How to Successfully Manage Contractors and Suppliers

Posted by Craig Thornton

Do you Have What it Takes to Realise the Benefits of External Resourcing? 

Last month we covered some of the health & safety-specific challenges associated with the use of contractors.

Some of the discussions that resulted from that webinar got me thinking about the bigger picture, i.e. what other challenges do companies face when they start using external resources?

It’s certainly a pertinent topic given most organisations are looking to increase their reliance on ‘off payroll’ resources – be they contractors, freelancers or outsourced service providers.

It’s also an area that many companies, both large and small, struggle with – so even more worthy of further discussion.

Let’s take a look … 

Engineer looking at blueprints at a construction site


The benefits of external resources

It’s easy to justify moving work from internal to external resources. Not only is there often a clear cost-justification, it also allows the organisation to focus on their core business but still use specialist skills for those other (non-core) activities.  Another often-cited business benefit is increased agility where the company can tap into a larger resource pool, as and when required, but without carrying the overhead.  

So, in theory at least, external resourcing can deliver a significant competitive advantage.  

However, whilst these benefits no doubt look attractive on paper, they come with a fresh set of challenges. 

Benefits realisation

Realising the benefits of external resourcing comes down to the organisation’s ability to put in place the management structures, processes and leadership skills required to exploit this new model.

It therefore requires foresight and the ability to adapt as it increases its use of external resources.

Below are the main areas that, in my experience, companies need to focus on. 

  1. New risks need to be managed

    In addition to the health & safety challenges we’ve previously covered, external resourcing exposes companies to a much wider range of risks.

    More often than not, outside resources won’t share your company values and they certainly won’t understand how you expect the job to be done – and to what standard – unless you tell them. 

    Education is therefore critical – unless of course you’re happy to live with the risk of them upsetting your customers and damaging your reputation.

    But there’s also some potentially hairier risks to contend with - like information leaks and intellectual property theft.

    You therefore need to widen your risk management outlook as you increase your reliance on third-party resources.   

  2. Leadership skills need strengthening

    External resourcing requires different management and leadership skills because you have less direct control over the individuals.

    It needs managers that can unite and orchestrate a dynamic, loosely affiliated network of people around a common purpose.  And before you can establish that common purpose, you need a coherent corporate vision and set of values.

    Managers will therefore need a new set of ‘carrots and sticks’ to garner the right behaviour from external resources. 

  3. HR policies need to change

    In order to attract and retain the best external talent, you’ll need to adjust your HR policies and procedures. But you’ll also want to set clear rules and boundaries and define how those expectations differ to those placed on your internal staff.

    Simply having external resources around can also change the expectations of your internal staff if they see massive differences in how they’re treated. For example, they may expect more flexible working hours and to be able to work away from the office.

    Don’t make the mistake of thinking that just because some of your resources are not on your internal payroll you can ignore them from a HR perspective.     

  4. Processes need to be clear and easy to follow

    Using external resources places much greater emphasis and strain on your operational processes.

    That’s because you’re now relying on external personnel to carry out key steps in the process and you can’t afford any mishaps. 

    The easiest way to address this is with well-constructed processes that are properly explained to all involved parties. Only then can you be sure you’ve clearly explained who does what when, how they do it – and why they do it.  

  5. Costs need to be controlled and understood

    Now this might sound obvious – and easy to achieve – but many organisations don’t even have good visibility into how much they’re spending on external resources.

    And for those that can at least accurately count the beans, many can’t allocate those beans to the appropriate ‘bucket’ – be it a particular job, cost centre or general ledger code.

    Failing to understand the true cost of external resourcing is inviting certain failure. 

  6. Performance needs to be managed

    Of course, getting a handle on your costs is a very basic prerequisite to complete performance management. You’ll also need to make sure you can properly manage the speed and quality of your external resources.

    That’s where having the right service level agreements (SLAs) and key performance indicators (KPIs) becomes critical.  

    Without a solid performance management platform in place - that both parties understand - you’re setting yourself (and your contractor) up to fail.  

  7. Software needs to enable (not hinder) success

    Most companies will need new or better tools to help them achieve and manage the six requirements discussed above.

    For example, they’ll need good software to help them manage risks, processes and performance. They’ll also need to consider how to make knowledge-sharing and collaboration seamless.

    Otherwise, the software will simply ‘let the side down’ and hinder those great initiatives.

The takeaway

Organisations who maximise the benefits of external resourcing have the frameworks, processes and tools in place to leverage such complex structures.

They can then strike the right balance between internal control and external empowerment and build a truly collaborative operating model.

And their rewards? 

How about cost-savings, greater agility and higher quality (to name but three).

Sounds like it might be worth it to me. 


Tags: Supplier Management, contractor management