More businesses than ever are turning to the external workforce as a flexible staffing solution, and it's revolutionizing the way they manage their projects.
Did you know that almost one in five paid tech job listings on LinkedIn in 2022 were targeting contractors?
This rate almost tripled from 5.7% to 19.9% in just under two years, revealing a huge (and increasing) demand for contractors and consultants in the software and IT sector.
There are several factors driving this trend - from an increase in the number of American workers shunning traditional employment, to businesses looking to external workers to bolster their in-house capabilities.
But should your company jump on the trend and begin building an external workforce? In this article, we'll explain exactly what an external workforce is and what the pros and cons of having one are for businesses like yours. Let's get started.
An external workforce is a group of workers who aren’t permanently employed by an organization. They may work for a company full-time or on a temporary basis, but are not on the permanent payroll.
This umbrella term covers freelancers, independent contractors, and temporary agency workers, which can be broken down into two main categories:
Contingent workers. Brought in to fill a full-time role in a business, contingent workers are not traditional employees, but they function in the team as if they were. Depending on the business needs, they may be hired short-term for a specific project or for a longer contracted period.
Learn more ➡️ Managing the Contingent Workforce: Navigating the New Normal
Services procurement. Sometimes, businesses need to outsource specific tasks identified through workforce planning to expert service providers. This may include consulting firms, marketing agencies, or offshore software developers, who are usually hired to deliver set deliverables.
You may also hear of these types of structures referred to as “liquid workforces,” which are made up of specialized workers who temporarily provide their skills to help companies overcome various challenges.
There is one core difference between an internal and external workforce — and the clue is in the name. Let’s break it down:
An internal workforce may be seen as a ‘traditional’ workforce. It’s made up of employees who are permanently employed by a business, fully integrated into the business’s culture, and receive regular salaries and benefits, such as healthcare. Another member of the internal workforce will also manage internal employees, who have a personal development plan and long-term commitments to the company.
An external workforce, on the other hand, is made up of third-party workers who are hired on a temporary basis or contracted to work on specific projects or tasks. These workers typically offer specialized skills on a short-term basis, do not receive benefits, and are managed through contracts. However, some businesses have long-term relationships with external workers who are integrated into the culture, though they do not receive many of the same benefits.
The key difference is the manner in which they’re contracted.
External employees can perform a huge variety of functions. Really, they can cover any role or specialized need, from additional project management support to expert sales advice.
Here are some of the most common examples of external employees in the software and IT sector:
Unsure about whether building an external workforce is right for your organization? Well, as with anything, there are pros and cons! Let’s take a look at both sides of the coin.
Here are some benefits of having an external workforce:
All businesses go through periods where they are busier than usual, putting more strain on the workforce — and occasionally on specific roles. In this situation, you don’t necessarily need to hire an additional worker on a permanent basis, especially if the increase in demand is expected to be temporary. Instead of asking current employees to work overtime, you can bring in a freelancer or contractor to pick up the slack.
In a similar vein, you may identify a hiring need for a specific skill that no one in your resource pool currently has. Again, you may not need this skillset on a full-time basis but can plug this gap with temporary support. Likewise, you may require access to a specialized skill for only a few hours a week — something a freelancer, who often works by hour, can help with.
One of the biggest benefits of building an external workforce is that you’re not limited to talent who live in the vicinity of your office. You can collaborate with experts from anywhere in the world, granting you access to a global talent pool.
A distributed workforce also means you can have people working on your projects around the clock. When the US team is sleeping, your counterparts in Europe, Asia, or Oceania may be awake and ready to go. This means expedited project timelines, greater agility, faster time-to-market, and improved financial performance.
Yes, external experts often come with premium price tags, but there are so many costs that you don’t need to cover. You don’t need to provide benefits, laptops, office space, bonuses, and many other amenities that internal employees have access to.
External workforces are inherently flexible. Hours can easily be scaled up and down based on fluctuating project demands, meaning you have access to a huge array of specialized skills on your terms. This can also be beneficial for plugging gaps when internal employees take unplanned leave or when teams require specialist support on an ad hoc basis.
We know all your projects are important. But there are some projects, such as BAU or maintenance work, that simply aren’t exciting or rewarding. External workers may be well-placed to handle these tasks while your full-time staff apply their knowledge of your business to growth-focused and core business activities.
Here are some downsides of having an external workforce:
If there’s one thing you can rely on your internal workforce for, it's consistency. You know when and where they’ll be working, and they are highly motivated to provide high-quality work.
Freelancers and contractors, on the other hand, present a degree of risk in terms of sticking to schedules, delivering work that aligns with your quality standards, and meeting compliance requirements. However, you can mitigate these risks by hiring well-regarded gig workers with strong portfolios.
While external workers don’t necessarily have to fully integrate with your company’s culture, their presence will have an impact on it. It is, therefore, important to partner with contractors who align with your company’s culture and values.
If you become too reliant on a particular third party, you risk disrupting progress if they aren’t available for future projects — especially if they hold specific knowledge or files. To avoid these issues, we recommend storing all information centrally.
However, in the long term, depending too much on external workers might also limit the degree of organizational capability and knowledge that you can build amongst your workforce at large. Collective wisdom, developed while steering the company through periods of challenge and growth, is a valuable resource. But if you rely too much on contractors coming in and out the door every 6-12 months, you lose the chance to develop this in-house experience and knowledge.
Between language barriers and differing time zones, there are many communication challenges you may face. But with the right processes and an asynchronous communication approach, you can overcome them, even with a growing external workforce.
From onboarding freelancers to overseeing their day-to-day workload, a lot goes into managing external workers—especially when they’re new to your business.
Luckily, resource management tools such as Runn allow you to manage contractors using the same interface as regular full-time employees. Clever planners and integrated reports simplify this process by providing access to all your resourcing information in one place.
Not only can you manage external resources’ workloads, time off, and utilization alongside your internal employees, but you can also quickly uncover their individual costs to the business, informing decisions that may impact your overall workforce!
This question doesn’t have a simple yes or no answer.
Yes, external workforces are going to become increasingly prevalent in an ever-changing world. No, permanent, internal workforces won’t cease to exist as a result.
For businesses, building a contingent workforce means being more flexible in every element of their operations, from hiring to embracing hybrid work schedules. It means greater access to a wider pool of specialized talent, increased agility and flexibility, and a stronger-than-ever-before workforce.
But if they wish to enjoy the benefits of this new workforce composition, decision-makers have to be willing to overcome the challenges that come with external workforce management - which will require innovative thinking, reasonable compromise, and bold action.
