people for? Who is authorizing that spend? Why aren’t our full time employees doing this work? We need to get control of this immediately!”
Then, in marches massive HR/procurement systems, processes and third parties in an attempt to answer these distressing questions. “Control” oftentimes looks like this: someone in lower-middle management asks for approval to spend money on an external resource. That piece of work/budget gets filtered through several layers of approvals, SAP instances, and budget reviews, which can take anywhere from days to months. Then the “req” goes out to the third party ether- oftentimes only to suppliers that have been pre-approved. This adds another layer of control, especially liability-risk proofing, because if a corporation was a horror movie, “Worker Classification Risk” would make Alien, Predator, Dracula, Jason and Freddy look like cry babies.
Even after all that, at the end of the day, does the CxO really, truly understand why all those external resources are necessary? I would argue that no, the CxO never will, because only the person on the front lines of the work will ever have that level of project detail, including the peripheral context/view of things in related departments, visibility, cost, and value. But on the flip side, in a classic hierarchy, nor does that that function manager know (or is expected to be responsible for) something the CFO stresses about- the risk(both perceived and real- two very different things) associated with externalization. Because in a hierarchy, which separates functions in an attempt to optimize, that’s HR and procurement’s problem.
So what have those massive internal spend control layers actually done, other than slow down work? (because very few can argue with that).
- Mitigate risk- certainly, yes.
- Lower spend? Too contextual to make a broad strokes statement.
- Create value? Umm…
What they have done is make it much, much harder for that front line worker to get the help that they need. And maybe that’s exactly the point. “If they need help, they will overcome whatever internal barrier to get the help. They know that,” a Top 20 Global Pharma Head of Procurement once told me with a straight face and total, utter confidence. Really? Are you sure about that? Because I’ve heard more than one VP of say they can’t talk to any supplier who hasn’t been approved by procurement, no matter what potential impact to [insert name of mission-critical ]project.
Adopting a strategy of “he who screams the loudest gets the worm” assumes that key resources throughout the organization actually possess the moxy to scream. In life sciences we have doctors, scientists, and other highly trained, technical STEMs on the front lines of projects. These are people who follow the rules. Their lives are defined and dictated by protocols (literally), standard operating procedures (SOPs) and health authority regulations. To step outside of the lines, any line, is anathema. This persona would rather suffer in the eighth* ring of Dante’s hell (*that’s the one about an understaffed project when one’s job on the line) than “scream” to anyone, about anything.
I have yet to see any evidence that this persona is factored the corporate controls calculus, let alone that the machinery is aware it exists.
I used to be frustrated by corporate controls, but upon further reflection I’ve come to sympathize. It must be terribly disconcerting to hear that the organization is so reliant on external resources, that so much money is being spent “outside” of the organization. In the corporate world there’s an old but undeniable bias that says all work should be done by full time employees, and if that’s not the case, something must be wrong. And what CEO/CFO/COO doesn’t secretly suspect employees are grifting and grafting and maybe even just plain lazy? Even if a CxO thought the world of company employees, how could that CxO, sitting far up and away in the c-suite, dealing with multi million or billion reports, ever truly understand, in depth enough that it makes immediate, confident sense, the details of a single project’s resource cost/benefit/risk/tradeoff equation, let alone thousands?
It’s a mess! A problem the corporate world is far from solving. And now here comes the government, fumbling around with AB5 and the PRO Act. I don’t think anyone, including the architects of these initiatives, would describe them as anything other than ham-handed.
A Quality By Design approach would look at the gaps first, then design accordingly. So let’s look at what the gaps are. We know what the organization needs, usually pretty desperately: qualified help to meet an otherwise-impossible deadline. Preferably someone who doesn’t screw up the project further, doesn’t require additional training, and can hit the ground running.
Mostly, what the CxO needs are four things:
· The opportunity cost- to the department’s mission, function, budget, productivity, goals– of not spending the money the line function hiring manager wants to spend on an external resource
· Opportunity cost stated not just in terms of that single department’s goals, but the company as a whole
· Tradeoff calculus- impact of spending that opportunity cost elsewhere
· That the firm’s risks (of lawsuits, whether worker comp, classification, or other) were not increased as a result of this spend.
In a hierarchy, these are not the responsibilities of the line function hiring manager. No, they belong to someone else to manage- HR and/or Procurement.
This causes significant internal friction:
- Corporate controls say: “The line function hiring manager need not bother their pretty little heads about all of this legal and compliance stuff.”
- Line function hiring manager says: “HR and Procurement are there to “serve” me with good suppliers. I don’t need to find anyone- they will do that for me.”
One is entirely responsible for compliance. The other is entirely responsible for project outcomes. Imagine if those two critical functions could be merged into a single, unified decision making body, or -gasp- employee??
The sad truth is that to allow a function to quickly, easily and independently spend money on external resources without deliberately oppressive controls requires a level of trust that simply doesn’t exist in most corporations. Trust that the money was well spent, that the firm’s interests have been advanced, risks are understood and have been mitigated, and that more value was created by spending on that external resource than the opportunity cost of forgoing that spend. Systems- technical, structural and cultural- that thoughtfully and innovatively address gaps, will go a long way towards corporate agility and, thus, competitiveness.
Could hierarchies themselves be part of the problem? In which case, is a corporation, with respect to embracing the transience of the gig economy, a fish that doesn’t see the water it’s swimming in? Too much to unpack here! On hierarchies and the Future of Work…
