The world is in the grip of seismic and fundamental shifts impacting the way we work, including globalisation, market cap, revenue and operating margin volatility, sectoral shifts as traditional industry barriers break down, and new attitudes to ways of working. These trends were already gaining traction pre-pandemic, but Covid-19 has accelerated them.
Closer to home, we are impacted by global trends, as well as challenges specific to our economy. We are dealing with persistent skills shortages, stronger segmentations within the labour market, an unpredictable and volatile economy and operating landscape, a mismatch between the supply and demand of skills, and record high levels of unemployment.
It sounds incredibly dire and many businesses are battening the hatches as a result. 2021 was characterised by businesses across different sectors looking for ways to trim costs, and since, according to StatsSA, labour in South Africa accounts for approximately 14% of annual total costs, retrenchments are often the first solution that organisations implement.
The problem is that this is a short-term solution that further exacerbates social unrest while also having a negative impact on the revenue growth potential of businesses. Most businesses rely on skilled labour to deliver their products and services to customers, allowing them to meet and exceed their revenue targets. You need people to grow. But large workforces also come with large risks. For example, many sectors are subject to significant fluctuations in demand over the course of a year. Fixed labour costs without the necessary revenue coming in can have a significant impact on working capital and the bottom line.
In other cases, a depressed market is making businesses wary of investing in future growth – they simply do not know if projected sales will come in and this uncertainty is manifesting in a reluctance to hire. We’ve also seen how poor productivity and an uptick in absenteeism are impacting margins, which once again is a labour issue.
The solution to many of these challenges is contingent workforces.
What is a contingent workforce?
A contingent workforce is a labour pool that consists of people who are hired by an organization for a fixed period of time, often on a project basis, through an organisation like BLU. Because we are responsible for recruiting, training, upskilling and onboarding contract workforces, and we carry the regulatory and compliance risks associated with labour in South Africa, we are able to deploy skilled workers on a project basis that are productive from day one.
Here are six key benefits of contingent workforces:
1. Businesses that use contingent labour can respond faster to business demands
The ability of a business to react quickly to market opportunities through immediately increasing its skilled labour pool results in higher revenue growth. In our market analysis, we have seen companies that use contingent labour forces accelerate faster out of a downturn for this very reason.
2. Contingent labour provides greater flexibility
This is particularly pertinent for businesses that need to manage seasonality and economic cyclicity. Contingent workforces allow businesses to deal with fluctuations in demand and many businesses can replace absent permanent employees with contingent labour without losing productive time.
There is also a benefit for ‘just in time’ industries, such as FMCG. When a sector needs to be fast and flexible, labour solutions must be flexible too. How quickly you can onboard employees is key. We also believe that ‘just in time’ across the supply chain will result in smaller spaces and flexi workforces that adapt to immediate needs.
3. Businesses can try out potential permanent hires
Many companies use us to de-risk their hires. We provide trained, skilled and onboarded workforces and once a cultural and skills fit is established, a business may choose to make someone permanent, without carrying the costs of recruitment, onboarding, upskilling and worse, making the wrong hire in the first place. Because our overall values support increasing employment in South Africa, we support all employment, even if we personally lose a skilled member of our own contingent labour force – it just provides room to bring someone else into the economy.
4. Businesses can keep fixed costs low
Thanks to economies of scale, businesses can deliver services by scaling up and down quickly without carrying fixed costs. This has a measurable impact on a company’s profitability.
5. Contingent labour increases overall productivity
Whether the permanent/contingent mix is 50/50, 60/40 or 70/30, in every case we see less absenteeism, better discipline, and heightened productivity. There are a number of reasons for this. The first is our own stringent expectations. Our workforces are skilled, trained and supported, which means we are naturally placing great employees in our clients’ businesses. The second is the knock-on effect when motivated employees are in a workplace. The employees themselves are often trying to prove themselves to secure a permanent placement. Similarly, other employees in the working environment feel the need to prove themselves because the productivity levels around them are improving. The result is a naturally more motivated and productive workforce as a whole. This has been proven around the world.
6. Contingent labour reduces unemployment
Contingent labour also provides an indirect benefit for businesses because high unemployment rates typically result in social unrest, which increases business disruptions. However, from a purely economic perspective within the South African context, it’s important to note that contingent labour actually increases job creation.
Conclusion: A way forward for a stronger shared future
In the current operating conditions we have described, many businesses will not consider hiring more permanent workers – but they will leverage the benefits of contingent workers. Numerous studies have backed this assertion: The higher the prevalence of contingent staffing present in a country, the lower the unemployment rate. For organisations concerned about adding overheads during uncertain economic conditions, contingent labour solutions provide a strong growth. Reach out to us today so we can connect you.