Topics:   Corporate Governance,Leadership,Strategy

Topics:   Corporate Governance,Leadership,Strategy

July 3, 2018

Oversight of Workplace Dynamics: The Labor Model

July 3, 2018

The so-called war for talent has been waged and chronicled for so long that reference to it has become trite, but the battles continue in earnest. A top risk for many years, the conflict has become increasingly complex and even more competitive as demographics shift, new technological capabilities emerge, and the pool of needed talent falls short of demand. As these disruptions alter traditional labor models, today’s organizations are being forced to cope with a future that is looming large on the horizon.

Nearly 30 years ago, Irish author and philosopher Charles B. Handy introduced his idea of the “shamrock organization.” Just as the most common clover leaf has three leaves, this organization consists of three components:

  1. A professional core of well-qualified, hard-to-replace, and highly compensated leaders, managers, and technicians with the skills underlying the entity’s core competencies and essential to its continued growth;
  2. A contractual fringe of self-employed individuals and specialized organizations that provide essential capabilities to perform work on a project-by-project or outsourced basis and are compensated on results; and
  3. A contingent workforce of flexible, part-time workers whose employment is temporary and scaled up and down to address peak staffing periods arising from events and developments, such as an enterprise resource planning (ERP) system upgrade, unusual merger and acquisition (M&A) activity, major business process changes, or dramatic shifts in demand for company products and services.

According to Handy’s The Age of Unreason (Harvard Business School Press, 1989), in effect, the shamrock organization is a “core of essential executives and workers supported by outside contractors and part-time help.”

Over the past 30 years, demographic, social, and technological market forces have shaped the components of Handy’s model in interesting ways. Handy asserts that, while this labor model “has existed in embryo … what is different [now] … is scale.” Whereas the second and third leaves of the shamrock may have been smaller in the past, they are much larger today—and are still growing. They will continue to grow as the risk of disruption increases, customer loyalty grows fleeting, workplace demographics continue to shift, the service—or “gig”—economy expands, and the war for fit-for-purpose talent intensifies. It’s an omnipresent trend toward a talent ecosystem that warrants director attention.

As the world of work changes, the board has a role in ensuring that management is making the appropriate adjustments. Below, we pose several questions germane to board oversight, with emphasis on two of the three dimensions of the evolving labor model: skills and scale (our next blog discusses technology, which is the third dimension):

  1. Do we have an eye on the demographic, social, and technological trends affecting the labor model? Shifts in demographics, the availability of skilled talent, and the effect of technology on work, jobs, wages, and society at large should be assessed continuously over time. The board should be briefed periodically on this intelligence.
  2. Does the board utilize sources other than management for insights about market trends affecting the labor model? Relying on multiple intelligence sources is a smart play in all aspects of a board’s oversight, particularly this one.
  3. Given the evolving market trends, do we have processes in place to evaluate their implications to our labor model? Has management thought about separating noncore activities from the essential tasks of operating the business with the objective of improving focus on mission-critical activities? What are the benefits and costs to the organization if any or all of these noncore tasks and functions were performed by external workers or firms? If the business case dictates action, what specific changes should be made to the labor model (e.g., how, why, and within what time frame must the enterprise transform it)?
  4. Do we consider the economics, opportunities, and risks associated with outsourcing noncore activities? Providers of managed business services and business process as a service can offer options, particularly if the activities in question are not associated with strategic capabilities underlying the entity’s core competencies and the provider can perform the activities better at lower cost.
  5. Have we considered applying all three elements of the shamrock model? Is management positioned to hire, develop, and manage the labor pool in each shamrock category in an optimal manner? In the digital age, management can focus on understanding and harnessing technology’s role in supporting and shaping each pool considering its unique challenges.
  6. Do we have the right human resources partner? As management plans to implement process improvements and addresses the resource needs to support key initiatives, important talent management questions arise. What specific forms of expertise are needed For instance, an ERP implementation requires finance professionals with technology and change management skills, and a digital transformation initiative requires data scientists. How do we resource these efforts? Does a traditional outsourcing relationship meet the need? Do we need help in deploying individuals and firms on the contractual fringe or on a contingency basis? As management addresses these and other questions in building the enterprise’s talent ecosystem, management may unleash significant value through an external partner who offers new capabilities and solutions through deep knowledge of the company’s people, processes, technology, and culture.

Directors should be cognizant of changing workplace dynamics and how management’s handling of them can have significant implications for the organization’s long-term viability. The economic drivers, technological advancements, and shifting generational expectations affecting the traditional staffing model are forcing companies to rethink how they are approaching staffing and talent development. Boards can play a catalytic role in stimulating this process.

Jim DeLoach is managing director of Protiviti. 

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