The gig economy: a chance to control your costs or accelerate your growth?

How mid-market companies are using freelance skills to expand their capabilities and fuel growth

A freelancer sits on their home floor working on a laptop while a cat paws them

The gig economy — an economy that relies on freelance or contract workers — has moved from the margins to the mainstream. Technology is enabling companies to meet resource needs in new and flexible ways while also offering workers new ways to manage and build their careers. What do these shifts mean for companies, for the nature of work, for regulators, for talent strategy and for contingent workers themselves? In 2016, EY surveyed 220 US companies and 1,000 contingent workers to investigate these questions.

“We are seeing a convergence of cost reduction initiatives and the need for employers to have more agility, with workers looking for more flexibility. Together, these objectives are driving a shift toward a contingent workforce,” says Tony Steadman, Americas Total Talent Supply Chain Leader, EY.

GIF showing the number of freelancers in the workforce

EY’s survey found that in 2016, 18% of the workforce at mid-market companies (with turnover of $100m to $5b) was contingent, a figure projected to reach 20% by 2020. At big companies (turnover above $5b), those numbers are 16% and 19%, respectively.

The Australian company Freelancer was founded in 2009 and has been listed on the Australian Securities Exchange since 2013. It is the world’s largest freelance platform, an “eBay for jobs,” as Joe Griston, regional director for Europe, describes it. The company operates in some 247 countries — anywhere the local jurisdiction permits — has 957 job categories and handles over 6,000 individual jobs or projects each day.

“Originally, employers were start-ups and smaller SMEs (small and medium-sized enterprises),” says Griston. “The work was new work, not work that we were taking away from a permanent staff member.”

Now, with such a large population online, more and more big corporates are using the platform, and the work itself is more varied. “We are even providing crowdsourced solutions to solve some of NASA’s most difficult challenges — from 3-D tools for robotic astronauts to smartphone mobile applications,” he says. Some businesses rely 100% on work sourced from the platform, from product design through manufacture, marketing and retailing.

While mid-market companies may be leading the curve in their adoption of contingent workers, our results do not show a dramatic difference from big companies in the current or projected use of freelancers. However, the motivation behind these numbers is starkly different.

For big companies, the No. 1 driver (at 62%) is to control labor costs. For mid-market companies, the No. 1 driver (at 58%) is to fuel growth — to complete projects requiring specific expertise or capability beyond the existing workforce. The benefits of accessing skilled labor on short notice and with limited commitment are particularly valuable in the fast-growth, agile environment of scaling smaller companies.

“The growth agenda is front and center for these companies,” says Annette Kimmitt, Global Growth Markets Leader, EY. “We know from our work with start-ups to mature entrepreneurial businesses, such as the winners of EY Entrepreneur Of The Year® Awards, that these companies are early adopters of innovative practices that accelerate growth.”

Haynes & Company was founded in 2010 to support the investor community with consumer-based market research. Headquartered in Ardmore, Pennsylvania, the company operates in 75 markets across the US, the UK, Spain, France, Italy, Benelux, Finland, Germany, Hong Kong and Australia.

Right from the start, the company’s strategy was to employ a large contingent workforce, tapping into the growing pool of talent with suitable skills. “We look for people who are analytical, efficient and have some arithmetic skills. They can be lawyers and teachers or parents who all value the flexibility freelancing offers,” says Elizabeth Haynes, Founder and CEO. “Six years ago, it was stupid easy to find people with these skills. Now it’s harder.”

The company’s research is by definition very project-based, so using a large freelance pool of talent allows the business to ramp up and ramp down to reflect that project flow. The company doesn’t use agencies or open platforms to recruit its freelancers, but contracts directly with each one. Universities and the military are both good hunting grounds for suitable staff. “We have very strong contracts with our freelancers from the initial NDA (non-disclosure agreement) to substantive confidentiality clauses once we take them on,” says Haynes.

This approach helps Haynes keep tight control over its contingent workforce but is resource-intensive. The average ratio of interview candidates to each successful recruit varies significantly from city to city. In London or New York, it might be 5:1 while in Nashville or Liverpool, more like 25:1. “The availability of suitable candidates closely mirrors the educational attainment of each city’s general population,” says Haynes.

GIF showing how many companies are increasing their use of freelancers

Some 13% of SMEs in our survey report a significant uptick in their use of freelance workers — almost twice the percentage of big companies (7%). By 2020, SMEs expect one in five of their workers to be contingent. They are also significantly more confident than big incumbents in the underlying efficiency of the use of contingent workers. The survey shows 39% of mid-market companies disagree with the statement, “Contingent workers are an inefficient way to manage labor costs,” compared with just 29% of big companies.

It is important, says Haynes, to deal with the contingent workforce professionally, communicate fast and well, and have transparent invoicing processes. “They are vendors, not throwaway assets,” says Haynes.

Pursuing growth rather than cost management presents different challenges. Assigning skilled freelancers more business-critical projects raises questions about how to recruit, manage and retain distant talent; how to promote confidentiality and minimize risk; how to manage the interactions between the contingent and permanent labor force; and how to meet regulatory requirements. New ways of working are opening up new opportunities for companies as much as for workers: for growth, for flexibility, for control.

 

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