Innovation12 minute read

Talent is Not a Commodity

To drive digital transformation, companies increasingly rely on external resources to build and maintain new products. However, the means by which they source such resources often generate mixed results. In this article, we explore the historical roots of contingent labor sourcing, focusing on IT recruitment. We then share perspective from an executive who lead a recent Fortune 500 digital transformation, during which he adopted an innovative approach to rapidly scale his team of talent.

Michael Kearns
VP of Enterprise, Toptal

As the VP of Enterprise Strategy, Michael is responsible for driving the rapid scaling of our Enterprise business.


Every enterprise now finds itself amidst some stage of digital transformation. Even those ahead of the curve constantly revisit and revamp their digital product portfolios, driven by rapidly emerging technologies and fast-changing customer preferences.

Countless articles cover best practices, often architected by leading management and digital consultancies and finely tailored to unique industry needs. While these resources provide invaluable guidance to venturing executives, they often lack perspective - both historical and present - on the critical process by which companies secure the essential enablers of these transformations: elite talent.

To shed light on these evolving business practices, I recently sat down with Shashank Saxena the co-founder and CEO of VNDLY - a next generation vendor management SaaS platform. Prior to founding VNDLY, Saxena led digital transformations for multiple Fortune 25 companies, including leading names in retail and finance.

Historical perspective: IT as cost center

To understand why companies struggle today to recruit elite technical talent, we must look to the past. Turning back the clock 30 years, Saxena traced the roots of contingent labor practices, particularly as they relate to the history of information technology within the enterprise. He highlighted two views, both disparate from those held today, but which would, nonetheless, define the long-term relationship between enterprise and contingent labor.

“IT was viewed as a cost-center, and often a non-core competency”

First, considering the concept of IT talent acquisition, contingent labor was widely considered interchangeable, and therefore a commodity. Consequently “sourcing anything third party, by default, sat squarely in procurement” Saxena noted.

Driving the emerging cost-optimization mindset, GE and other large manufacturers were deploying lean practices such as six sigma, to eliminate waste - particularly extra cost - throughout company operations. This cost-saving ethos measured labor hours and indistinct widgets with equivalent austerity.

Second, “IT was viewed as a cost center, and often a non-core competency.” At the time, companies built on-premise hardware, managed it with full time staff, and viewed it much like electricity or accounting - overhead required to keep day-to-day operations running. And with the emergence of lean practices, all such cost centers were subject to continuous improvement initiatives, largely focused on delivering comparable service at lower cost.

The rise of the Indian offshore giants

Heralding the era of outsourcing, the 1990s witnessed the rise of the Indian offshore giants, vaulting IT companies such as Wipro and Infosys into global leaders. Procurement, driven by the rapid adoption of ERP systems, was already slashing costs through centralized hardware purchasing, including on-premise data centers, servers and racks - all requisite expenditures in the pre-cloud era.

Such attention soon turned to IT recruitment, targeting the labor required to run the commodity hardware. At the time, according to Saxena, “the thinking went, if I can hire a java developer in India for $20 per hour, why would I pay $100 for the US equivalent?” Technical labor soon flooded out of IT departments, and into the swelling ranks across the globe.

The equivalent treatment of commodity hardware and IT labor was prudent at the time. Offshore labor served the most basic IT enterprise needs, particularly managed service apps. Essentially, these workers were keeping the lights on in a back office department. They were, in fact, a commodity.

However, a few trends soon dramatically shifted the role of technical contingent labor, and the suitability of procurement as the means to source it.

“The evolution of offshoring followed from commodity to non-commodity tasks.”

First, offshore labor rapidly climbed the skills ladder, soon capable of performing tasks higher on the value chain. Grabbing the first rung, offshore developers began supporting quality assurance, helping enterprises test new software. Software development soon followed, calling to question the commodity label ascribed to offshore labor.

Second, rising internet speeds and the iPhone-lead dawn of mobile computing fostered a wave of web and mobile-based products, leading both consumers and enterprises to demand more digital innovation. E-commerce and streaming media services became preferred consumer options. Companies that historically provided services through physical channels - such as banks and retailers - migrated online and to mobile. To accommodate shifting customer demand, companies turned to their IT departments, which were soon thrust ill-equipped into the limelight.

“Contingent labor accounted for about 10% of the company workforce during the 90s, but that figure has increased to 30-50% today.”

In response to exploding demand for digital products, and enabled by new collaborative technology tools such as GitHub, IT departments aggressively ramped their use of contingent labor. “Contingent labor accounted for about 10% of the company workforce during the 90s, but that figure has increased to 30-50% today,” Saxena pointed out.

Despite the shift in labor mix, companies have not kept pace to accommodate the trend. “So now, companies have a massive structure in place - including the Chief HR Officer, department HR leader, payroll specialists, and benefits specialist - to manage a declining percentage of the workforce. But, the infrastructure to support the explosion of contingent labor just hasn’t happened.”

Traditional approaches fall short

Enterprises still rely predominantly on procurement to secure contingent labor. However, the average procurement department scale and category cost optimization mindset are inadequate relative to the disproportionate size of - and success metrics for - contingent labor.

Growth trends have not matched pace. According to Saxena, “contingent labor has vastly exceeded the commensurate procurement headcount required to source it, leaving the later increasingly incapable of managing the former. Not many companies have appetite to add headcount to procurement.” As a result, companies depend on third-party managed service providers (MSPs) and staffing firms to fill their needs.

“Not many companies have appetite to add headcount to procurement.”

With roles sourced by procurement - already removed one level from the hiring manager - subsequent farming out to MSPs only further distances candidate selection from this key stakeholder. MSPs generally select candidates using simple algorithms: skill keyword matches, full-time status, availability and price. Rarely during the search and evaluation process is the talent concept or the nuanced fit between candidate experience and job requirements applied to filter candidates.

Instead, category optimization maximizes attributes reminiscent of lean manufacturing - including cycle time (time to fill role) and unit cost ($/hour) – but in so doing, loses sight of total cost of ownership. These myopic criteria fail to capture critical success factors, such as code quality and team fit, both of which impact product quality, and ultimately, total cost of ownership. Indeed, the cost-focused criteria that drive candidate selection paradoxically leave the hiring company vulnerable to far greater costs.

In the best-case scenario, procurement identifies talented individuals, whose screening and coordination by the hiring manager still poses a significant burden. A recent example highlights this challenge. Leading the development of a new software product for AON Inpoint, which provides consulting and technology products to insurers, John Wang - an Inpoint Partner - noted the limitations of existing sourcing practices. “Procurement offered us various types of labor, including offshore and US-based options. But we then had to piecemeal it together. With procurement, you just get a resume, but then you need to screen the talent yourself.”

Instead of organizing individual talent, John took a project-based approach. Reporting to a single point of contact - an experienced project manager - his seven person outsourced team focused only on John’s project. According to John, two benefits resulted: “We avoided cannibalizing full time staff dedicated to our core, breadwinner software product. We also completed the project in just over a year, versus the likely two year timeline, had we expanded full time resources.”

With clear limitations in procurement, HR might seem an obvious alternative. Here, Saxena succinctly laid this option to rest. “For HR, contingent labor has always been out of scope,” he noted. “They have a strategic view about talent acquisition, and see their role only covering full time hires.” Even within this narrower view, “acquisition represents a small percentage of their work, with the greater focus on compensation, career planning, benefits, etc.” In summary, the top priority for HR is to “curate company culture” not optimize contingent labor acquisition.

Fortifying a Fortune 25 grocer under siege by Amazon and Wal-Mart

Nothing drives home a lesson like a good story. In that theme, we shifted our discussion to recent experience, during which Saxena lead a multiyear digital transformation in the retail space.

In 2012, Shashank joined a Fortune 25 grocer to lead the implementation of its digital strategy. At the time, Amazon was scaling Amazon Fresh - its grocery delivery service - while Wal-Mart had recently launched labs, which would go on to develop its web and mobile products. Each venture aimed to disintermediate incumbents such as Saxena’s new employer.

Although the company had initiated digital efforts prior to his joining, the products were early stage and a relatively modest step into the digital arena. “We started with mobile apps and digital coupons, using off-the-shelf software packages such as sharepoint,” noted Saxena. “However, in order to compete, we soon realized we needed to offer a complete e-commerce experience.”

“How can I bring in much better quality people who have the chops to compete with Amazon?”

The immediate challenge of his strategic shift came down to people. Reflecting on his early days, Saxena asked “How can I bring in much better quality people who have the chops to compete with Amazon?” He recognized that his team needed to rapidly adopt the open-source frameworks required to build the AI- and machine learning-driven components that power e-commerce personalization.

“Looking at the customer-facing website, we faced a daunting challenge: how would we make it a nimble, heavily-personalized experience, one that would show customers just what they wanted?” Saxena recalled, recounting the colossal task he faced. “For example, how would we serve customers specifically interested in vegetarian, value-priced, or organic options? We needed to build millions of customized experiences, and we couldn’t do it with packaged software options.”

Flip the traditional talent acquisition funnel

To build such a product, Saxena needed to hire hundreds of highly-skilled software developers, and seemingly overnight. Existing hiring channels would not suffice. “One HR recruiter simply couldn’t find hundreds of people, so we thought, why not leverage recruiting from contingent sources?” Saxena posited. “We were agnostic about where talent came from and we were open to bringing people in as contingent and then converting them to full-time or keeping them as contractors.”

“Is this the right person for the organization?”

Saxena relied heavily on third-party providers to fill new roles, but his team prioritized unconventional criteria. “Anyone who tried to sell on cost didn’t win, but those who sold on quality did. Aligning on vision was really critical.” In practice, this meant that Saxena and his team didn’t focus first on rate card criteria, such as bill rate range and labor status. Instead, he flipped the screening funnel, starting with the critical question: “Is this the right person for the organization?”

To answer that question, he and his team built a new screening process that prioritized two critical items: interviews by actual developers, and rapid response. A critical presumption underpinned his team’s approach: the best talent would leave if they didn’t engage them and react quickly.

“What started as an ad-hoc interview process quickly evolved into a tightly managed workflow, with dedicated days and times for interviews,” Saxena noted. “The underlying support structure needed to change to onboard talent quickly. We couldn’t wait two, three weeks to respond; the best talent already had other offers and would move on.”

Act fast and decisively or lose top talent

Expediency was as critical for sending the right message. Emphasizing the point, Saxena recalled, “Any good candidate would not come to work in a slow-paced, legacy environment. We needed to send a message that we were fast, like a startup.” As a result, following positive screening interviews, candidates were immediately invited for in-person follow-up and provided offers the next day. Every interaction was with a software developer, often of increasing seniority. Saxena spoke with every pending hire.

Work environment and culture visibly embodied the startup atmosphere. Unlike their cubicle-bound counterparts within the IT department, Saxena’s team maintained a separate office in a different building. There they adopted familiar startup creature comforts, but more importantly, in so doing, also created an open working environment, which co-mingled managers, directors, and software developers. With title trappings stripped away, team members were encouraged to work together.

Saxena’s leadership delivered rapid impact. The e-commerce platform quickly expanded, soon integrating with over 1,000 of the company’s stores. Although he has since left, the organization he built continues to enable the company to compete in an increasingly web- and mobile-driven marketplace.

Hearing Saxena recount his story, it seemed any enterprise could copy his playbook to achieve similar results. Designate some office space for a corporate incubator; outfit it accordingly; hire lots of strong resumes; start building product. In response to this observation, Saxena cautioned, “The innovation lab concept has gotten beat up. Now all Fortune 500 companies have one; they designate a floor, hire bright developers, and build some proof-of-concepts. But, they’re often not really changing the fundamental way they operate.”

Order matters: Strategy, Product, People

Like good strategy - which displays replicable artifacts, yet guards its elusive inner workings - successful digital innovation may seduce would-be adpotors into simply copying outward-facing traits. Resolving cause and effect, Saxena pointed out “The key is to start with sound strategy.”

Whether initiated by the corporate strategy team, or an external consultancy, “companies need to start with the business problem or new model they want to create. Usually, they’re trying to build a new revenue stream. Then, they need to determine how to use technology to support the new model. Finally, they need to bring in the right talent to drive the transformation.” While seemingly obvious, as described, Saxena admitted that “most companies build an innovation lab, hire talent, build some cool prototypes and maybe - or maybe not - a business model comes out of it.”

Don’t fight attrition. Adapt to it.

The time of employees devoting multiple decades to a single company are long-lost. Instead, career tracks often lead the best talent through multiple roles and industries. Particularly for developer talent, whose skills are prized by any digital product team, shorter tenures are now the rule, rather than exception.

Recognizing shorter employee tenure, Saxena realized the best strategy was to adapt. “When we hired a software development manager, we knew we had 2 years at best, on average, before another offer would take them away. So we - like most Fortune 500 companies - needed to change the nature of how we broke down large projects and staffed them.”

To accommodate the reality of talent attrition, Saxena took an unconventional approach to hiring and assigning new talent to projects. First, he abandoned the one page, task-defined job description commonly assigned to new positions. Instead, he said “ we aligned new hires to our vision. We shared a short video about what our customer experience should look like in 5 years. We then pointed them in the right direction and let them go.”

The upshot of Saxena’s approach was two-fold. First, new hires could quickly apply their unique technology expertise to achieve the stated vision. The means by which they pursued the vision were neither pre-ordained nor confined. And, while vision alignment didn’t explicitly prevent his best employees from leaving, it did grant them the widest possible berth to operate as independent problem solvers. Second, by modularizing the project into a vision comprised of discrete objectives, Saxena could match talent to different parts of his project, easily directing new team members to continue carrying the torch.

Swiping past procurement, and then reuniting

Reflecting back on our conversation, which started by contrasting procurement and HR approaches to contingent labor, followed by Saxena’s front-line experience, the question emerged: how will the story unfold for enterprise talent acquisition?

If traditional procurement and HR approaches continue diverging from the objectives of digital innovation, then surely, new practices must fill the void. Confirming my suspicion, Saxena agreed “We’re starting to see several talent marketplaces emerge, and not just in development. For example, Swarm and Emissary are enabling enterprise sales efforts. In each case, the goal is to provide the company a point solution.”

Recalling a similar story played out over the past fifteen years, Saxena compared the present trend to the example of displacing Siebel systems. “For many years, Siebel was the dominant CRM, sold into sales and marketing departments for multi-million dollar annual contracts. Salesforce launched at $50 per user per month, and sales teams simply signed up with their credit cards.” The theme echoed an earlier comment in our conversation, which depicted company hiring managers going directly to LinkedIn to post open positions.

“We’re starting to see a gravitational pull coming naturally from hiring teams, and at some point, HR and procurement will adapt their processes to what these managers are demanding.”

“Seeing hit multiple expense accounts, companies soon realized their sales teams had voted, and so they signed enterprise deals. So, salesforce bypassed procurement, only to come back to them once broadly adopted.” The on-demand talent trend echoes the story, as Saxena continued “we’re starting to see a gravitational pull coming naturally from hiring teams, and at some point, HR and procurement will adapt their processes to what these managers are demanding.”

Displacement of similar magnitude may indeed play out over the next decade. As if forecasting the future, Saxena surmised, “Companies want to engage freelancer platforms; the intent is there, but the know-how isn’t.” As if beckoning more early adopters, he continued, “leaders will bring back success stories to their organizations, and new models will emerge. Give it a few years, and what we’re talking about will become standard practice.”

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