Alternative Employment Models for Managing IT Work

M. Diane BurtonThomas KochanIsabel Fernandez-MateoMatthew Bidwell

October 15, 2002

Alternative Employment Relationships

Most people work under standard long-term arrangements with a single employer either full-time (~68%) or part-time (~14%).However, ~18% of the labor force is located in an alternative employment relationship:

Independent Contractors 7%

Self-Employed Workers 5%

Temporary Agency Employees 3%

On-Call Workers 3%

The Contingent Work Debate

Good

Employment of the FutureFree Agent NationE-Lance Economy

Autonomy & FlexibilityMarket Discipline

Bad

Demise of internal labor marketsSecond-class, peripheral status

Low wagesUnstableNo benefits

Skilled and Contingent: Paradox and Promise

Does skill translate into labor market power?How is it manifested?With whom?For what purpose?

How are “career functions” – wage growth, advancement, training and development, benefits –provided?What are the consequences of contingency:

for individuals?for projects?for firms?

Current perspectives on contingent work

Internal Labor Market Theory

Psychological Contracts Literature

Structured, long term employment exists to secure workers’ cooperation (Doeringer and Piore, 1971; Burawoy, 1979; Jacoby, 1985; Cappelli, 2000)

Reduced commitment of the firm to employees lowers their commitment and willingness to help the organisation (Pearce, 1993; McLean Parks et al, 1998)

Key focus is on how contingent employment affects workers commitment.

Are contingent workers less committed?

Pearce (1993) finds that contingent workers are no less committed than their regular counterpartsJarmon, Paulson and Rebne find their supervisors think they are Van Dyne and Ang (1998) find it depends on why they are contingent

No

Yes

Maybe

If they are, it’s probably not a major effect!

What are the consequences for projects and for firms?

Development of firm-specific skills and capabilitiesRetention of proprietary assetsInnovationFirm-specific knowledgeTraining

Project PerformanceEfficiencyFlexibilityInnovation

Firm PerformanceFinancial performance – short and long termSustainable competitive advantageStrategic differentiation

Bringing Skills Back In

Firm specific skills have long been recognized as important in the employment relationship…

… but have played a minor role in the debate on contingent work

Doeringer and Piore (1971) argue that these skills are an important source of power for workersWilliamson (1975) argues that employment protections are needed to encourage worker investment in these skills

While their role in determining the employment relationship is noted, they are seen as pre-determined and theoretically uninteresting (Pearce, 1993; Lautsch, 1998; Masters and Miles, 2002)

Understanding the Broader Institutional Context

Labor Market IntermediariesStaffing AgenciesRecruiters

Why IT work?

Professional, Skill-basedVariation in the employment relationship

Internal IT employeesExternal IT consulting firmOffshore IT developersIndependent contractors

Growing profession in a growing sector of the economy

Research Challenges

Company AccessComparable Performance MetricsLongitudinal Data

Research Progress Reports:Two Dissertation Projects

Isabel Fernández-MateoCareers in Boundary Labor Markets: An Empirical Analysis of Creative IT Contractors’ Job Histories

Individual Outcomes

Matthew BidwellThe Resourcing and Organization of IT Projects

Project Outcomes

Careers in Boundary Labor Markets: An Empirical Analysis of Creative IT Contractors’ Job Histories

Isabel Fernández-MateoPh.D. CandidateInstitute for Work and Employment ResearchMIT Sloan School of Management

Why careers?

They embody companies’ strategies for managing their employees

Definitions of success are attached to patterns of movement across positions

Transfer of knowledge and practices across organizations

Careers are the basic structures of traditional ILMs

Individuals’ professional lives evolve as a sequence of jobs over time

They are the threads that bind individuals and organizations

Why “contingent” careers?

We don’t know much about how careers evolve in a context of alternative employment relationships.

What happens when ties between individuals and companies are looser than usual?

Important because:Alternative employment relationships are increasingly common in innovative sectorsAlternative employment relationships are especially prevalent insectors where an individuals’ human capital is key for business success

My research questions

Are careers without boundaries fundamentally different from careers within organizations?

What variables influence objective career outcomes for highly skilled independent contractors?

What is the role of labor market intermediaries in structuring professional careers?

How do highly skilled contractors experience contingent careers?

“Creative IT” Contractors: The Case of a Talent Agency

Archetypal “new economy” professionGraphic designers, web designers, programmers, content developers and presentation specialistsContingent work is very common for these workersInteresting window to the broader phenomenon of high-end contingent work

Unique database: employment records of a global staffing agency

1,000 individuals, 3-year periodResumes and complete work historyInterviews with key informants…Not your typical “temp” agency18 to 57 years old; 76.5% have a bachelor degree

Three Analyses of Career Outcomes

Study 1: “Emerging Boundaries”Descriptive analysis of career patterns: uncover categories of contracting experiences, understand heterogeneity

Study 2: “Skill Boundaries”Search for evidence of ILM-like structures across sequences of freelance assignments

Study 3: “Crossing the Boundary”Determinants of transitions to permanent employment

Emerging Boundaries: Preliminary findings (I)

Evidence of heterogeneity in contracting careers’ experiences:

Identifiable “core” of committed contractors (20% of a 668-individuals sample) versus transitional contractors

They differ in terms of demographic characteristics and previousexperience

More likely to be placed in temporary assignments and receive higher wages

Less likely to “go perm”

Emerging Boundaries: Preliminary findings (II)

Evidence of “non-traditional” career paths:From full-time employment to independent contractor status to entrepreneurSuccess is not defined in terms of organizational hierarchiesIt reverses traditional conception of contingent work as an intermediate career stepCore base of knowledge is still developed inside an organization

Skill Boundaries: Setup

Is there any evidence of ILM-like structures across sequences of freelance assignments?

Focus on human capital acquisition and its effects on wage outcomesSub-sample of 128 comparable individuals and 876 assignmentsAdditional dataset of orders and wages for 11,308 assignments

SKILL SEGMENTS: DESCRIPTION AND WAGES

SEGMENT Example job titles Sample N Wage All N

Technical . Client Service; Database Designer; . Help

Desk; IT Project;. Internet developer;

Network Admin; Systems Administrator

64 $29.96 2,479

Web and

Multimedia

. Content Manager; Multimedia expert; Web

Designer; Web Graphics; Web Page

Production

160 $30.99 1,641

Writing . Editor; Copywriter 35 $36.81 116

Secretarial . Receptionist; Administrative Assistant 37 $14.72 204

Spreadsheets . Spreadsheets expert 115 $14.90 686

Print Design &

Creative

. Graphic designer; Illustrator 36 $27.20 1,268

Print Production . Pre-press technician; Print artist 223 $19.52 3,104

Presentations . Presentations expert 206 $20.34 1,810

Total 876 $22.64 11,308

Statistical Models

Variables (1) (2) (3) (4) (5) (6) (7)

Predicted Wage (from wage baseline data) X X X X X X X Industry dummies (13 industry codes) X X X X X X Measures of the agency’s relationship with the client

• Geographic extent & Duration X X X X X X

Individual ascribed characteristics

• Gender & age

• Education dummies & years of experience

• Prior status as a contractor

X X X X X

Career sequence variables

• Lagged wage

• First segment

• Lagged segment

• Client & industry running sums

• Assignment sequence

• Tenure with the agency

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

Skill Boundaries: Emerging findings

Differences among skill segments:

Wages: high pay vs. low pay

Mobility patterns: low persistence vs. high persistence segments

Wage differences by industry

No effects of agency/client relationships on wages

Evidence of career structures:

Initial positions matter

Tenure with the agency increases wage

Some Potential Implications

Careers in the boundary are not necessarily boundaryless

Career structures emerge from sequences of freelance assignmentsIntermediary organizations have a role in this process

Challenges for Human Resources Systems:Need to understand individuals’ alternative definitions of successNeed to consider how those definitions fit within organizationalpromotion systemsNeed to gauge in which conditions contractors are different from regular employees

The Resourcing and Organization of IT Projects

Matthew BidwellPh.D. CandidateInstitute for Work and Employment ResearchMIT Sloan School of Management

Do Peripheral Workers Do Peripheral Work?

When employees and contractors work side by side:

Is the work that the contractors are doing different from employees?

Are the contractors managed differently than the employees?

Rationales for hiring contingent workers in IT

Hiring contingent workers has many advantages…Short term employees protect the core workforce when demand is volatileSome skills are only needed for short periods of timeEase of termination makes for easier hiring - “Just in Time” staffingManagers can hire consultants to get around hiring freezesIn the late 1990s it became very hard to hire employees – being a consultant was seen as more lucrative

… but this may come at a 20-30% price premium over employees

One firm, two relationships

As a result many IT departments have two very different groups of workers sitting side by side:

Regular EmployeesExpectation of long term employmentExtensive Development activitiesOpportunities for promotionRigorous evaluation and compensation processes

Contingent WorkersRelationship is expected to be short termNo internal developmentLimited opportunities for advancement within the firmNo evaluation or bonus

What Do Internal Labor Markets Do?

Research Questions

How does the work that contingent workers do differ from regular employees?How are contingent workers managed differently from employees?

Implications for ILMs

What work does the firm prefer to keep within ILMs?

How do ILMs affect the management of workers?

Hypothesized impact of commitment on contingent work

If contingent workers have less commitment than regular workers,then:

They will be less likely to work on projects that are critical to the firmThey will be managed more closely

More regular meetingsMore time spent reviewing their workMore autocratic decision-making

Hypothesised impact of firm-specific skills on contingent workIf contingent workers have less firm specific skills than regular employees, then:

They will be less likely to work on projects that involve:Working with proprietary applicationsUnderstanding the firm’s business processesWorking with multiple parts of the organisation

Projects will involve more formal management, with detailed requirements and design to make up for a lack of systems knowledge by the developers

Research Method (1) - Interviews

Detailed, multi-firm interviews

Over 40 InterviewsMultiple firms

8 end user firms8 Consulting firmsIndependent ContractorsIT employees

Covered multiple aspects of the differences between employees and consultants

Research Method(2) – IT Project Survey

The Setting:

The Method:

Key Topics:

The IT department of a large financial services institution - “The Bank”A survey of ~100 new development projects that took place in 2001

Project managers surveyed to learn project detailsSenior management surveyed about outcomes

Project goalsHow the project was staffedThe Project management styleFinal Outcomes

Project Status

Industry interviews completed

Project survey underway – 14 surveys completed

Tentative findings – how are consultants managed?

No differences in how contractors are managed on a day to day basis versus employees

Key concern of managers is losing their knowledge when they leave

Tentative findings - How are projects staffed?

Experience with specific systems and applications (“firm-specific technical knowledge”) dominates project staffing

No impact of project complexity or criticality on the use of consultants – it doesn’t appear that managers feel less able to control contingent workers

Emerging Insights (1)

The widespread use of consultants challenges the importance of HR policies in fostering and developing human capital

Managers have a high level of comfort hiring consultants rather than recruiting employees (particularly as it’s often easier)Managers do not see a need to manage consultants differently from employees

Emerging Insights (2)

The key challenge in managing contingent workers is actually achieving flexibility with them

Although IT workers have very general skills, they quickly buildup very specific knowledge of the systems they work onContingent workers can be far from temporary once they have built up this expertise on proprietary applications

Conclusions & Discussion