There’s no better time to get something than at exactly the moment you need it. The rapid growth of the ‘on-demand’ economy, where goods and services are ordered online and delivered promptly, has meant a new way of doing business – and working.
In the US and the European Union, 162 million people – around 20% to 30% of the workforce – are now working in the on-demand economy, according to research from the McKinsey Global Institute.
This workforce encompasses a wide spectrum of professions – with everyone from consultants, coders and designers finding on-demand work via platforms such as Upwork and Toptal, to handymen, plumbers and carpenters finding clients through TaskRabbit and Rated People.
If companies are looking to utilize this workforce while retaining the in-house talent they need, they have to understand why and how people become on-demand workers.
If managed correctly, on-demand labor can allow a company to reduce fixed payroll overheads, become more flexible and possibly even broaden its service offering
The On-Demand Workforce
The on-demand economy has fundamentally changed the nature of the employer-employee relationship, with the ‘employees’ consisting of a pool of affiliated workers from which the firm either draws or simply connects customers directly.
This new structure has far-reaching implications. Firstly, if the definition of ‘employee’ changes, so does the very idea of engagement. “It’s no longer about engaging an employee long-term,” says Pete Sanborn, Managing Director, Human Capital Advisory, Aon, “but instead ensuring that the individual is excited by and outperforming on a specific project.”
A flexible, on-demand, workforce has certain advantages over the traditional full-time staffing model. “It improves workforce planning as companies can more easily budget for assignments and projects,” says Sanborn. “And it encourages workers to continually improve their own skillsets.”
This, in turn, enables firms to acquire highly specialized skills as and when needed without having to increase headcount.
Types of On-Demand Workers
While the on-demand economy brings benefits for workers, like the ability to be their own boss and work the hours they choose, it also poses challenges. These include ensuring they have the right retirement benefits, and protecting themselves against loss of income due to illness or – in certain sectors such as ride-sharing – from legal liability.
For employers, understanding the dynamics of their relationship with this new breed of workers is also important. If managed correctly, on-demand labor can allow a company to reduce fixed payroll overheads, become more flexible and possibly even broaden its service offering.
There are four kinds of on-demand worker:
- Carol is a free agent. A highly skilled, 32-year-old computer coder, she was formerly employed by a Silicon Valley tech company and now works freelance six months of the year for high-paying clients. She chose to work on-demand and values the independence to travel that her new schedule allows.
- David is a casual earner. A 27-year-old teacher, he is a permanent employee of a local school. To supplement his income, he teaches online language classes in the evenings and weekends.
- Jane is a reluctant. She used to work as an in-house designer for a startup, but since the company was acquired, she has been working freelance for a range of clients, which she engages via several online platforms. She is only an on-demand worker as a necessary fallback while she seeks permanent employment elsewhere.
- Michael is cash-strapped. He is a 40-year-old mechanic who works during the day. However, his shift pay isn’t covering his expenses, so he also works as a driver outside of his regular shifts to help make ends meet.
Redefining Employee Engagement
The on-demand model is being embraced by workers and companies alike. Technology is enabling the extension of the “just-in-time” manufacturing model – whereby components and raw materials are not kept in stock but delivered at the moment they are needed – to the delivery of “just-in-time skills.”
There are significant upsides for companies who successfully utilize the growing on-demand workforce, but it also brings new challenges to the employer-employee relationship
Millennials are particularly open to this model of working. “There are qualities this generation holds that makes the on-demand economy more attractive to them than to previous generations,” says Sanborn. “They value flexibility and are open to embracing a technology-enabled ‘gig’ career.”
Being able to draw on a pool of freelance labor allows businesses to tailor specific teams for specific jobs, rather than adding headcount. It also allows those businesses to price individual projects more accurately. “Being able to pick talent like this also means geography doesn’t always matter – you can multiply your access to talent manifold,” adds Neil Shastri, Leader of Global Insights & Innovation, Aon.
By the very nature of freelance work, the most successful, highly skilled “free agent” workers tend to update their skillsets regularly to meet the changing demands of the employment marketplace. This is also good for in-house business costs.
However, while businesses gain access to a highly-skilled and flexible labor pool, they’ll struggle in other areas, particularly engagement and culture. “How do you define culture when employees are not your own?” asks Shastri.
Global rates of engagement are declining, and this is going to be exacerbated when companies have few permanent employees. It’s difficult to instill a sense of common purpose within a diffuse body of contract workers, each operating from their own location.
They are largely disconnected from physical workspaces and colleagues, and inherently without a traditional sense of loyalty to their employer. “How can you measure the engagement of an employee who has no intention of staying with your firm, and may already also work for one or more of your competitors?” asks Shastri.
Because employee engagement tends to correlate strongly with overall business performance, this will become a serious issue for employers. There are also other unknowns: the on-demand economy is a large departure from traditional ways of working and therefore it’s difficult to predict what its impact on some areas will be.
Reassessing Skillsets and Roles
While the new on-demand economy provides access to new pools of talent, HR and hiring managers will require new skills when it comes to a constantly evolving just-in-time workforce.
“Leaders will need to understand the shifting requirements of this talent, work to consistently assess the business needs requiring new skills, and quickly connect with qualified contractors for critical jobs,” Sanborn explains.
There are significant upsides for companies who successfully utilize the growing on-demand workforce, but it also brings new challenges to the employer-employee relationship.
Are on-demand workers eligible for health care and benefits? How will they go about saving for retirement? And what will the implications be around legal liability if something goes wrong?
It is the companies that find the answers to these questions who will reap the benefits offered by this new breed of worker.
About the Author
Aon plc is a global provider of risk management, insurance and reinsurance brokerage, and human resources solutions and outsourcing services. This article first appeared in The One Brief website, under the title “How to Harness the Talent of the On-Demand Workforce.”