Groundbreaking international research by MIT’s Center for Information Systems Research (CISR) reveals that enterprises that invest in building the digital skills of their internal workforce significantly out-perform those who cut back or who attempt to build their digital skills by hiring contractors or other forms of outside expertise.
That conclusion is supported by conducted similar analysis from management and recruitment consultancy Korn Ferry which arrived at much the same conclusions – the most successful business are those who take a longer-term view on building a workforce capable of navigating and thriving through the challenges of the future.
And the study further suggests the uberisation of talent has its limitations: organisations that recruit their talent as fulltime employees and continue to invest in their internal talent achieve markedly better results, than those that do not.
The COVID-19 pandemic has challenged and exposed businesses to risk on many fronts. Retaining and developing talent is a critical element. Many of the most effective solutions may be counterintuitive.
Challenges bring opportunities. Changes in the fabric of business and society mean that 2020 has also created new practices and possibilities for how businesses can access, acquire, and retain top digital talent. The pandemic and the business dynamics surrounding it provide significant potential to enhance and elevate business value, by lowering costs and delivering innovation to market faster.
But new research shows that many organisations are not adapting as well as they could and that alternative options are more likely to deliver better short term and longer-term value. The COVID-19 pandemic has created so many new challenges for business that many organisations have lost sight of the underlying imperatives for digital transformation. Some have cut back on employee development, while others are looking outside the organisation for quick and often temporary fixes.
The MIT CISR Research
In 2018 and 2019 MIT CISR conducted a major research project into how organisations can best build digital talent. There are two main ways they do this, by growing skills internally, including hiring new permanent staff, or by drawing on external contractors and freelancers as needed. The research found that upskilling internal staff showed a significantly greater return than attempting to look at the problem in isolation by focussing purely on filling the gap with external talent.
We studied almost 300 organisations globally and focused on their usage of IT skills. We subsequently also surveyed nearly 100 Australian organisations. We found that drawing on the external contract or freelancer marketplace may help to plug temporary IT skills gaps and provide rapid access to talent, but that the business outcomes generally suffer as a result.
Companies that rely on contractors for at least half their IT workforce (63% in the global study) have lower net profit margins, are slower to bring new products and services to market, are restricted in their ability to change, and are less innovative. Those who develop fulltime teams of digital talent do much better on all measures.
The research also showed that companies investing in better employee experiencse become more attractive to digital talent. It builds on itself – like attracts like. These companies not only have a wider talent pool to draw on, but they also use it better.
Companies that offer a superior employee experience enable their employees to do their best work, resulting in better business outcomes. Ultimately, creating a workplace where digital employees are able to thrive is critical to building a competitive advantage. This holds especially true in the post-COVID-19 world.
The diagram shows four approaches to engaging with digital talent, based on choices across two dimensions. The first dimension looks at the IT workforce and differentiates companies with an external focus (contractors/freelancers) from those with an internal (FTE) focus. The second dimension depicts the employee experience delivered by the company, distinguishing those companies in our study scoring in the top 25% on our measure of EX relative to the remaining participants.
The four approaches show how different strategies for building digital talent contribute to a company’s digital strategy, which has a significant impact on business outcomes:
These companies rely heavily on the marketplace to plug talent gaps. External talent in these companies usually have a very different employee experience than internal talent.
There are differences in systems and training access, procedures, their ability to contribute to social networks, and their search capabilities and knowledge sharing.
- Constrained – Companies taking the constrained approach typically apply more generalised and traditional HR approaches to developing the employee experience for the IT workforce. These conditions limit the opportunity to deliver the EX that is relevant for high performing digital talent
- Integrated – An integrated organisations it is hard to tell the difference between those people who are employed fulltime and those on contracts.Integrated companies in our research did much better than those following the separated or the constrained approach, especially in terms of time to market and the company’s ability to change.
- Enabled – Enabled companies are committed to investing in full-time digital talent. They compete effectively with start-ups and digitally-born companies by delivering an employee experience that supports growth and opportunity.
Companies in our global study that largely employ their talent as FTE (ie on the right of the framework in Figure 1), on average, still employ 22% of their IT talent as contractors. Australian firms, by contrast with largely fulltime digital workforces, are employing an average of 46% of their IT talent as contractors. With just 8% of the Australia firms classified as Enabled compared to 15% in the global study, there is a significant opportunity for Australian firms to enhance the employee experience to develop more choices around who they recruit and develop as part of the full-time workforce and who should be engaged on contract.
What the research tells us
Working in new ways is not easy. Old habits die hard, and employees find it challenging to change their work habits to the point they are truly working digitally. Our research found that companies who are moving to new ways of working are much more likely to be investing in their employees’ skills, through such techniques as the use of in-house coaches and mentors and delivering digital and physical places for people to talk about work challenges. They also place more value on peer-to-peer learning attributes in the leadership selection process.
These firms are assigning their existing innovation efforts across both CX and EX to ensure that employees have the right technologies, spaces, and business rules to work more efficiently to reduce costs. The research was conducted before the COVID-19 pandemic, but subsequent analysis indicates that what was true then is even more relevant now. The pandemic has shown that much of what we thought would never be possible is now possible.
Consider the uptake of cloud-based collaboration technologies. COVID-19 has accelerated adoption by five years or more in the way we work, where we work, and in many leaders’ attitude to trying new and innovative ways of working.
In Australia, we are seeing increased activity in the demand for digital talent, particularly in the financial services, industrial and government sectors. In many ways, Australian organisations are closer to the crosshairs, with fewer of them in the Integrated (2%) and Enabled (8%) quadrants than is the case globally. This provides many opportunities for growing digital talent.
Re-thinking skills and talent pools
There is a digital skillset shortage in Australia. This has always been the case, but with borders closed because of the pandemic, we need to think strategically about how we build immediate and future capability. The Korn Ferry experience on the ground since the pandemic began highlights the findings from the MIT CISR research:
You can’t just fly in the X-Factor of digital talent to apply a band-aid solution to a failing program or strategic initiative. Organisations should look first at their own people to develop the talent they need to ensure their workforce is ready for the challenges of the future. Sometimes you need to get people from outside, but they need to become part of the team as soon as possible.
Remote working offers options for people to work outside of the major cities. There is much less need for people to work from a particular location or to re-locate interstate or two or from regional areas as business needs and circumstances change.
Many IT skills have a short half-life. The skills needed in the workplace are constantly changing. Technical skills are important, but they come and go. Much more important is the capacity and appetite to learn and collaborate, people skills and customer empathy.
Output focus for leaders
Leadership has become more transparent and focused on setting expectations to work to aligned goals. IT and other leaders are increasingly not just hiring people to get the job done, they are looking for people who can pivot quickly and innovate – sustainable capabilities that will see them through the next phase of recovery:
Leaders who leverage the data to have evidence-based conversations with employees and then empower their people to deliver outcomes are working well. The old ‘command and control’ way of doing things derails the Employee Experience.
Flatter teams mean higher operating levels become more involved and the employee voice is amplified. Companies who are capturing that voice in ways that can be actioned are leveraging the power of their digital talent to deliver better business value.
Leaders who can motivate and support the curiosity of their people to learn are reaping the benefits of a more fluid workforce where people can leverage existing knowledge and then quickly upskill.
The better the EX, the more capacity we have to focus on employee well being
The pandemic has shown that working from home and other forms of remote working are much more successful and productive than was previously realised. This creates more opportunities for leaders to leverage their increased knowledge and have more evidenced-based conversations with their teams around their wellbeing. They face new challenges :
- Leaders have a responsibility to ensure people are not at risk of burnout, and that they feel valued.
- High performing employees are likely to vote with their feet post-COVID. How you treat them now will determine if they are advocates for your business or whether they will leave to seek greener fields elsewhere.
- Digital talent is motivated by interesting work and opportunities to learn, not just money.
It is important to give people permission to build in time to keep learning. If you want encourage a curiosity mindset, you need to nourish it and feed it. At Korn Ferry we have seen a significant uptick in the adoption of digital tools that allow employees to take control of their development and continue on their lifelong learning journey.
Organisations with high levels of employee engagement invariably perform better than their competitors in terms of innovation, productivity, customer satisfaction, and financial results. Net profit is twice as high and revenue growth is 2.5 higher. Productivity is up 18% and staff turnover down by 40%.
It is often necessary to recruit externally through contractors or freelancers, but such employment needs to be considered within the larger context of the organisation’s activities. It is not a quick fix. Consider the concept of the ’curated workforce’, where external and internal talent are brought together with purpose and given the same opportunities to learn and grow.
Have a close look at the potential of your employees
it is our experience that many organisations do not adequately consider the growth potential of their own employees before looking outside for talent. Very often the payback in loyalty, gratitude and enthusiasm in developing an employee, either identified internally or hired in, pays off handsomely.
Amplify the employee voice
One of the best ways to build a great employee experience for digital is to amplify the voice of your people . Enterprise social media platforms for sharing ideas, virtual town halls, regular check-ins with teams, or any other way that raises the voices of all employees will help you identify where those workplace speed bumps are, and also ways to eliminate them.
Gather data, from anywhere and everywhere
The availability of vast amounts of data is another huge trend changing the world of work. Organisations need to gather data from wherever they can and get that data to wherever it’s needed. The data needs to be usable and easily understood by the people who need it to re-imagine the possibilities of work.
Linking the employee Experience with business objectives
This means enabling people to imagine and reimagine what they need to do from an employee perspective to keep delivering value to the customer. The key business objective is serving the customer.
We need to support and enable leaders in very different ways. In addition to giving leaders access to better data, they will also need more support to develop the skills required to have more empathy with their people and teams. The more engaged leaders are with the hearts and minds of their people, the more likely they are to be more effective leaders in the digital world of work.
We need somebody accountable and responsible for bringing all this together. This could be a Chief Employee Experience Officer. It needs to be somebody you can look right across the organisation, who can see how budgets are allocated, and who understands the business rules needed to minimise friction points that make life hard for employees.
In challenging times many organisations look at new ways to create their IT workforce. They realise they have many choices around how they attract and retain the staff that is needed for future growth and success.
The MIT CISR and the Korn Ferry research clearly show that nurturing existing staff and employing digital talent as full-time employees pays off. Organisations should pay attention to designing an employee experience that enables digital talent to thrive in order to make that choice.
But our research also reveals that barely one-third of Australian enterprises employ most of their digital talent full time. Instead, they are opting for models that favour contractors, freelancers, and other contingent talent models. In Australia, many firms are not delivering the employee experience required to keep digital talent engaged and to enable them to grow.
Outsourcing is not in itself a bad thing, but any sort of divide between internal staff and those working on a contractual or freelance basis will cause problems. Our research clearly shows the growing digital skills of internal staff provide the greatest returns.
The COVID-19 pandemic has reframed the options for talent. We are already seeing many firms bringing their outsourced workforces home. In Australia, Telstra is a good example. These difficult times mean we should be building an environment with a continual learning process, where staff can use their skills in ways.
In these current difficult times, we have had to rethink many aspects of how we work and where our priorities lay. There have been major problems, but are also many opportunities to greatly enhance organisational efficiency and better prepare our organisation for the future.
Note: This research was completed with co-researchers from MIT CISR Nick van der Meulen and ina Sebastian. The data was drawn from the 2018 MIT CISR Pathways to Digital Business Transformation N =279 together with the 2019 Adapt Survey of Australian Companies N=100
About the authors
Kristine Dery is a Research Scientist at MIT Sloan School of Management. Bridget Gray is Vice President Asia Pacific IT Services at Korn Ferry (and an occasional Which-50 contributor)