Tim Ringo, the head of IBM Human Capital Management, caused quite a stir recently when he revealed to Personnel Today magazine that IBM's global workforce of 399,000 permanent employees could reduce to 100,000 by 2017. Ringo said the firm planned to rehire the workers as contractors for specific projects as and when necessary, a concept known as "crowd sourcing." 

What could "crowd sourcing" a workforce mean to your business?

Tim Ringo, the head of IBM Human Capital Management, caused quite a stir recently when he revealed to Personnel Today magazine that IBM's global workforce of 399,000 permanent employees could reduce to 100,000 by 2017. Ringo said the firm planned to rehire the workers as contractors for specific projects as and when necessary, a concept known as "crowd sourcing." 

This means that IBM's workforce will consist of one-fourth employees and three-fourths crowd sourced contractors. "I think crowd sourcing is really important," Ringo told Personnel Today. "You would have a core set of employees but the vast majority are subcontracted out." The benefits to IBM are clear, since, as Ringo explained, "There would be no buildings costs, no pensions and no healthcare costs, making huge savings." Source: Personnel Today magazine April 2010 IBM crowd sourcing could see employed workforce shrink by three quarters.

 

Crowd sourcing is the practice of using large, distributed and minimally directed groups to accomplish tasks. A job traditionally performed by an employee is outsourced to an undefined person or group of people on a project-by-project basis in the form of an open call. 

This can be considered a form of outsourcing. But according to the Society for Human Resource Management (SHRM), there is one important difference: Rather than transferring jobs or tasks to outside contractors or other third parties, an organization opens jobs or tasks to a wider community of experts, customers or the general public.

Evolution and revolution in U.S. employment 
The crowd sourcing trend appears to be a natural outgrowth of our increasingly connected global economy. As American companies compete with low-cost countries such as China and India, they are compelled to take action that might improve the ratio of how much money per employee per quarter they can make. When employees are taken off the payroll, that ratio improves. And when that ratio improves, the company's stock price often improves as well. 

As companies search for ways to meet tight budgets in today's post recession economy, they naturally look to squeeze out every bit of extraneous "people cost." Crowd sourcing may represent the natural evolution of employment in the United States, but a contractor-heavy workforce would represent a revolution in the way U.S. firms interact with the individuals who produce their goods and services. 

Considerations for employers and employees 
Outsourcing experts believe that an increasing number of employers from both the private and public sectors are using the crowd-sourcing model as they look for ways to cut costs. This new approach, however, comes with its own special set of hazards for companies and the HR teams that support them. 

According to Eric Covington, senior vice president and global workforce management leader at Ceridian, crowd sourcing is not likely to take hold in service-driven industries. "Based on their business strategy, companies will have to balance the risk versus the reward of this evolving staffing model. Crowd sourcing could create a big risk to an organization. 

"Companies are looking at a lot of creative ways to reduce labor costs -- but crowd sourcing is likely to take hold and succeed only in realms where much work is already achieved through independent contracting such as IT. It is like the attorney model where an employer is billed for time and materials," Covington continued. "However, in a crowd-sourcing model, this actually may backfire and increase costs because of the laws of supply and demand. If crowd-sourced workers have agreed to work for time and materials, but perceive their demand to be higher than the supply of specific skills they posses, they could demand higher pay and actually increase overall costs to an employer." 

In addition, logistical implications exist when an organization sees a significant change in the percentage of temporary project or contract workers. But consider how difficult it is already for any organization -- large or small -- to feel confident that they are clear about something as "simple" as the distinction between employees and independent contractors. 
Crowd sourcing is a developing trend, so it helps companies to establish standards for determining whether an employer-employee relationship exists. According to SHRM, the difference depends on three major factors: 

 

  • The degree of behavioral control the employer has over the worker,
  • The degree of financial control the employer has over the worker and
  • The parties' own views and their treatment of the work relationship.

In addition to compliance considerations, legal complications are a certainty if crowd sourcing becomes preeminent. For instance, how would an organization treat ownership of the products and innovations that are developed through crowd sourcing? 
A successful crowd sourcing initiative would ensure that the contractors will always be available when companies need them and that the quality of the work would not suffer. Project management, turnaround and cost requirements will create a delicate balance for the organizations that embrace the crowd-sourcing method. 

Crowd sourcing, employees and morale 
If your company is considering crowd sourcing, be prepared for the response you might receive from current employees when leaders share the news. A company's decision to move forward with crowd sourcing can be a powerful demotivator for current employees -- they might find themselves just waiting for the axe to fall -- so carefully consider how you share the news. Indeed, an IBM spokesman quickly denied that the firm was about to shrink its permanent workforce by three-quarters in seven years, despite Ringo's comments in the press. 

In a crowd-sourced future, HR will be expected to help their organizations encourage both full-time and freelance resources to stay working with them -- which could lead to a transformation in corporate retention strategy. Much time will be spent creating compliant, cost-efficient ways to manage the relationships, partnerships, networks and long-term impact of this new approach to work. 

Jennifer Schramm, manager of the Workplace Trends and Forecasting program at SHRM, discussed the crowd-sourcing trend in a recent editorial. "For HR professionals, the growth of crowd sourcing raises a number of questions. Are HR departments completely bypassed in this equation for bringing talent and tasks together? Or does it lead to rich new sources of talent that HR can tap?" 

Ceridian monitors employment trends and the related compliance issues closely and will help HR professionals and executives adapt to evolving employment models through our KnowHow and technologies that enable effective workforce management. To stay informed about crowd sourcing and other changes to employment models, follow Ceridian on Twitter, YouTube and LinkedIn.