Apply now to be an Entrepreneur 360™ company. Let us tell the world your success story. Get Started »
In 1991, when Reebok International Ltd. wanted to use Jeff Bleecker's bicycle air pumps to sell with a new inflatable shoe it was releasing, the Tucson, Arizona, entrepreneur had a big problem--the shoe giant wanted a million units just to start.
"The order was 50 times what we were used to," recalls Bleecker, whose then-2-year-old company, Innovations In Cycling Inc., made about 200 pumps a week with just a handful of employees. Facing the immediate need to hire many more workers and unsure what would happen when the Reebok contract ran out, Bleecker turned to temporary employees. Before long, he had 120 temps turning out up to 17,000 units a day in Innovations' expanded plant. When the contract ended, he shed the extra employees without costly severance or other expenses.
Management experts have a name for the practice of using temporary or contingent workers to easily expand a work force to meet changing business conditions. They call it "accordion management," and it's a powerful tool for squeezing the most out of seasonal, infrequent or unpredictable sales environments. Today, Bleecker presides over two healthy companies, including a new subcontract manufacturer, with 23 permanent employees and a temporary work force that fluctuates wildly. For his success, Bleecker credits good luck and a flexible work force. Says Bleecker, "We would never have been able to do this on our own."
The Squeeze Is On
The practice of using temporary workers to expand and shrink a work force to meet demand has been around since at least the early 1970s. In recent years, however, its use has become far more popular. In 1994, between 4 percent and 6 percent of all workers were temps, according to Helen Axel and Stanley Nollen, co-authors of Managing Contingent Workers (Amacom). That's six times the level 20 years ago, they say.
Controlling costs is the big benefit to this strategy. "The advantage for managers is your payroll budget is not affected," explains Axel. Hiring temps reduces the overhead normally required to recruit, interview and hire permanent employees. In addition, employers avoid directly paying taxes, pensions, welfare support and severance. Other benefits may include improved productivity, better customer service and shorter cycle times, according to a 1997 blended work force study by Olsten Corp., a temporary staffing company in Melville, New York.
With its increased use, accordion management and its related concepts have gained new labels, such as contingency staffing, just-in-time staffing, blended work force and many others. Altogether, around 90 percent of companies say they use some type of temporaries on occasion, says Gordon Bingham of Olsten.
Accordion management works well for companies facing sudden changes in demand, whether the surge is unexpected--like Bleecker's--or part of typical industry cycles. In general, retail, seasonal, round-the-clock or extended-hours companies are good candidates for accordion management. "In these companies, you really can't afford to have full-time, job-protected people on your payroll," Axel says.
Small service companies that handle projects for larger firms may also find accordion management plays well. "As opposed to being process companies that [perform] a lot of ongoing functions, they have a project that lasts six months and another after that that may last nine months," explains Bingham. "Their skill and employee requirements for each may be very different."
Accordion management covers the spectrum of employees; temporary workers can be hired for everything from customer service to top management positions. A troubled company trying to turn itself around may need to expand its management ranks for a limited time with executives who have specific turnaround skills, says Conrad Prusak, president of Ethos Consulting Inc., a San Francisco executive search firm. Companies may temporarily expand finance departments at tax time or in preparation for a new round of financing, or hire additional marketing specialists to roll out a new product. "Use it where you have events [that] need immediate attention," says Prusak, "but not in a situation that requires long-term continuity."
Like accordion music, accordion management can strike a sour note. That's what Susan Yule at Eliassen Group Inc., a high-tech staffing firm in Wakefield, Massachusetts, told a small-business owner who went to her seeking a temporary financial manager. "The project she described [required] a long-term employee," says Yule. "She needed to retain that expertise in-house."
In general, experts say, employers should consider permanent employment for any need that will last longer than a year. Why not go all temp? Cost is one consideration. Employers pay about 40 percent more in hourly rates for temporary employees. The difference covers recruiting, interviewing and other hiring costs as well as taxes, workers' compensation and mandatory insurance, such as disability protection. Part of the hourly wage goes to the temp service. Bleecker figures he paid approximately $6.75 to $7 an hour for temporary employees that could have been hired permanently for $5 per hour.
An accordion style can cost still more in what Prusak calls "soft dollars." Temps typically arrive with little knowledge of--or allegiance to--their short-term employer. Constantly bringing in new temporary workers may damage your corporate culture and employee morale by provoking jealousy from permanent employees who know the temps are being paid more per hour. Customers may be turned off by inconsistent service. And temps, purposely or out of carelessness, may even leak your trade secrets, Prusak warns. "If your confidentiality is breached, there's a cost," he says.
Another risk, albeit unlikely, is the possibility of running afoul of tax and labor laws when using large numbers of long-term temps. "You can't treat contingent workers like regular employees," says Axel. "You might find yourself in the eyes of the law as having regular workers and be hit after the fact for regular employment taxes."
Many of accordion management's side effects can be controlled with the proper techniques. For instance, you may be able to avoid legal problems by simply making sure you don't have temporary workers doing the same work as permanent employees for many months or years at a time.
Loyalty issues can be defused by letting temps know they're in line for permanent jobs if they perform well, says Bleecker. "We've actually [adopted] a policy of bringing on all new people as temps first," he says.
Check references carefully before hiring temps in key positions. "Interview and reference-check even though it's a short-term position," urges Prusak.
Most important, don't hire temps without planning. Contingent workers can be brought in on short notice, but you should decide well in advance how they will be used. And check your local labor market for adequate numbers of appropriate contingent workers before making temps part of your plans, stresses Bingham.
"With the accordion style, you really have to plan what you're going to do with these people, what impact they're going to have on the quality of the products or services, and how they relate to [permanent] employees," says Bingham. "If you buy into the concept and don't buy into the planning, [there's] a good chance of having a disaster."
For Jeff Bleecker, accordion management probably saved him from disaster by giving him the flexibility to take on the deal of a lifetime. "It was a substantial load off of our backs," he says of the flexible work force he hired through Olsten. "For a small company like ours, engaging in this relationship with Reebok was challenging enough. To add to that would have made it very difficult."
Mark Henricks is an Austin, Texas, writer specializing in business topics.