The Workforce You Forgot to Manage
Author: Alan Day, Chairman and Founder
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You’re probably managing your direct employees brilliantly. But what about the half of your workforce that isn’t even on your payroll?
The difference in performance between companies that manage their extended workforce well and those that do not is now undeniable. Research from MIT Sloan Management Review shows organisations that intentionally manage their workforce ecosystems are 2.4 times more likely to outperform peers on customer satisfaction and 2.1 times more likely to exceed financial targets. In an era where over 50% of a company’s workforce is no longer directly employed, the stakes are too high for half-measures.
Managing the extended workforce demands more than traditional procurement or HR processes. Why? Because you rarely change your extended workforce providers; switching costs are high, disruption is costly, and relationships are long-term. Managing these suppliers well requires skills beyond contract negotiation, it demands Supplier Relationship Management (SRM). Internal processes and skill sets, designed for transactional procurement or basic HR oversight, are insufficient. Organisations must update roles, responsibilities, and capabilities to manage this vital workforce strategically and consistently.
Today’s supply chains and the workforces supporting them are more fragile, dynamic, and scrutinised than ever. Fragility stems from just-in-time models strained by the pandemic and global conflicts. Dynamism results from the rise of remote work, gig models, and rapid shifts in demand. Scrutiny has intensified with ESG expectations, labour rights enforcement, and geopolitical tensions. U.S. tariffs, for example, are redrawing supply maps, driving near shoring strategies that will strain regional workforces and expose gaps in supplier capabilities. The extended workforce is no longer an adjunct, it is an enterprise risk and a strategic asset.
For 16 years, State of Flux’s annual SRM research, covering over 4,000 organisations, has shown that best practice in SRM is not confined to procurement alone. Leading organisations take an enterprise-wide approach to supplier management. Managing the extended workforce must follow the same path. This means not only training procurement teams but also line managers, HR, Executive and operational staff who interact daily with external workers. Managing these relationships must be embedded into job descriptions, measured through personal KPIs, and supported by structured processes, handbooks, guides, templates, and enabling technology.
Applying SRM principles to the extended workforce involves several critical actions:
Strategically prioritise your workforce partners
Categorise staffing firms, managed service providers (MSPs), and business process outsourcers (BPOs) based on strategic importance and end customer impact. Highly strategic suppliers require tailored relationship strategies, including joint business or account planning and regular performance and behavioural reviews.
Establish clear governance and accountability
Build robust governance structures that clearly define roles and responsibilities between your organisation and suppliers, particularly around worker rights, compliance, and service performance.
Implement rigorous performance and risk management
Set clear KPIs not only for service delivery but also for worker wellbeing, compliance with labour laws, speed, quality, retention rates, and adherence to ESG and diversity goals. Remember to set KPIs for your own team as well.
Integrate your partners into your organisational culture
Ensure external workers are effectively onboarded, recognised, and connected to the organisation’s broader mission. This strengthens loyalty, productivity, and overall brand reputation. Train and measure your own teams on how to manage the suppliers, the workforce, and how to embed your organisational culture and behaviour with external workers.
Use technology to enhance visibility and control
Leverage supplier management technology to achieve real-time transparency, track performance, manage compliance risks, and make data-driven decisions.
Neglecting your extended workforce isn’t a hidden inefficiency any more, it’s a flashing risk on your balance sheet. Organisations that professionalise SRM across their external workforce will not just protect themselves from disruption—they will build competitive advantage for the long term.
This year's research will explore how supplier relationships influence the end-customer's experience, and demonstrate why becoming a 'Customer of Choice' involves more than just better pricing or reduced risk. It's about becoming a customer that suppliers prioritise. The research aims to answer a critical question for CEOs and procurement leaders: What happens when your suppliers prioritise you - putting their best people, innovations, and resources behind your business? Start here: https://www.surveymonkey.com/r/srmresearch25
About the Author: Alan Day is CEO and Founder of State of Flux, the world’s leading experts in supplier management, specialising in building collaborative buyer-supplier partnerships that drive better outcomes for organisations all around the globe. State of Flux has written 16 books on Supplier Management and these can be downloaded here - https://srm.stateofflux.co.uk/reports-publications