Production Capacity for Services.
Production capacity in services based offerings at the low end of the skills spectrum has commodity aspect where demand can be measured through historic metrics. Capacity expansion can be satisfied through relatively inexpensive and easy to acquire resourcing. This is especially true during the down side of the business cycle.
Where the nature of demand places pressure on capacity fulfillment capabilities involving higher order skills, employee turnover and production expansion become increasingly expensive. This is especially true where the skills in demand are scarce. The obvious dynamic encompasses a formula where the higher the level of specialized skill, the more scarce qualified candidates are the more expensive turnover or capacity growth becomes. The business environment will contribute to the cost of this labor in that an up side will result in higher demand and drive resource costs higher. A down side will not likely dampen costs due to the highly specialized nature of the demand.
When discussing services such as manual and semi-skill based labor transferability of skill is achieved with near zero investment. Filling a stock order in one warehouse is pretty much like filling the order in another. Pushing a broom is pretty much the same wherever you go. The skill required to achieve the task is almost perfectly transferable, and it’s easily replaceable.
On the other side of the coin there are the perfectly untransferable knowledge and skills. These require resources possessing a high degree of specialization and intellectual capital, grown at great cost to the company or institution. These resources are unique to the demand and culture and while turnover risk is minimized due to the high precision match of skills to demand, there are few options outside of the local business unit to acquire similar contributors. They are extremely difficult, if not impossible to replace.
And chances are, most of us lie somewhere in between.
Having a background in IT, and leading IT teams, I’ve sometimes been in the situation where a project drops out of the blue on my desk with speed constraints or skills requirements that exceed our current production capacity (our current full time in house team).
In those situations- it’s great to have a current list of freelancers whose skills you trust. One of the problems with freelancers is quality standards. While there are certainly some freelancers out there who do great work, and have established themselves time and time again to get it right the first time, when dealing with a new freelancer, I’ve found I often need to round off the edges.
Despite the possible deterioration of quality (the risk can be mitigated through adequate testing), freelancers can be a complement to the team. For that reason they often work well as a complement, but the risk is reestablished if they’re used as a replacement instead of complement.
Freelancers are best when used to:
For a value added service, for example, in providing a skill outside your current team core competency as a favor for a client or a one off, it makes no sense on the bottom line to keep that person on staff.
For ramping up capacity to meet an aggressive delivery schedule, while the skills are probably not perfectly irreplaceable, depending on how specialized the skill is or experienced the employee is, it becomes more so. You also run the risk of that freelancer becoming unavailable at some point. This is a greater risk than if they were employed full time and permanently, but it's not advisable to bring them on full time just to have them available, because a high specialized, highly paid employee who's not active on a project is a serious and chronic drain on the business unit.
In terms of ROI- There's a a level of specialized skill or seniority or just competence that the freelancer can offer. I've been in the situation where a project required specialised skill in a specialised technology on a specialised project. My in house developer- a talented employee to be sure was familiar with the project and knew what had to be done and quoted 30 hours for this functionality because it was in a programming language that was outside his specialised skill. The other option was a freelancer who was an expert in that language and estimated 10 hours- plus 5 to get up to speed on the project. Even if the freelancer's rate was double the developer's (it wasn't) it would have made sense to the project ROI to use the freelancer (all other things including overhead being equal- which they weren't as freelancers usually work remotely compared to employees who utilise resources.
In closing, Freelancers can provide a way for small companies to become more agile in terms of skills and capacity without severely compromising the bottom line, but they are not without their risks.
Special Thanks to John Murray.
Where the nature of demand places pressure on capacity fulfillment capabilities involving higher order skills, employee turnover and production expansion become increasingly expensive. This is especially true where the skills in demand are scarce. The obvious dynamic encompasses a formula where the higher the level of specialized skill, the more scarce qualified candidates are the more expensive turnover or capacity growth becomes. The business environment will contribute to the cost of this labor in that an up side will result in higher demand and drive resource costs higher. A down side will not likely dampen costs due to the highly specialized nature of the demand.
When discussing services such as manual and semi-skill based labor transferability of skill is achieved with near zero investment. Filling a stock order in one warehouse is pretty much like filling the order in another. Pushing a broom is pretty much the same wherever you go. The skill required to achieve the task is almost perfectly transferable, and it’s easily replaceable.
On the other side of the coin there are the perfectly untransferable knowledge and skills. These require resources possessing a high degree of specialization and intellectual capital, grown at great cost to the company or institution. These resources are unique to the demand and culture and while turnover risk is minimized due to the high precision match of skills to demand, there are few options outside of the local business unit to acquire similar contributors. They are extremely difficult, if not impossible to replace.
And chances are, most of us lie somewhere in between.
Having a background in IT, and leading IT teams, I’ve sometimes been in the situation where a project drops out of the blue on my desk with speed constraints or skills requirements that exceed our current production capacity (our current full time in house team).
In those situations- it’s great to have a current list of freelancers whose skills you trust. One of the problems with freelancers is quality standards. While there are certainly some freelancers out there who do great work, and have established themselves time and time again to get it right the first time, when dealing with a new freelancer, I’ve found I often need to round off the edges.
Despite the possible deterioration of quality (the risk can be mitigated through adequate testing), freelancers can be a complement to the team. For that reason they often work well as a complement, but the risk is reestablished if they’re used as a replacement instead of complement.
Freelancers are best when used to:
- Provide skills outside the current team core competency.
- Make the production capacity more flexible to increase the speed of delivery on a project, and then reduce the speed after it’s delivered.
- Help achieve ROI more aggressively
For a value added service, for example, in providing a skill outside your current team core competency as a favor for a client or a one off, it makes no sense on the bottom line to keep that person on staff.
For ramping up capacity to meet an aggressive delivery schedule, while the skills are probably not perfectly irreplaceable, depending on how specialized the skill is or experienced the employee is, it becomes more so. You also run the risk of that freelancer becoming unavailable at some point. This is a greater risk than if they were employed full time and permanently, but it's not advisable to bring them on full time just to have them available, because a high specialized, highly paid employee who's not active on a project is a serious and chronic drain on the business unit.
In terms of ROI- There's a a level of specialized skill or seniority or just competence that the freelancer can offer. I've been in the situation where a project required specialised skill in a specialised technology on a specialised project. My in house developer- a talented employee to be sure was familiar with the project and knew what had to be done and quoted 30 hours for this functionality because it was in a programming language that was outside his specialised skill. The other option was a freelancer who was an expert in that language and estimated 10 hours- plus 5 to get up to speed on the project. Even if the freelancer's rate was double the developer's (it wasn't) it would have made sense to the project ROI to use the freelancer (all other things including overhead being equal- which they weren't as freelancers usually work remotely compared to employees who utilise resources.
In closing, Freelancers can provide a way for small companies to become more agile in terms of skills and capacity without severely compromising the bottom line, but they are not without their risks.
Special Thanks to John Murray.
posted by Mike at 8/19/2009 02:36:00 p.m.
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