Author: Irwin Speizer

When California Overnight, a package delivery service, decided in 2002 to stop using employees as drivers and instead hire independent contractors, some of the drivers sued. Their contention: The switch was a scheme to avoid expensive extras like overtime pay and employee business expenses.

    In a ruling that may bode well for companies using independent contractors, a California state court found in February that California Overnight, which is based in San Diego, acted properly. The court said that the company’s delivery drivers were not being misclassified as independent contractors. The decision was a victory for companies trying to reduce costs by using independent contractors in place of full-time employees.

    Robert Hulteng, an attorney in the San Francisco office of Littler Mendelson who represented California Overnight, says he has received calls from other trucking and transportation companies about the ruling and expects more widespread interest if the case should survive an appeal.

    “I think it could become a very significant case in providing guidance on what you can and can’t do in using independent contractors,” Hulteng says.

    The use of independent contractors in place of employees has been on the rise in the U.S. for years and continues to stir debate over its impact on worker protections. The California Overnight case is among a growing number of court battles around the country filed by independent contractors against companies that hire them.

    Congress has recently taken a renewed interest in the subject with the arrival of a Democratic majority. U.S. Rep. Lynn Woolsey, a California Democrat who chairs the House Subcommittee on Workforce Protections, called a hearing in March to begin an examination of the use of independent contractors. At the hearing, Woolsey described the misclassification of employees as contract workers “a national problem with implications for federal laws and our federal coffers; a problem we must solve.”

    Woolsey pointed out at the hearing that one of the biggest issues surrounding the use of independent contractors is the lack of workers’ compensation insurance and employer-sponsored health insurance. Woolsey says that in California alone, an estimated 30 percent of the state’s 800,000 employers do not carry workers’ compensation insurance. While the hearing focused on workers in the construction industry, a broad range of other industries use contract workers, including trucking and delivery services, janitorial services, manufacturing and high tech.

    Government labor statistics do not specifically track independent contractors but rather lump them in with all contingent workers, a category that includes the staffing industry and temporary help. According to a Government Accountability Office report, there were 42.6 million contingent workers in the U.S. as of 2005—almost a third of the entire workforce.

    The staffing industry, a fast-growing group of companies that provides temporary and contingent labor to other companies, is tracking developments in the contract labor field, but so far, it’s been from the sidelines. Most staffing companies hire their workers as employees rather than using them as contract labor. By serving as employers of record, those staffing firms make payroll tax deductions, carry workers’ compensation insurance and follow other rules required of employers.

    “For the vast majority of staffing firms, this is not an issue,” says Stephen Dwyer, deputy general counsel of the American Staffing Association. “My take on it is that any company contemplating classifying workers as independent contractors should consult extensively with attorneys and accountants. The ramifications can be drastic to both the company and the workers.”

    One of the largest ongoing disputes over independent contractors involves FedEx Corp., which set up a separate operating company to handle traditional ground delivery service. FedEx Ground drivers are independent contractors rather than employees of the company.

    Like California Overnight, FedEx Ground was sued in a California state court by contract drivers who claimed they operated as employees and should have received benefits as such. In 2004, drivers won the first round in that case after a California state judge ruled that they should, in fact, be treated as employees.

    FedEx has been sued by drivers in a number of other states, and the issue is far from settled. In March, lawyers for FedEx Ground contract drivers asked a federal judge in South Bend, Indiana, to combine 32 cases into a nationwide federal class-action suit against the company. If FedEx ultimately loses and its 14,000 drivers are reclassified as employees, the company could be liable for up to $1 billion in overtime, business expenses, taxes, penalties and other costs, according to estimates.

    As with other challenges to independent contractor relationships, the FedEx case revolves around how much control a company can exercise over its contractors before they must be treated as employees. FedEx Ground drivers own and maintain their own trucks and they can hire their own workers or subcontractors to help them service routes.

    But the trucks must display the FedEx colors and logos, and the company maintains dress standards and various delivery and operational standards. Drivers who have sued contend those requirements put them under direct control of FedEx Ground and thus make them employees rather than independent contractors.

    Many of the same conditions exist at California Overnight, but there are some important differences. The court decision in the California Overnight case may provide some guidance on how the independent contractor relationship will ultimately be defined.

    “The central question is, how much control must a company give up in order to have a contractor relationship?” Hulteng says. “Companies desperately need clarification on where the lines are going to be drawn. The judge [in the California Overnight case] has issued a decision that, if upheld on appeal, will be very helpful in drawing those lines.”

    California Overnight uses about 1,800 contract drivers to deliver packages around the state. Originally its drivers were employees, although they still had to own their own trucks. In 2002, the company decided to switch to independent contractors to cut costs and increase profits. Some employees kept working for the company as independent contractors, but others left and were replaced by new independent contractors.

    When a group of former and current drivers sued, they argued that the switch to contractor status was simply a ruse to avoid paying overtime and other benefits that the drivers had as employees. Drivers were doing the same work—in many cases driving the same trucks. And they were an integral part of the company’s core business.

    But the company also adopted policies under the new contractor arrangement to put some distance between management and drivers. Delivery drivers did not have to wear company uniforms (although they could earn extra money if they did). They could make pickups and deliveries for other clients if they wanted, and they could turn down assignments from California Overnight. They were free to use other people to make deliveries. How they made the deliveries and handled their routes was up to them. The fees California Overnight paid were negotiated and varied from contractor to contractor. Some contractors prospered under the system and added routes; a few actually bid so low that they lost money delivering packages.

    The lawsuit ultimately required decisions from both a jury and a judge. Both reached the same conclusion: California Overnight drivers were not being treated as employees but rather as independent contractors.

    Hulteng says that the decisions point to several important items that companies need to consider when deciding to use independent contractors for ongoing tasks:

• The contractor must be allowed to work for other clients.

  
  

• The contractor must be allowed the option of turning down assignments.

  
  

• The contractor must be allowed the option of having another person do the actual work.

  
  

• The contractor must be able to determine how the work will be carried out.

  
  

    “If I am going to contract out a particular service to an independent contractor, I probably can’t say just, ‘Joe Smith, do it,’ ” Hulteng says. “But I can say, ‘I want the end product to be a certain way.’ You can control the end result. You just can’t control how they get there.”

    While that general principle sounds simple, its application has proved tricky enough to trip up some of the nation’s largest corporations. Catherine Ruckelshaus, litigation director for the National Employment Law Center in New York, who testified before the House subcommittee, noted that one of the problems is that there can be differences from state to state.

    “You could be found to be an independent contractor in one state and not in another,” Ruckelshaus says. “It can get a little bit confusing. Even within the same company they can have different regional practices.”

    As a result, companies that seek to use independent contractors find they have to hire accounting, tax and legal experts to help set up and run contractor relationships.

    For example, Albany, a global contingent workforce consultancy based in London with U.S. headquarters in Fort Lauderdale, Florida, offers a compliance service to help companies meet federal and state rules for using independent contractors. Albany says that on average, 62 percent of workers classified as independent contractors are actually employees.

    Albany’s Web site features a “compliance calculator” to give companies an idea of how much they might owe if their independent contractors are determined to be employees. Plug in the number of contractors, the average annual payment to each one, and the estimated number who may not be in compliance and the calculator spits out an estimate of how much the company might owe in taxes, penalties and other assessments.

    Jason Posel, Albany’s senior vice president in the U.S., says his firm advises companies to take a very cautious approach when using or considering independent contractors. “The trend we are seeing is that IRS is taking a closer look at this, and employees and workers know more about their rights,” Posel says. “It is important to take a conservative approach.”

The number of temporary jobs in the U.S. declined during the first four months of 2007, the first sign of a possible slowdown in a sector that often serves as an early predictor of the overall health of domestic employment.

    According to monthly estimates of employment by the Bureau of Labor Statistics, the number of workers in temporary jobs, which stood at a seasonally adjusted 2.642 million in January, fell slightly each month through May, which finished at 2.61 million. The sector lost 32,300 jobs during the period, a decline of 1.2 percent.

    The slowdown could indicate a more cautious approach to labor spending during an uncertain economic period as corporations worry about the effects of high energy costs, a housing slump and rising interest rates. At human resources operations, curtailing spending on temporary help is often seen as a quick and relatively painless way to control labor costs.

    “If an organization is going to be cautious or conservative, the first thing they do is go slow on their temps,” says Bernadette Kenny, senior vice president of human resources at Adecco North America, an international staffing company. “It is an easy way to cut costs when you have an economy that has some uncertainty.”

    That economic uncertainty has been reflected in the stock market. The Dow Jones industrial average, although experiencing an overall upward trend for much of 2007, has also seen some sharp dips this year as fears about inflation and rising interest rates prompted concerns about economic growth and spooked investors.

    Despite the slow start to 2007 for temp agencies, Steve Berchem, vice president of the American Staffing Association, says that the outlook for the remainder of the year still looks solid. In fact, Berchem says the association’s own tracking of the contingent workforce shows that temporary-help employment began picking up again by the end of May, with the first few weeks of June running ahead of 2006.

    “We are weathering a soft patch, but it isn’t anything that is concerning people,” Berchem says.” I think that the worst of the slowdown is over. I don’t think we are going to see double-digit growth by any means, but I think that growth will continue to pick up as we go deeper into the year.”

    Berchem says any current slowdown is likely restricted to certain labor sectors, but that other sectors should continue to grow. The two that are most affected: construction, which has been hurt by the housing slowdown, and manufacturing, which has been dragged down by layoffs in the auto industry.

    “We have this sort of duality here,” Berchem says. “The demand has been softening in the less-skilled categories like manufacturing and industrial. The labor supply is tightest in high-skilled areas.”

    Labor shortages, rather than slowing demand, have been the issue most on the minds of temp agencies lately. When the American Staffing Association surveyed its members in January, the labor shortage emerged as the most pressing concern, with three in 10 ranking it as the top issue and six in 10 saying it was one of the top three.

    The tight market for talent has apparently helped keep temp wages rising in 2007 even while the number of temporary jobs fell. Growing shortages of labor in certain high-demand occupations like health care and high tech promise to keep overall temp wages up.

    One result of the talent shortage is that temp agencies are finding themselves competing for workers not just with other temp agencies but with companies looking for permanent workers. Some agency executives suggest that one reason the number of temporary workers is down is simply because there are not enough of them to meet demand in certain occupations.

    “We certainly have been hearing from our members that there is a very tight labor market and that it is hard to find labor candidates,” Berchem says.

    The labor shortage is affecting not just the temp sector, but the overall labor market. Manpower Inc., in a recent report on the talent shortage, found that within the U.S., 45 percent of companies and organizations surveyed would have hired more permanent professional staff if they could have found candidates with the right skills. And 38 percent say they were paying higher salaries than a year ago to fill permanent professional positions.

    “I think that when things start to tighten up, there is almost a feeling of ‘I better get people while I can,’ ” says Alice Snell, vice president of research for Taleo Corp., a workforce talent management consultant. “That is much more long-term thinking than bringing in a temp short term.”

    Indeed, some contingent labor agencies say that they find their workers are increasingly viewed as potential permanent hires. One result of that trend is that companies often conduct extra screening of temporary hires for certain positions rather than simply asking a temp agency to send over a worker.

    “I was in our New York branch and our recruiter was being asked to send over two or three résumés for every temp,” Adecco’s Kenny says. “In the old days, you would just send one résumé or just have a person show up for the job. Now companies want to consider hiring those people full time. When we have jobs with major employers, we are often viewed as an entree to permanent hires.”

    Snell says that some corporations are becoming more liberal about issues like flexible work schedules, partly to encourage temp employees into taking full-time positions. A preference for work flexibility has often been cited by professional temps as one reason why they remain in the contingent workforce.

    “Companies are getting better about offering flex in their permanent positions,” Snell says. “Temp agencies will need to start making some adjustments around that.”

    Temporary employment has had its ups and downs over the past decade, rising sharply through the last few years of the 1990s during the technology and Internet boom. Temporary jobs began slipping in 2000, offering an early warning sign of the tech bust of 2001 and the prolonged economic slump. When the economy bounced back in 2003, so did temporary employment, with jobs rising steeply through 2005. But growth stalled in 2006, a year that saw almost no change in the contingent workforce.

    The dip in the first few months of 2007 has both temp agencies and human resources departments watching closely to see if the trend continues for the rest of the year or if things level out and possibly start rising again. While the auto sector is expected to remain slow, construction may rebound, and other sectors like services, health care, and oil and gas are expected to have healthy appetites for temporary workers.

    “It has not really been a slowdown,” Kenny says. “It is just a cautionary couple of months.”

When it comes to relocation, one size doesn’t fit all. Relocation programs vary from company to company and, within companies, are usually tiered to reflect different job levels ranging from basic moving assistance for lower-level new hires to premium packages geared toward high-level executives or employees with highly sought skills.

    The lines between tiers, though, frequently blur during a tight labor market as exists today. Companies eager to get a key employee to an important location are now willing to extend higher-level relocation assistance than they might have been a few years ago. Indeed, companies are now using relocation programs as an incentive when recruiting employees.

    “Employees are in the driver’s seat,” says Kathy Morris, director of global consulting for Prudential Relocation. She has seen companies offering home purchase assistance to renters asked to relocate. To help persuade workers to move to a location with a higher cost of living, companies are offering cost-of-living benefits for a period of time.

    “The cost-of-living programs are a hot topic right now,” says Wendy Richardson, vice president of client services at Primacy Relocation, which is based in Memphis, Tennessee.

    While the first stop in most relocation programs is usually a company human resources official, much of the actual work is typically outsourced to vendors like Primacy that offer specialized services. For example, Impact Group of St. Louis provides a package of relocation help that can include job counseling for a spouse, family emotional support and in-depth information about the new location, whether that’s domestic or international.

    LifeCare Inc., a “life management services” company, also works with companies to provide new location data to employees about to relocate. The custom-tailored reports cover everything from housing prices to school funding and test scores to local income levels.

    “We’ve had a number of people tell us they wouldn’t have taken the relocation without this,” says LifeCare CEO Peter G. Burki.

    When it comes to the actual move of belongings, relocation benefits can vary considerably, based not just on an employee’s job level but also on the type of company. Atlas Worldwide notes in a recent survey that manufacturing companies are more likely than service companies to pay to move cars, pack and unpack all items and move exercise equipment. Midwestern companies are most likely to move a boat. Northeastern companies are likely to pay to move pets.

    Once the relocation offer has been made, workers have to decide fairly quickly. About half of companies want a decision within two weeks, according to the Atlas survey. Serious procrastinators are out of luck. Only 8 percent of companies in the Atlas survey said they allow more than a month for a decision.

Companies looking for answers to contingent labor questions no longer need to rely solely on consultants.

    A new membership organization launched by publisher and researcher Staffing Industry Analysts allows companies to ask one another what works.

    The new Contingent Workforce Strategies Council, unveiled in late January, is designed to give member companies (typically Fortune 1,000 corporations) access to peer networks as well as Staffing Industry Analysts research and experts.

    Ron Mester, CEO of Staffing Industry Analysts, says the new council’s peer network is a direct response to requests from corporate executives keen on developing best practices in the field of contingent labor.

    “We started testing a lot of concepts with some of the companies and asked a lot of questions,” Mester said. “What we were finding was that they wanted a lot more data and information, but they also wanted to interact a lot more with peers and other companies. They said, ‘We think some of our peers may have information, data and insights.’ “

    One of the benefits being offered to members of the new council is the ability to connect with other members to discuss contingent labor issues or topics. For example, a member company shopping for a vendor might call Staffing Industry Analysts and ask to contact other members to discuss existing solutions.

    Initially, companies will simply be provided contact names and information. But plans call for an online network that members can access. Mester says the online component is still under discussion and development but should be available by the second quarter of this year.

    “Today it is simple,” Mester says. “We schedule a call and get out of the way.”

   Peer networking is one of several offerings through the new council. Others include:

• A basket of proprietary research and data related to contingent labor use and management. The system allows a manager to view on one page a list of different issues or topics that need to be addressed.

  
  

• Support from expert analysts who can provide expert advice on starting and running contingent labor systems.

  
  

• Regular updates on news and trends in contingent labor.

  
  

    Staffing Industry Analysts unveiled the new council at its most recent contingent labor conference, in November. The price for an annual membership is $30,000. So far, four companies have joined: Nationwide, Accenture, Hewlett-Packard and Dell.

    While the new council offers some of the same benefits to corporations as membership in the American Staffing Association—the ability to network with others (primarily at conferences and conventions) and access to industry research—there are also some distinct differences. The association is a nonprofit advocacy group for the staffing industry rather than a for-profit company, and the association does not provide the type of individual counseling and consulting that the council offers.

    Mester says the council should prove particularly useful to human resources and procurement divisions, since officials from those two areas are most often involved in a company’s use of contingent labor. “HR individuals who are responsible for this function in a company, they often find that by and large, the rest of their HR colleagues have no idea what this is about, how to manage it, what unique challenges there are.”

    The aim is that through the council, those lonely HR experts in contingent labor can reach out and find peers in other companies who can relate.

Bernadette Kenny’s flight landed in Charlotte, North Carolina, one morning in March and she shuttled to the local office of staffing company Adecco Inc. Once there, she offered advice and coaching on attracting and keeping talented temporary workers, then huddled with managers to plan annual bonus reviews and awards.

    Next it was off to a luncheon for one of Adecco’s clients, a local bank, where she spoke to 60 of the bank’s hiring and human resources executives as well as a few of the bank’s contingent workers about the challenges of catering to a multi-generational workforce. She ended the day back on an airplane.

    Such is the daily grind of the staffing industry’s first “chief career officer,” a newly created position at industry giant Adecco’s North American operations designed to provide leadership and guidance on workforce retention, development and recruitment. The new role became official March 19 and Kenny continues to hold her previous job title: senior vice president of human resources for Adecco North America.

    Taking a few minutes to chat via cell phone while waiting to catch her flight out of Charlotte, Kenny reflected on how her new role may affect the operation of a company that provides contingent workers around the globe.

    “It is my role to bring career planning and career development and awareness to the hundreds of thousands of associates who work for us every year,” Kenny says. “It is also a way of demonstrating to corporate customers that we are committed to the careers of the people we place with them.”

    Kenny, a staffing industry veteran with 25 years at Adecco, including management stints in sales and marketing, sees her new role as a way for the company to improve its ability to locate, develop and encourage retention of qualified workers. The high-level title sends a message to corporate clients that Adecco is serious about the task.

    Industry insiders and competitors are watching to see whether the introduction of a chief career officer has any effect on Adecco’s operations and bottom line, or turns out to be more of a public relations move designed to impress corporate clients.

    The first order of business for Kenny is dealing with a looming contingent labor shortage that has staffing companies and corporate clients worried.

    “The test will be whether they are able to bring in the talent their clients need,” says Steve Berchem, vice president of the American Staffing Association.

    Kenny says she recognizes that her success in the new role depends ultimately on how her work affects the bottom line at Adecco, a global powerhouse in staffing with 6,600 offices in 70 countries and a network of 700,000 contingent workers.

    If she can persuade temporary workers to stick with Adecco for multiple assignments, she should be able to reduce turnover and cut Adecco’s recruitment costs. And if she is able through training and development programs to raise the skill level of Adecco’s employees and its temporary workers, that should help Adecco sell its services to corporate clients and generate revenue.

    “This goes to the heart of the business,” Kenny says of her new position. “There is money to be made in it.”

    If the position proves beneficial to Adecco’s North American operations, it could be expanded to other parts of the company and might be adopted by rivals in the staffing industry.

    Adecco has been on a mission to improve its bottom line after seeing its profits slip in 2005 behind such rivals as Manpower. Worried that Adecco was losing its edge, co-founder Klaus Jacobs, who had taken a lower-profile role in the corporation, increased his stake, using the added clout to oust then-CEO Jerome Caille and assume the job himself.

    Jacobs then engineered the takeover of German staffing company DIS in 2006, where he found someone to take over the top job at Adecco. As part of the deal, DIS CEO Dieter Scheiff became Adecco’s new CEO in August 2006.

    Since then, Scheiff has been reshuffling leadership at Adecco, including the North America unit. On March 1, Tig Gilliam, 42, took over as country manager for the U.S. and Canada, moving from IBM Global Business Services, where he was global head of supply chain management services. The move mirrors what’s happening at many large corporations, where procurement officers have taken larger roles in contingent staffing to better control costs and contracts.

    Kenny’s appointment offers some balance to the trend toward greater reliance on procurement methods. She will continue to oversee human resources functions in North America. But as chief career officer, Kenny will also provide leadership on learning, training and talent development; direct U.S. strategy for the Adecco Institute, a new research center created in October that focuses on such issues as employee satisfaction and productivity; direct Adecco University, the company’s learning center and its development of a Web-based leadership program; and act as senior advisor on Adecco’s diversity initiatives.

    Kenny says part of her goal is to help Adecco bond with its employees as well as its contingent workers by catering to career needs. Staffing organizations that ignore the career aspirations of contingent workers are missing a key component of worker relations, she says.

    “People are very much focused on what their own personal career means to them,” Kenny says. “People change jobs frequently today. The worker today is extremely individualistic. My job title speaks to that, to the personal nature of each individual worker.”

    Kenny says she hopes to measure her success by her impact on job satisfaction among Adecco employees and on the usage patterns of the contingent workers those employees oversee. She will be looking for trends in contracts for contingent workers and whether Adecco is able to reduce turnover and keep contract workers attached to Adecco longer.

    “As you can imagine, the very nature of the term ‘variable workforce’ leads workers to think short term,” Kenny says. “We want the worker to think long term with Adecco.”

In the heightened security that followed the September 11 terrorist attacks, Luawanna Hallstrom discovered just how dependent she had become on illegal farmworkers from south of the border.

   Hallstrom grows tomatoes on some 1,200 acres near Oceanside, California, including 600 acres leased from Camp Pendleton Marine Corps Base. After 9/11, the base stepped up security, which meant government officials carefully screened every one of her workers.

    What they found startled Hallstrom: 75 percent of her laborers had fraudulent documents. Hallstrom typically hires 1,000 seasonal workers, but she suddenly couldn’t find enough legal workers to harvest her crop at Pendleton. Much of it rotted in the field. Hallstrom says she lost $2.5 million worth of tomatoes.

    She’s still in business today and still using seasonal imported farmworkers. But now instead of hiring laborers who show up at harvest time, she contracts to bring in prehired temporary workers from Mexico under the H-2A farm guest worker program, a legal method for farmers to import foreign labor. Each year, she contracts for about 500 workers from Mexico through the program and sends them back home after the harvest is complete.

    Few farmers have taken the H-2A route, and Hallstrom says she opted to use it only because she had no alternative for harvesting her Pendleton crops. Hallstrom, who is politically well-connected, decries the program’s complex rules and requirements, adding that she once had to call the White House for help when her H-2A application became hopelessly bogged down.

    “H-2A is very difficult,” Hallstrom says. “It involves so many different agencies: the Department of Labor, Homeland Security, the American Consulate in Mexico, the California Employment Development Department. If you have a glitch, it can derail the whole process.”

    Hallstrom and other farmers have been lobbying for a streamlined agricultural guest worker program that would provide a way for farmers to get legal foreign labor and stem the flow of illegal workers. While Congress debates the merits of a guest worker program more accommodating to farmers, Hallstrom is among those who continue to rely on H-2A foreign guest workers to harvest their crops.

    But the ultimate goal for many farmers and for other businesses that rely on cheap immigrant labor is a set of rules that would allow easy access to temporary workers from outside the U.S. Although there are laws allowing guest workers on farms and in other industries, the measures are complex and difficult for employers to use.

    To qualify under H-2A, Hallstrom has to demonstrate that she has tried and been unable to recruit domestic workers. She must then apply for a specific number of H-2A workers from a foreign country and guarantee they will have jobs for the duration of a contract.

    She must transport the workers from their home country to their jobs and back again. Hallstrom must provide housing. And, she also must provide three meals a day at a cost to workers set by the Labor Department (the current rate is $8.76 per day).

    The application process can be daunting. Hallstrom listed among her job requirements that applicants could not be colorblind. The Labor Department initially rejected the application, saying the requirement could be construed as discriminatory. Hallstrom had the rejection overturned by explaining that in harvesting tomatoes, pickers had to be able to discern shades of red.

    Most farmers balk at having to provide room and board, yet Hallstrom had an edge. Her company built a dormitory-style worker housing complex in 1986 as a way of helping retain a steady workforce. It cost about $2.5 million, but Hallstrom said it paid off in a healthier and more reliable workforce. Now she is able to use the housing for her H-2A workers.

    Despite the extra costs to transport, feed and house her workers, Hallstrom says she has still managed to make money on her farm using H-2A. But she’s unsure how long that will last. Wages under H-2A are set by the Department of Labor, which has steadily upped the hourly rate during the past three years. What started at $8.02 per hour went up to $8.55. This year the rate is $9, an increase Hallstrom says will cost her farm $500,000.

    “You have to pay $9, plus free housing, plus three meals a day and transportation back and forth,” Hallstrom says. “That makes it near to impossible. The only reason my family is holding out is because we really believe that reform will happen.”

    What Hallstrom and other farmers want is a less bureaucratic guest worker program that gives farmers easier access to foreign workers and greater control over their costs. But critics warn that giving farmers too much control over foreign workers can lead to abuses: low pay, poor working conditions and unsatisfactory housing.

    “Cheap labor becomes a self-fulfilling prophecy,” says Ira Mehlman, media director of the Federation for American Immigration Reform. “It creates conditions that shouldn’t be tolerated in a country like the U.S.” Rather than allowing farmers to import cheap foreign labor, the government should encourage technological innovation like mechanization that would reduce the reliance on cheap labor, Mehlman says.

    Hallstrom says the reality is that cheap labor is a necessity in a crop like tomatoes. “If we do not get immigration reform, we will not be here,” she says. “We will have to go to Mexico or someplace else.”

Workforce Management, August 14, 2006, p. 25 — Subscribe Now!

Big mergers are in vogue again. In terms of dollar volume, 2005 was the biggest year for worldwide corporate merger activity since 2000. All those newly supersized companies inevitably develop extra-large training and development needs. And those needs are driving change in the training and development outsourcing field.

    “When people are doing lots of acquisitions, it creates a lot of people who need to be trained,” says Jack Kramer, vice president of global alliances at SumTotal Systems Inc., a provider of learning and business performance services. “They need to be taught who the new company is, what the values are.”

    Helping indoctrinate new employees is just one item on a growing list of tasks that expanding organizations often ask vendors to provide. Bigger companies seek assistance not just in delivering services, but also in coordinating and tracking far-flung training networks.

    With increased size comes more complexity. As a result, big organizations in need of training help are more often shopping for vendors with long track records and demonstrable results.

    “Our customers are requiring a lot more sophistication and experience,” Kramer says. When pitching training and development services to large organizations, Kramer says, “companies want to see where you have done this 10 or 15 times before.”

    Given those demands, it’s no surprise that merger mania is also sweeping the outsourced learning sector. The most recent major deals took place in 2005, marked by Saba’s $60 million takeover of Centra Software and SumTotal Systems’ acquisition of Pathlore Software for $48 million. Also in 2005, Oracle finally closed its controversial $10 billion takeover of PeopleSoft. Both enterprise resource planning systems included learning management capabilities.

    The human resources outsourcing group at Hewitt Associates reports that companies frequently seek two levels of outsourced learning services: training programs and management of the vendors that provide those programs. Many companies still haven’t centralized vendor management and sourcing. In some companies, managers at different levels and locations all have the authority to order up a training program. That can lead to duplication.

    Will Hipwell, vice president of marketing at GeoLearning Inc., a learning services management company, says organizations are moving toward a clearinghouse approach to outsourced training services.

    Customers, he says, “want to centralize everything.” That means hiring a vendor to manage a range of learning resources, from webcasts to instructor-led training to knowledge bases to mentors. With that arrangement, a client feels that “whatever I need, I can go to one place and figure out how to get it,” Hipwell says.

Workforce Management, May 22, 2006, p. 28 — Subscribe Now!

When the sun rises over Oak Brook, Illinois., so do the flags outside Hamburger University. The training campus of McDonald’s Corp. hoists national flags each morning coinciding with the nationalities of those inside learning the company’s ways.

    McDonald’s flies a lot of flags. The company operates in 118 countries, and any one of them might be represented in classes at Hamburger U. on any given day. In the age of globalization, few brands are as well known as McDonald’s, and few corporations have gone as far in their training and development programs to accommodate associates from around the world. The company has the ability to give instruction in 28 languages.

    “We do very little outsourcing,” Maura Havenga, senior vice president of the restaurant solutions group. “Our ability to train leaders in a global environment is something we are looking to make part of our core competency.”

    McDonald’s goal is fairly straightforward: to give customers a similar dining experience anywhere in the world, and to maintain high standards of service of quality. There may be regional differences in menus or manners, but ultimately a McDonald’s should be consistently the same for the customers regardless of whether it’s in the United States or the United Arab Emirates.

    The company localizes for particular parts of the word, Havenga says. But always, the service standard is the same: “Fast, accurate and friendly.”

    The heart of the system is Hamburger University, which is where 5,000 to 7,000 store managers are trained each year. Hamburger U. is housed in a 130,000-square-foot building at the corporate headquarters in Oak Brook. Built in 1983, it is in a tranquil setting on 80 acres, complete with two man-made lakes. Inside are four theater-style classrooms, a 300-person auditorium, 20 seminar rooms, three working restaurant labs and various offices. Translation booths are at the back of classrooms.

    There is a staff of 19 “professors” who teach the essential elements of running and managing restaurants. More in-depth business training comes from outside instructors.

    Many of the foreign visitors to Oak Brook are there for advanced management training. The basics are often taught through satellite operations using curriculum crafted in Oak Brook and customized as needed for local consumption. McDonald’s operates six satellite universities around the world.

   The universities, in turn, are backed by another 139 regional country training centers scattered about the globe where other new employees get initial training.

    McDonald’s keeps tabs through a series of tracking methods. It begins with basic bookkeeping measures: how many people have taken training, what classes they took and whether every shift manager is certified in safety.

    Tracking then moves up in sophistication as McDonald’s seeks to measure the results of its training. Students take competency tests after completing classes. Participants and bosses give feedback on how the training worked. Finally, review teams visit and evaluate restaurants. The process includes “mystery shoppers” who drop in unidentified at stores around the globe.

    One of the first things store personnel learn is to greet each customer in a friendly, welcoming way. Initial attendance records will tell whether an employee received the training. The mystery shopper can then determine whether the training took.

While the greeting method may be slightly different in Tokyo—a respectful bow instead of an informal howdy—the end result should be the same. It’s the job of Hamburger University to ensure that those results get replicated each day in every country where McDonald’s operates.

    “As the world continues to evolve, we need to focus on those things that made us successful,” says Diana Thomas, U.S. vice president of training and the dean of Hamburger University. “We need to continue to invest in our people.”

I n the job-hemorrhaging world of Detroit, where bankruptcy court represents a tantalizing way to salvage a sinking enterprise, Ford Motor Co. stands out. Unlike GM, which analysts suggest will have a tough time avoiding bankruptcy protection, or auto parts maker Delphi, which is already there, Ford continues producing profits, and the company insists that it can recover its financial footing without the help of a bankruptcy judge.

    Ford’s bid to rebuild before it goes broke depends on the success of an ambitious people management restructuring plan for its U.S. operations, the one part of its global business that continues to lose money and threatens to drag down the entire corporation. Its Way Forward plan will attempt to transform the company’s workforce from a culture of bureaucrats monitoring clock watchers to a collaborative team focused on making customers happy. It seeks to restore North America to profitability by 2008.

    “We are going to be a big company that thinks like a small company,” Ford chairman and CEO Bill Ford announced in January.

    The plan is heavy on job cuts and factory shutdowns (up to 30,000 North American factory jobs to be eliminated by 2012). But it also proposes a dramatic shift to a less bureaucratic and more responsive and flexible management style with the ability to produce vehicles that will lure customers away from hot Japanese models. The tough part of the Way Forward plan is the second phase, which requires a major overhaul of how Ford trains, compensates, manages and motivates its workers.

    The company plans to employ a number of methods to accomplish its goal. As explained by top Ford executives, the firm will expand the use of pay incentives to reward initiative. It will cut back on layers of management to create a flatter organization that gives workers more direct access to top bosses. It will use various lean manufacturing methods designed to ensure that workers are more productive and less wasteful. And it will encourage more employee input in company decisions and innovations.

    The automaker already has set up a Web-based tip hot line where workers can offer creative suggestions on improving the company’s methods or products. Workers have bombarded the hot line with more than 2,500 suggestions since it was launched November 28. It also has distributed a brochure to employees on innovation that includes a suggestion card. So far, workers have sent in about 2,100 suggestions.

    The job cuts at Ford won’t affect only blue-collar workers. In addition to its plant reductions, the company plans to eliminate 12 percent of its officers and top managers.

    As outlined by Bill Ford, the goal of the program is to cut through layers of management hierarchy that turned what was once a spry company steeped in innovation into a creaky bureaucratic behemoth unable to respond quickly to changing markets or consumer demands.

“We can’t solve this problem alone, not when health care costs nationally are rising 8 percent a year and the system is full of disincentives to control costs. This problem will only be solved with business and government working closely together.” –CEO Bill Ford

    “Here’s what we will not stand for: incremental change, avoiding risk, thinking short term, blocking innovation, tying our people’s hands, defending procedures that don’t make sense and selling what we have instead of what the customer wants,” Ford declared in his January announcement. “In short, we will not stand for business as usual.”

Short on particulars
    For the moment, the company has offered few details of exactly how it will carry out the Way Forward plan beyond the job cuts and plant closings. For example, although it has launched the idea bank, it has not yet created a budget and staff to manage and implement the ideas that are generated.

    While analysts and consultants applauded the downsizing as a necessary and helpful move, they caution that the ultimate success of Way Forward and Ford itself depends on whether the company can truly shake up the way it manages and operates. The skeptics are plentiful, with many complaining that, with the exception of the plant closings and layoffs, Ford offered little beyond slogans in its explanation of how it will transform its operations.

    “The rhetoric at Ford is at an all-time level,” says Pete Hastings, an auto analyst at Morgan Keegan in Memphis, Tennessee. “Now they must make the organization understand the urgency. They have to change into one of the world’s best rather than an also-ran.”

    The problem for Ford is that its U.S. operations are dragging down a global corporation that makes money in other businesses and in other parts of the world. The Ford operation also includes other nameplates: Volvo, Mazda, Jaguar, Land Rover. Operations are profitable in Europe, South America and Asia, as is Ford Motor Credit Co. But the North American auto business continues to struggle with overproduction of vehicles that customers bypass in favor of those coming out of Toyota and other Japanese automakers.

    While Ford is shuttering plants, Toyota is adding capacity in the U.S., with a new $850 million truck plant scheduled to open in San Antonio this year that will employ 2,000. In effect, a Detroit automotive legend is in full retreat before a foreign company that is doing a booming business manufacturing vehicles on U.S. soil with U.S. workers.

    The problem for Ford and the rest of Detroit is that foreign companies like Toyota produce high-quality vehicles that consumers want–and Toyota spends less time and money building them. One simple statistic tells the story. Toyota leads all North American auto and truck makers in efficiency, taking 27.9 hours to make a vehicle in the U.S. in 2004, according to the Harbour Report, an industry analysis. That’s an 8 percent improvement from 1998. In last place: Ford, which takes 36.98 hours, almost exactly what it took in 1998.

    “Why is it so different at Toyota?” asks Allan Wilson, CEO of Factory Logic of Austin, Texas, a manufacturing consultant to the automotive industry. “How can a Japanese plant in North America behave so differently? There can only be one answer: The management team behaves differently, and the workforce accepts that. The problem does not lie with American workers. It’s the way those workers are managed.”

Union challenges
    Changing Ford’s managers and its workforce will take more than a simple edict. Workers are covered by detailed United Auto Workers contracts that include not just pay and benefit levels but work rules that govern a broad array of actions on the shop floor. Many of the changes Bill Ford envisions require contract negotiations with a union that has already responded icily to the deep job cuts.

    As an example of how those work rules can hamper change, Hastings tells the tale of a tire supplier at a Ford plant. The facility was set up to receive tires in an awkward place and manner, which caused delays and added work for both the plant and the vendor. The vendor suggested changes to the production line that would speed things up and make the job easier for both the vendor and Ford. It would also eliminate some jobs at the plant.

“We try to do what is best for Ford, not what is best for Toyota.” –Jon Pepper, Ford

    “The line manager said it was a nonstarter because the union would never accept it,” Hastings says. “Even though it meant several hundred thousand dollars in savings on just that one shift, he dismissed it out of hand because of work rules and the threat to union jobs.”

    It’s unclear how Ford would handle that same situation under the Way Forward plan. The workplace initiatives are still under development, and the company won’t comment on specifics, says Marcey Evans, human resources and labor affairs spokesperson for Ford. “It is premature for us to get into any additional detail,” she says.

    That leaves big questions about how various initiatives would work, how much they would cost and what the expected gains would be. For example, the company says it will add a section in its employee evaluations on innovation, but it has not said exactly how it will rate a line worker in this area. The firm also says it will devise a way for employees dissatisfied with the response of an immediate boss to a suggestion or complaint to appeal directly to higher-ups.

    But that raises questions: Why can’t an employee just contact a manager higher up the chain now? Would this new appeal system supplant the grievance procedure in union contracts? And if Ford needs to create a process to establish some process to connect higher-ups and workers, doesn’t that simply compound the bureaucracy?

    Hammering out these details could be slow going if the unions balk. And no one expects unions facing thousands of job cuts to quietly accept an overhaul of management-worker relations.

“I’d love to see them sit down with the union, at the highest levels, and totally redefine their relationship,” says John Shook, a consultant and program director in the industrial engineering department at the University of Michigan. “But many others have had that on their wish list for a long time, including many Ford executives.”

Thinning management
    But while Ford faces hurdles in revising how it relates to line workers, it can certainly begin attacking its management ranks. Again, one place to look for ideas might be Toyota, which has long championed the idea of flat management, which puts few managers between workers and the top boss. Executive cafeterias are discouraged; close contact between managers and workers is encouraged. The result is that when a shop floor problem arises or when a worker sees a simpler and faster way to get a job done, the decision to change comes swiftly.

    The system isn’t flawless, of course. Japanese companies have encountered difficulty as they try to set up shop in the South and find and train workers capable of not only carrying out line tasks but at the same time also thinking independently and critically. Still, Japanese companies have had so much success with their methods that other companies have adopted similar systems.

    Consultant Wilson cites Johnson Controls, a highly successful automotive parts supplier. When President Bush rolled out his push for energy efficiency through innovation, one of his first stops was at Milwaukee-based Johnson Controls. “How many tiers of management are there from the factory worker on floor to the CEO of Johnson Controls? Four,” Wilson says. “It’s probably close to four at Toyota. In GM or Ford, it is probably 12. There are managers of this, directors of that, functional heads. Everything is tiers of management. What does it do? It creates costs. It creates bureaucracy. It takes an arm and a leg to get anything done.”

    Does Ford really have a dozen layers of management now between the shop floor and the CEO’s office? Labor affairs spokesperson Evans couldn’t come up with a number, saying Ford is too complex a business to be reduced to that sort of metric. But it’s safe to say that Ford is convinced there are too many chiefs in its domestic car business.

    Still, Ford has instituted a number of innovative and efficient methods of its own, and many of its plants now operate with a much higher level of efficiency than they did a decade ago. But in the critical workforce management field, Ford clearly has a long way to go to match Toyota. “Ford has incorporated virtually none of Toyota’s management, deployment, training and compensation practices,” Shook says.

    The response from Ford is that it has no intention of mimicking Toyota even as it experiments with similar methods. “We try to do what is best for Ford, not what is best for Toyota,” Ford spokesman Jon Pepper says. “Toyota has its own way of doing things.”

Stopping the slide
    Whether Ford adapts Toyota’s methods or devises its own, it ultimately must come up with a better way of managing its North American workforce and business. The strategies used until now clearly won’t carry the company forward. A glance at Ford’s situation reveals why. In 1990, Ford had about 24 percent of the North American market, GM had about 36 percent and Toyota about 7 percent. Toyota’s share has more than doubled since then at the expense of Detroit. Power Information Network, a division of J.D. Power and Associates, reports that sales during the first two weeks of February gave GM a 21.8 percent market share, Toyota 17.1 percent and Ford 15.2 percent.

    Ford today produces more cars than it can sell, with nearly 25 percent more domestic capacity than customers. Toyota and other foreign makers are building new plants in North America. With no sign that those lost customers are coming back any time soon, Ford has decided to get rid of the extra capacity. One of the main goals of the Way Forward plan is to match Ford’s production capacity with anticipated demand for its vehicles. By shuttering as many as 14 facilities, Ford will end up producing 1.2 million fewer vehicles per year–eliminating about a quarter of its North American capacity.

    Mass layoffs and plant closings are not cheap. Ford plans to spend $250 million in settlement-related costs to complete the layoffs of hourly workers. It will write off another $220 million in fixed assets.

    The changes promise to keep Ford’s North American operations in red ink for years to come. Ford reported a pretax loss of $1.2 billion for its domestic auto business in 2005. Fortunately, it made plenty of money elsewhere, resulting in net income of $2 billion last year. In effect, the rest of the world is subsidizing Ford’s bid to make its domestic business profitable.

    For Ford, winning the battle in North America doesn’t mean recapturing very much of the market share it lost over the past 15 years. Ford simply wants to stop the slide and claw back to an 18 percent share.

    Ford’s bid to find the right people, train them and encourage them with the right rewards could help the company design more appealing vehicles and produce them more cheaply. It won’t be easy, but Ford has little choice but to change.

    “We are trying to reduce the structure of the company, the bureaucracy and make it reach decisions faster,” spokesman Pepper says.

    Urgency is key. With Toyota, Nissan and Honda in the passing lane, Ford had better step on it.

Workforce Management, March 27, 2006, p. 1, 24-30 — Subscribe Now!

High-dollar, charismatic speakers and multiday classroom sessions–the hot numbers in training and development just a few years ago–have given way to newer and cheaper training methods that are revolutionizing workplace learning.

    With electronic learning tools like computers and the Internet, along with more outsourcing and more judicious use of pricey corporate retreats, the amount of training and development nationwide appears to be rising without a corresponding increase in spending or classroom time. In fact, spending on training and development has been flat for the past few years, according to statistics from the American Society for Training and Development.

    “We are saving money in so many areas that, so far, overall budgets are not increasing,” says Brenda Sugrue, ASTD’s senior director of research. In its annual State of the Industry report on workplace training and development, the organization found that average spending per worker on training and development actually decreased by a few dollars, from $826 in 2002 to a projected $812 in 2004.

    The organization’s survey sample covers corporate, nonprofit and government organizations. At the same time, learning hours received per employee rose from 27.9 in 2002 to a projected 29.8 in 2004.

    A large part of the cost reduction has come from the shift to e-learning. In 1999, 80 percent of all training took place in the classroom. The projection for 2004 is that classroom time dropped to about 63 percent, while e-learning, the fastest-growing alternative, climbed to more than 29 percent.

    “Coming together in a classroom is not dead,” says ASTD vice president of content Pat Galaghan. “But virtual classrooms are the coming thing.”

    Training and development is a broad field ranging from executive MBA classes to diversity compliance training to job safety instruction. It can take place in a community college classroom, a corporate meeting room or at an employee’s computer workstation.

    But wherever it happens and whatever the content, the common theme is that organizations want training to meet very specific and defined goals–to produce a measurable return on investment.

    Quantifying training returns in dollars and cents is vexing, but can save considerable amounts. Though startup expenses to create and install e-learning programs are high, the payback usually comes quickly and can be dramatic.

    Several consultants and researchers report cost savings of about 50 percent through e-learning. Caterpillar Inc. of Peoria, Illinois, reports even greater savings.

    Paul Walliker, Caterpillar’s online training manager, says the company’s spending for online training programs is about one-third as much as traditional classroom methods because of savings on classroom instructors, course materials and travel to classes for employees.

    For a course aimed at a total of 100 employees, Walliker says e-learning is 40 percent less expensive than an instructor-led course ($9,500 versus $17,062). The savings rise as students are added. For a course with more than 40,000, the savings jumps to 78 percent ($1.1 million versus $5 million).

    Caterpillar has a system of regular, ongoing training for its 70,000 workers around the globe.

    “I cannot imagine trying to do any of this the old way,” Walliker says.

    One of the biggest changes in recent years is a sharper focus on defining problems and matching solutions to needs. That requires training and development professionals to analyze systems and craft custom solutions rather than simply offering standardized classroom training.

    “In the good old days, people in our business were mostly about the podium, either getting onto the podium or hiring the right person to get to the podium,” says Allison Rossett, professor of educational technology at San Diego State University. “Now it is much beyond that. Now there is a strong belief that an effective training professional has a certain amount of skepticism. They look at ‘What is the challenge? What are the causes?’ Then they generate solutions where training might be just a piece of the story.”

    Rossett, an author and training and development consultant, published a book on the new orientation, Beyond the Podium: Delivering Training and Performance to a Digital World.

    In this new environment, success is not always measured by how many workers can be processed through a seminar but rather how well a particular problem or issue is addressed.

    Roger Kaufman, an author, consultant and professor of educational psychology and learning systems at Florida State University, says that sometimes it makes sense for organizations to forgo a training program entirely. Studies have shown that 80 percent to 90 percent of traditional workplace training programs have little or no effect on overall job performance, he says.

    Poorly designed and executed classes can anesthetize workers; they either quickly forget or ignore lessons. “I have seen organizations that have spent megabucks on training and things don’t get any better,” Kaufman says. “How can we be sure all the training we do matters at all?”

“In the good old days, people in our business were mostly about the podium, either getting onto the podium or hiring the right person to get to the podium. Now it is much beyond that. Now there is a strong belief that an effective training professional has a certain amount of skepticism.” –Allison Rossett, professor of educational technology at San Diego State University

    The answer, Kaufman says, is to understand why an organization requires training in the first place. As an example, Kaufman says he was hired by a multinational corporation to train its South American workers in the company’s core values. He began by asking: What are those core values?

    It turned out to be standard information such as valuing customers and maintaining high standards. He probed deeper. He asked if those values were different from the rest of the industry. The answer: not in the least. So the answer to the question ‘Did the company believe that it had hired legions of workers in South America who were oblivious to basic principles that were universal in the industry?’ was no.

    Kaufman’s recommendation was that the company not waste its money on values training. But if there are specific skills your workers lack, focus on that, and also reward performance, he told the company.

    “We had a very short consultancy,” Kaufman says. “They were very thankful. They hadn’t looked at the difference between the means and the end.”

    Elliott Masie, who heads the Masie Center Inc., a think tank in Saratoga Springs, New York, that focuses on learning research, says the changes under way in training and development make traditional classroom courses less and less important.

    “The delivery unit for learning has historically been the course,” Masie says. “It has a beginning, an expert and maybe a test at the end. That is deconstructing pretty rapidly.”

    In its place are systems that offer bits and pieces of knowledge on demand. Instead of sitting in a classroom for several days to learn how to do a job, a worker now might have a quick orientation that includes a discussion of how and where to get information. That worker then gets to the job and, as questions arise, goes out and finds answers–perhaps through an online database, a network of experts or, if it’s needed, a training class.

    But even formal classes have changed. Masie, who also works as a training consultant, says that formal classes he offered five or six years ago typically lasted five days. Now, classes tend to last one day.

    “Go into most places of business and ask, ‘How did you learn to do your job?’ ” Masie says. “Most people don’t learn from courses. They learn from a manager or a peer or by watching somebody do something. A lot of learning already doesn’t happen in formal courses. So let’s get on the side of the angels.”

    The other trend Masie sees is what he calls extreme training–programs that are especially intense and compressed. Often these programs take the form of simulations in which managers are asked to solve difficult problems. Then they are graded and counseled on their performance. Much of the work constructing and delivering alternative training systems has fallen to outside consultants. Masie and others in the field note that outsourcing is on the rise as companies and organizations looking for both innovation and cost savings turn to outside vendors.

    One sizable field of learning that uses a combination of old and new methods is compliance training–knowledge or skills required of workers, often by law or regulation. Compliance ranges from diversity training to workplace safety to financial disclosure rules. Standardized content works well as a delivery method, and so does e-learning. And most subjects are available from a variety of vendors, saving companies the cost of creating their own programs.

    But even in the controlled world of compliance training, clients insist on results. Charismatic motivational trainers are still in demand, but even they have to match their popular routines with proven results: improved sales, better customer service, fewer mistakes, more dynamic leaders.

    “Great trainers used to be defined by great delivery,” Rossett says. “They were magnificent in the classroom. Nowadays, they have to be magnificent in the results.”

Workforce Management, July 2005, pp. 55-58 —Subscribe Now!