Contractor Reduction Strategies

Conclusion

The advantages of a reduction in contractors include:

• A more stable workforce.
• Opportunity to consider core internal capability – what roles should be staffed by internal people with a good understanding of the business and culture.
• Opportunity to review non-essential roles (both permanent and contractor) – often in alignment with workforce planning and technical roadmaps.
• Targeted training and development.
• Cultural alignment and change given the permanent nature and longer tenure of roles, which offers the potential for people to buy into an organisational culture, given their interest in the longevity of the business.

CIOs have a number of options at their disposal to manage a reduction in contractor staff. There are two streams: short-term and long-term.

In the short term, the focus is on demand and priority management.

In the long term, the focus is on a more strategic approach to workforce planning and vendor partnerships. CIOs who get on the front foot early and have a plan in place to examine their workforce continuously are more likely to achieve the objective of cost savings over the long term and at the same time retain skills and expertise.

To bring it all together, CIOs should develop a detailed communications and engagement plan to ensure a wide understanding of the issues, the solutions, roles, and responsibilities.

Observations

1. Short term

The first challenge is the timeframe for the transition from contractors. One option is to deliver the current portfolio of projects with the existing workforce, while the second is to pause delivery while resources are reallocated. Regardless, a plan needs to be in place to manage the transition before any announcements or actions are made. The plan should include a risk map as a key source of information.

The second immediate challenge is to maintain business as usual (BAU) and ongoing projects. Although many contractors are employed for the defined term of projects, BAU is included because permanent staff are often deployed to projects and backfilled by contractors. The options include a greater rigour of governance to set priorities and manage demand, as well as the inclusion of risk as a decision-making factor. This governance must be informed by CIOs, but ultimately led by the business.

The third immediate challenge is the disparity in the salaries of contractors and permanent staff. Government organisations, in particular, can be hamstrung by HR policy regarding salary, given a focus on job descriptions and salary levels that do not recognise market demand for specific digital skills. Non-salary items, such as flexible work arrangements (including decentralised locations), training and career development, salary sacrifice, childcare, leave, health insurance, fitness memberships, and tenure, can all help balance the disparity. Retaining the relationship with existing recruitment companies to manage these issues can be valuable for future recruitment strategies.

The fourth immediate challenge is the allocation of budgets. The allocation and responsibility for digital budget items have historically been the responsibility of the CIO. However, modern digital projects are increasingly being led by line of business and other corporate leaders. Despite strong governance, some organisations will allow line of business areas to supplement the budget for digital projects, or to have a total allocation. In these instances, the payment of contractors may be from a different cost centre to the CIO. This can cause disharmony among staff if there is a disparity between organisational units on the use of contractors. The challenge is also broader than just digital budgets, as digital projects involve teams across the business and share the same staff pressures.

2. Long term

Sourcing Strategy

• Develop a sourcing strategy to examine the core functions and skills required by the IT organisation, as well as the functions and skills that a strategic partner could provide. An example is the support and ongoing development of an enterprise resource planning (ERP) system. The outcome is a more strategic approach to utilising external resources through partnerships. The cost may be comparable to or even exceed that of using contractors. However, the benefits of a strategic approach enable the pursuit of greater innovation through the resources available within an organisation, rather than an individual, and provide greater flexibility in planning future roadmaps.

Operating Model

• Review the IT operating model to identify opportunities for realigning the workforce and partnerships with vendors.

Architecture

• In conjunction with the operating model, review the architecture to rationalise and consolidate technology use, thereby reducing the diversity of technology-specific skills.

Workforce Plan

• Develop a strategic workforce plan, inclusive of: a focus on business alignment, workforce analysis of roles that are no longer required and new roles, partnerships with vendors, talent development and pipelines (internal and external), diversity, and flexibility.

Modern Ways of Working

• Plan and implement agile project management methods to improve resource allocation and utilise existing staff more effectively, particularly in business-critical areas.

Leverage Technology

• Utilise technology and automation to help streamline processes and reduce the need for staff to maintain manual interventions. This is particularly so for the automation of workflow and the use of artificial intelligence (AI).

Procurement

• Procurement processes and the market are often blamed for being blockers or delaying tactics that hinder achieving the political objective. This can lend itself to retaining staff or increasing full-time staff by reducing outsourcing or contracting.

3. Communications and Engagement

CIOs should develop a detailed communications and engagement plan in order to manage expectations across the organisation, and to inform current and future decision-making that takes place at the executive layer. The issue of contractor staffing is often contentious, as it will likely involve a review of demand and priorities, and impact staff morale regarding parity and the potential loss of capability.

Communication and understanding of the impact are also priorities. The one-time costs of recruiting, interviewing, and training, as well as the opportunity costs associated with lead times to fill roles, are substantial.

Next Steps

The next steps for CIOs, CFOs, and heads of HR are to:

• Optimise resource allocations and involve all stakeholders in demand management and determination of priorities. Ensure robust governance is in place to make the decisions.
• Invest in employee training and development, particularly in the wide range of online short course training available.
• Develop a clear workforce plan in partnership with HR and vendor partners. The plan must examine core business and non-essential roles.
• Engage vendors and partners on not only delivery, but skills and knowledge transfer.
• Develop and widely communicate a clear technology delivery roadmap that incorporates the workforce issues and plans.