In Defense of Using Contractors

Recently we added satellite TV at our house, and we signed with a well-known national brand. They sent an employee technician to install the dish on our roof a few weeks later. Unfortunately, he was not able to complete the install- our roof was too high, he couldn't use his equipment to attach the stand to the roof, we couldn't expect it to work appropriately or get a signal. Their insurance could not cover this job, and with regrets, we signed the incomplete work order and he was on his way. Undeterred, we called back and were able to get a better deal with a different dealer. This time a contractor technician came and installed the same dish (on our same roof). Within minutes our TV and DVR were working and we were watching our beloved 9 zillion channels.

My family pondered the success of the second technician rather than the first. My 16-year-old daughter quoted her favorite musical, saying "Immigrants. They get the job done."

With apologies to Lin-Manuel Miranda, and gratitude to the independent contractor who had given us our entertainment, I don't actually think it was the technician's home country that made him more successful. In my opinion, it is a question of compensation. Is it possible that the IC technician is paid for each completed install? Instead of being paid by the hour? I think so. Would that incentivize more creativity in my case? Maybe. In every case? That isn't as clear.

As a transportation and logistics executive, I have recommended and implemented solutions across the spectrum; all employee models, all independent contractors and a hybrid of the two. In the past 20 years of my career, I have heard nearly every argument for and against using an IC model. The most common reasons have been as such; getting more control and better customer service with employees, saving money and minimizing risk using ICs. Walking the delicate line that does not open you up to co-employment issues. On a personal level, I have had ICs install my carpeting, deliver and assemble furniture, and install our satellite dish. The key to successful customer experience is...complicated. It isn't a simple decision at all. Consumers have a wide variety of expectations that matches their buying experience. So, let's consider some of the reasons why you may want to consider a model that uses Independent Contractors, in whole or in part.

Tie Compensation to Performance

Compensation is an area where you can be very creative when using ICs. Most negative experiences or thoughts around outsourcing, I would argue come down to inappropriate match of compensation to performance. To do this, first you must be crystal clear on the priorities of your organization and what a successful experience is. There is a give and take here. Is getting same day delivery more important than the lowest possible cost? What is more important, product knowledge and expertise or minimizing claims? How large is your customer service organization? How much time per consumer are they expecting to spend on each customer?

Independent Contractors are often used on big ticket purchases; this is something that the family is excited about, or perhaps grateful for. A new appliance, new furniture, a life-altering medical device.... these are large purchases your consumer and their family have spent time preparing and saving for. The delivery or installation of this is the final part of the process, and likely the success or failure in the consumer's mind is dependent on the success of this experience. Why not structure the Independent Contractor pay to delivery survey results? Most brokers or 3PLs can add in a spiff for the driver teams based on their performance. Some 3PLs, depending on local and state laws, can add in monetary rewards for using your brand logo on their apparel or truck. If this makes a better experience for your consumer, then by all means, pay for it!

Cost savings

Compensation also will drive productivity, and the work needed to be accomplished should be structured according to what behavior you want to drive. If you do not want to guarantee volume, you can pay a flat rate for the day. The problem here is that there is now no incentive to get that difficult late friday afternoon install completed. Therefore, a per completed stop rate with a minimum will be your best bet. By gathering sales over a period of several days or even weeks, you can make your routes much more efficient. The more efficient your routes are, the less you will pay in gas/mileage/fuel surcharge. That decision pushes out your time to install. Is your customer willing to wait 2 weeks longer for a delivery that costs $150 less? These are marketing decisions, not logistics decisions.

The most successful implementations I have been a part of in the last 20 years were decisions made and agreed to by sales, operations, and customer service. The least successful were ones in which the LOUDEST minority got the largest say. Not everyone in your organization has the same priorities, and not every consumer has the same priorities. Any marketing 101 student can tell you the 4 P's of product, place, promotion and price. I strive to understand these of all of my clients, because ultimately the way your organization creates value in the minds of your consumers will be how your transportation contract will be written.

Your organization limitations

Your organization has an expertise. A story to tell. An "ideal customer." A set of values that theoretically are backed up by your product or service. Some organizations have tremendous resources to help you recruit and find exceptional talent. If you have top notch training, wonderful managers, a strong marketing budget, and a large staff of recruiters, employee drivers may be much better for you. But chances are, there are some resources where you can rely on a provider to tap into their network.

When it comes to ICs, many 3PLs have a very strong network and recruiters that are looking for capacity consistently. This is a large undertaking and recruiting is a large cost. When you work with a seasoned 3PL, you are tapping into their network to find your next brand champion.

Nothing "magic" happens to a person when they get a W-2 instead of a 1099. They do not become a better person. Compensation does drive behavior, and whether you choose to go the route of contractors or employees, match your compensation with your desired results.

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