Why Capacity in the On Demand Economy Matters

July 25, 2015  |  Talent

As a corporate community, there seems to be a loosening of the confines of the corporate workforce. Workplaces exist without walls, and some do it with almost no employees, preferring to bulk their body count with independent contractors instead of paying unemployment taxes and FICA. But is building a future on contract labor really a sustainable business model?

This March, it’s been reported that Uber, the on-demand taxi and limousine service, was told by the California Labor Commission that, despite avoid obvious “you’re an employee” type things like scheduling work hours and uniforms, that those drivers are, indeed, employees of the company and not contractors. It’s not going to really pain them too much right this minute while they’re sitting on $4 billion in funding, but that could be a much different story with their next round of venture capital consideration.

This ruling ‑ and more to come like it, I’m sure – will impact other on-demand companies popping up everywhere, including those currently operating at a loss to keep up with growing demand. Adding employee expenses adds up fast, and it might put a company out of business if they’re not careful.

In my forthcoming book, I speak a lot about thinking like a businessperson from your HR desk, and that requires creative problem solving. One might consider an entire tax-free workforce quite a smart decision: saves money, brings talent on-demand, the bench strength is there when you need it. In a short-term situation, contract labor can bring a company through the storm. It’s a great idea to help with the heavy lifting when it’s needed.

But it is in no way a sustainable business model to grow an entire company. Here’s why.

In order to create a foundation of stability as an organization, you must have bedrock, which means the expense of having employees who are dedicated to your cause. They are the essential building blocks of any organization. You know their schedule, they are a set expense, and they are motivated both financially and with personal profitability. They have skin in the game, and they will move your company forward. Growing this base of strong talent requires the inevitable hire to continue to grow in capacity and corporate strength. These expenses are set, they are manageable, and if managed appropriately, essential to the success of a business.

Contract employees are amazing to add capacity during times of need or to handle operating expenses for which there is a fixed budget and inevitable end. News outlets hire freelancers to build a coffer of content to handle a voracious audience, but the editorial staffs for which they work are employees dedicated to producing a winning publication. Technology companies hire contractors to come in and help with any number of technical projects, and when the job is done, they hand it off to the core team of employees to implement. Contract, or on-demand labor, is necessary but it’s best if it’s supplemental to the core workforce. It can’t be the workforce, or you run the risk of legal and social backlash.

Perhaps Uber would be better served if they worked on a hub and spoke concept, where a core employee set of drivers (part-time, maybe?) could be counted on to handle shifts of driving, with supplemental drivers opting in during peak time hours based on need. As long as those hours don’t exceed the number 40 and that “spoke” staff remains independent in driving location and when they work, that could likely be a great solution.

In short, on-demand economies require on-demand talent to help build capacity. But as long as that on-demand talent is there to help with demand and not the core of the business, your future is secure.

 

Rita Trehan is the Founder and Principal of Rita Trehan, LLC, a change management and leadership advisory firm focused on corporate leadership, emerging technology, and cutting-edge organizational design. As a seasoned top executive that has successfully transformed organizations at the Fortune 200 and beyond, she has extensive experience working with CEOs and top corporate management on process and organizational improvement for maximum profitability. A soon-to-be published author, Rita regularly speaks at industry conferences around the world. You can contact Rita on twitter at @rita_trehan and connect with her via LinkedIn. Rita’s blog can be found at www.ritatrehan.com.

 

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