Temporary employment agencies provide companies with temporary employees (or “temps”) for short-term work assignments. Temps work for the temporary employment agency and are simply reassigned to another employer when their current job ends. ManpowerGroup, the largest U.S. temporary employment agency, placed 3.5 million people in positions in 2011.76

Temporary employees provide employers with two major benefits:

• ▪ Temps on average receive less compensation than core workers. They are not likely to receive health insurance, retirement, or vacation benefits from the company that uses their services. A majority of temporary employees do not receive these benefits from the temporary agency because they must meet a minimum service requirement of several months or longer of continuous employment with the agency to qualify for the benefits. For example, as layoffs mounted in the 1990s, the total payroll for professionals and managers employed by temporary firms more than tripled.77 However, many managers working at temp jobs earn 50 percent less than they earned as core workers.78

• ▪ Temporary employees may be highly motivated workers, because many employers choose full-time employees from the ranks of the top-performing temps. Because temps can be screened for long-term career potential in an actual work setting and be easily dismissed if the company determines that they have low potential, hiring temps helps employers reduce the risk of selecting employees who prove to be a poor fit.

Employers should understand the legal limits of using a temporary worker on a long-term basis. Several thousand Microsoft temps who held long-term positions but were employed through a temporary agency (“permatemps”) filed a class action lawsuit, claiming that Microsoft treated them as full-time workers in every way except in terms of compensation and benefits. A federal court of appeals ruled that workers who were on Microsoft’s payroll for more than a few months—even if placed by temporary agencies—should be considered common-law employees who are entitled to the same benefits that permanent employees receive.79

Temporary employees are being used with increasing regularity throughout the world. In France, one in five workers is on a temporary or part-time contract, and in Britain more than 25 percent of the workforce is part-time. Almost 33 percent of new jobs created in Spain were for temporary workers. During the height of the recession in 2010, 26 percent of all private-sector jobs in the United States were temporary positions.80

Part-time employees work fewer hours than full-time core employees and receive far fewer employee benefits, thus providing substantial savings to employers. According to the U.S. Bureau of Labor Statistics, a part-time employee is defined as an individual who works less than 35 hours per week due to economic, voluntary, or involuntary reasons.81 Traditionally, part-timers have been employed by service businesses that have a high variance in demand between peak and off-peak times. For example, restaurants and markets hire many part-time employees to provide service to customers during peak hours (usually evenings and weekends).

Companies are finding many new applications for part-time workers. For example, UPS has created 25-hour-per-week part-time jobs for shipping clerks and supervisors who sort packages at its distribution centers. Companies that downsize their workforces to reduce payroll costs have been known to restructure full-time core jobs into part-time positions.

In a special type of part-time employment called job sharing , a full-time job is divided between two or more people to create two part-time jobs. During a downscaling of its workforce, DuPont used job sharing between employees in its management, research, and secretarial areas to avoid layoffs.82 Employees who decide to be partners in a job-sharing arrangement must operate as a team and communicate the details of their daily activities to each other so that the quality of service or job output is not affected by the handoffs that occur when the job-sharing partners come and go.83

Companies are increasingly using part-time work as a way to reverse the “brain drain” of highly skilled female professionals who need greater work–life balance to provide more time for their family. Johnson & Johnson, the large health care products company, allows professional women with substantial work experience to take a reduced-hour option so the company won’t lose them. Pfizer, the pharmaceutical giant, offers part-time work to its pharmaceutical sales professionals who are highly trained in product knowledge and have developed valuable relationships with doctors who are their clients. Sales representatives choosing the part-time option work 60 percent of the hours of full-time employees and can structure their working day around children’s school hours. Ninety-three percent of those selecting part-time work at Pfizer are working mothers, and these individuals remain eligible for promotion and may return to full-time status at their discretion.84

As we saw in Chapter 1, outsourcing (sometimes called subcontracting) is the process by which employers transfer routine or peripheral work to another organization that specializes in that work and can perform it more efficiently. Employers that outsource some of their nonessential work gain improved quality and cost savings. Outsourcing agreements may result in a long-term relationship between an employer and the subcontractor, though it is the employer who has the flexibility to renew or end the relationship at its convenience.85

Outsourcing is the wave of the future as more and more companies look to the “virtual corporation” as an organizational model.86 A virtual company consists of a small core of permanent employees and a constantly shifting workforce of contingent employees.

Consistent with the outsourcing trend, human resource activities are being outsourced by organizations. For example, payroll, benefits, training, and recruiting are often outsourced to external service providers.87 Previously, these outsourced activities were performed in-house. In fact, human resource outsourcing is a fast-growing $103 billion industry, and total annual industry revenues recently increased 70 percent over a five-year period.88 Although outsourcing routine human resource activities such as payroll produces efficiencies, the outsourcing of critical HR systems such as training or performance evaluation may lead to a loss of control over important systems or a loss of opportunity to learn from one’s best human resource practices that could achieve fundamental improvements in other human resource activities. A firm that provides a wide array of human resource services on an outsourcing basis to small businesses is called a professional employer organization (PEO). PEOs provide small businesses with a bundle of human resource management services such as training, benefits administration, and staffing that larger firms have in-house, so that managers in small businesses can focus on achieving strategic business goals.

Establishing the right relationship with service vendors is very important for companies that decide to outsource. Although some companies view their outsourced vendors as strategic partners, others caution that, ultimately, company and vendor do not have identical interests. For example, UOP, an Illinois-based engineering firm that develops technology used to build oil refineries, sued Andersen Consulting, the information-technology firm UOP had hired to streamline and improve some of its work processes. UOP sued for $100 million in damages, alleging breach of contract.89 The lesson here is that it pays to communicate clearly and specifically with vendors from the beginning.90

One company that relies on outsourcing as a source of competitive advantage is Benetton, the Italian multinational corporation that makes clothing sold in 110 countries. Benetton views itself as a “clothing services” company rather than as a retailer or manufacturer.91 The company outsources a large amount of clothes manufacturing to local suppliers but makes sure to provide its subcontractors with the clothes-making skills that Benetton views as crucial to maintaining quality and cost efficiency.92

The Manager’s Notebook, “ Advantages and Disadvantages of Outsourcing an HR Activity,” provides some useful information on factors to consider before outsourcing.

Offshore Outsourcing

The spectacular economic growth of China and India during the first decade of the twenty-first century has created lucrative opportunities for companies in North America, Europe, and Asia to take advantage of the professional skills and low labor costs provided by outsource firms in those two countries.93 The labor-cost savings these offshore outsource firms can offer are impressive. For example, an information technology (IT) professional with three-to-five years of work experience would earn an annual salary of around $26,000 in India compared to about $75,000 in the United States. A call-center employee in India would earn around $2,000 a year, compared to $20,000 in Britain.94 Offshore outsourcing, sometimes referred to as offshoring, refers to the use of international outsource providers to gain competitive advantage in the market.95

Offshore outsource providers in India are particularly competitive in offering services such as call centers, IT consulting, and software development. For example, Indian call-center providers handle customer-service calls and process insurance claims, loans, travel bookings, and credit-card bills.96

China has developed a high level of expertise in manufacturing. Chinese outsource firms manufacture a broad range of products for clients. These products range from consumer electronics such as television sets and DVDs to memory chips, to consumer goods such as microwave ovens, dishwashers, and toys for children, as well as autos and trucks. Currently, a large portion of the inventory of the goods sold in Walmart, the world’s largest retail store, comes from Chinese suppliers who partner with Walmart. Additional information on offshore outsourcing can be found in Chapter 17 (“International HRM Challenge”).

The Manager’s Notebook, “ Foreign Manufacturing Is Returning to the United States Due to the ‘Reshoring’ Trend,” suggests that companies may have overlooked some of the pitfalls in outsourcing their factories to overseas locations.

MANAGER’S NOTEBOOK Foreign Manufacturing Is Returning to the United States Due to the “Reshoring” Trend

Global

In a surprising turn of events, some U.S. manufacturers who had outsourced their manufacturing work to China and other low-wage countries have shifted some of their factory production back to the United States—a trend that is called “reshoring.” For example, Apple Inc. recently announced it would start manufacturing some of its Mac computers in a newly built American facility. General Electric has opened a U.S. factory in Louisville, Kentucky, to make water heaters that had been made in China and refrigerators that were previously made in Mexico. Here are some of the reasons why factories are being relocated to the United States:

• ▪ Wages in China and India have increased at a rate of 10 to 20 percent per year in the last decade while wages in the United States and Europe have remained flat over the same period. Consequently, the wage advantage of doing work offshore has declined.

• ▪ Some American firms such as Apple Inc. and General Electric have realized that they went too far in sending their manufacturing overseas and decided they needed to make a correction to achieve a better balance in their supply chain systems.

• ▪ Offshoring companies have discovered unexpected costs that result from long lead times to bring products to market from an offshore production facility, as well as quality-control issues resulting from the separation of manufacturing from design and engineering teams. Case in point: The Boeing 787 Dreamliner aircraft has suffered numerous electrical system flaws in addition to the battery problems that led to its grounding in 2013. The engineers at Boeing blame the 787’s outsourced supply chain, indicating that poor quality components coming from subcontractors outside Boeing’s control are the source of the aircraft’s problems.

Sources:Based on The Economist (2013, January 19). Special report: Outsourcing and offshoring, 3–5; Smith, A. (2013, March). Foreign factories come back home. Kiplinger’s Personal Finance, 11; Gates, D. (2013, February 2). Boeing 787’s problems blamed on outsourcing, lack of oversight. Seattle Times. www.seattletimes.com ; Denning, S. (2013, January 17). The Boeing debacle: Seven lessons every CEO must learn. Forbes. www.forbes.com .▪▪

Contract workers are employees who develop work relationships directly with an employer (instead of with a subcontractor through an outsourcing arrangement) for a specific piece of work or time period.97 They are likely to be self-employed, supply their own tools, and determine their hours of employment. Sometimes contract workers are called consultants or freelancers.

Many professionals with specialized skills become contract workers.98 Hospitals use contract workers as emergency room physicians. Universities use them as adjunct professors to teach basic courses. Small businesses also are likely to use contract workers. When things get too busy for its 30 full-time employees, Ippolita, a New York City jewelry manufacturer, brings in a small army of freelancers—fashion experts, sculptors of miniature models, designers, and marketers. The biggest challenge is managing the relationship between freelancers and full-time employees. Management has found it very beneficial to have written job descriptions for both full-time employees and contract workers so that everyone knows his or her specific assignment.99

Contract workers can often be more productive and efficient than in-house employees, because freelancers’ time is usually not taken up with the inevitable company bureaucracy and meetings. They can also give companies a fresh outsider’s perspective. However, it is not always easy to motivate a freelancer for whom you are one of several clients, each with urgent projects and pressing deadlines.

One of the newest developments in the contingency work area is the use of college interns, college students who work on full-time or part-time assignments of short duration (usually for one academic semester or summer) to obtain work experience. Some interns are paid, some are not. Employers use interns to provide support to professional staff. Sometimes interns work a trial run for consideration as a potential core employee after graduation from college. Large companies that use college interns include IBM and General Electric (which have internships for electrical engineers), the Big Four accounting firms (which use interns on auditing engagements with clients), and Procter & Gamble (which uses interns in its sales and marketing areas).

College interns are also used extensively by small companies that want to attract employees who will grow with the company. For instance, at Seal Press, a small publishing company in Seattle, Washington, a woman who started as a marketing intern went on to become marketing assistant and is now marketing director. Editorial interns log in and read unsolicited manuscripts, write detailed reader’s reports, and sometimes attend staff meetings. Because the work is challenging, there is a long waiting list of applicants.

Flexible work hours give employees control over the starting and ending times of their daily work schedules. Employees are required to put in a full 40-hour workweek at their onsite workstations, but have some control over the hours when they perform the work. Flexible work hours divide work schedules into core time , when all employees are expected to be at work, and flexible time (flextime ), when employees can choose to organize work routines around personal activities.

Hewlett-Packard’s policy gives workers the flexibility to arrive at work between 6:30 a.m. and 8:30 a.m. and leave after they put in eight hours of work. Hewlett-Packard’s core hours are between 8:30 a.m. and 2:30 p.m.102 Meetings and team activities take place in this core time.

Compressed workweeks alter the number of workdays per week by increasing the length of the workday to 10 or more hours. One type of compressed workweek schedule consists of four 10-hour workdays. Another consists of four 12-hour workdays in a four-days-on/four-days-off schedule. This schedule gives workers two 4-day blocks of time off every 16 days.103

Compressed workweeks create less potential for disruptions to businesses that provide 24-hour-per-day services, such as hospitals and police forces. They also lower absenteeism and tardiness at companies with work sites in remote locations that require long commutes to work (for example, off-shore oil-drilling platforms).

The major advantage of compressed workweeks for employees is that they are given three- or four-day weekends to spend with their families or to engage in personal interests. However, employees who work a compressed workweek may experience increased levels of stress and fatigue.104

Figure 2.8 shows the length of the workweek for full-time employment in different countries. Notice that the workweek ranges from 35 hours in France to 48 hours in Hong Kong.

Personal computing devices, smartphones, fax machines, e-mail, and the Internet have created the opportunity for millions of people in the United States to work from a home office or telecommute .105 Telecommuting allows employees to cultivate tailored lifestyles while working a full-time job.106

Telecommuting gives employers the flexibility to hire talented employees who might not otherwise be able to offer their services. Employers also save on office space costs with telecommuting. However, telecommuting does present several challenges to managers. We discuss these in detail in Chapter 13.