Social networks make the staffing ‘middleman’ obsolete

The larger the company, the more likely it is to use staffing services, according to various surveys. In ASA’s 2006 staffing customer poll, 12% of companies with 25 to 99 employees used staffing services, compared with 24% of companies with 100 or more employees. There are many plausible explanations for the fact that employers tap into staffing agencies when it comes to hiring IT contingent workers, for instance the fact that staffing agencies provide services related to recruiting like background screening or payrolling. The core reason though for explaining the heavy reliance on agencies is the fact that traditional (pre-Web 2.0) relationships between individuals have been built on two main pillars:

• Direct or indirect contact through business or personal relationships
• Random encounters in a physical location
  

With the advent of social networking via the web, the first pillar has been further expanded through the use of more communication media (e.g. instead of only phone or email, people can now be brought in contact through blogs, LinkedIn profiles or shared interest groups). The second pillar is now on the road to extinction, as virtual encounters are poised to make the casual meeting in the airport or at a seminar a thing of the past. For example, in a matter of hours my connections in LinkedIn can show exponential growth and jump from 30 to 4,000 by simply following a trail of contacts and sending requests to join my network at a constant rate.

So where does this leave the ‘middleman’, i.e. the traditional staffing agencies that function as the brokers of connections, making the contact between employer and IT contractor happen and then quickly removing themselves from the relationship (at a premium cost)? If you ask me, I’d say: in the path of destruction that Web 2.0 is wreaking, and rightly so.

Employers and IT contractors can both benefit from this paradigm shift, as they can find one another in a variety of ways now and not let themselves be constrained by the contacts monopoly that staffing agencies have been exercising.

Two examples of companies that have identified this radical change are Blue Chip Expert and Protallian. Both offer social networking capabilities geared towards employment, and both thrive on the concept of referrals.

By allowing contractors to refer other contractors, Protallian creates a source of talent that employers can tap into without the added cost of staffing agency searches. Similarly, Blue Chip Expert encourages individuals to earn referral fees by promoting their connections to employers for top jobs like Director and CFO. That’s the effect that social networking can have on established business models, potentially making staffing agencies the ‘typewriters of the 21st century’ (i.e. museum exhibits).

When I return to this blog I will elaborate on the relationships between employers and independent IT contractors, using the concept of a Nash Equilibrium. Stay tuned for more insights into the changing balance of independent employment…

The rising of IT contractors

Welcome to Massimo's blog, my first post.

A report by the U.S. Chamber of Commerce indicates that a growing number of workers are abandoning traditional employment for alternative arrangements:

20 million workers are telecommuters and 10.3 million are independent contractors.

The latter are now 7.4 % of the workforce. More flexibility, more income potential and more work/life balance are the driving trends. Sounds familiar? Well, if you're an IT contractor then it certainly should, as at least 10% of all temporary and contractor workers are in IT occupations (here's the quick math: that would be about 1 million independent contractors in the US!)

We heard that one of the reasons why people turn to contracting is the higher income potential...but are the facts there to back this up? The facts actually show that mostly staffing agencies have reaped the monetary benefits of this trend: U.S. temporary and contract staffing sales for 2005 totaled $69.5 billion, according to the ASA quarterly employment and sales survey, 8.5% more than in the previous year and about $4 billion more than the industry’s prior high points in 2000 and 2004.

This blog is about what companies and IT contractors have in common, and about ways to allow them to share their common interests...without third party intervention. Watch for the next post as I ask about ways that you source your contractors...or the price you pay for them!