Is Freelancing Beneficial to Businesses?

New data from Elance-oDesk indicate that businesses will spend over $930 million on hiring freelancers around the globe in 2014. What are the benefits and the downsides of hiring remote independent workers?

Jun 25, 2014 at 8:44PM

If you go into any coffee shop, it's highly likely you'll find a freelancer sipping latte while typing away on a laptop to make a deadline. This scene is now a widely accepted norm, according to freelancer marketplace Elance-oDesk.

Recently, the company that connects businesses with freelancers from around the world released a comprehensive report on the independent work happening online. What are the economics of taking on freelancers versus investing in training full-time employees?

Working In A Coffee Shop

Photo credit: http://www.entrepreneurshiplife.com/

Key findings

One key finding is that since the beginning of the year, online job postings in the U.S. have grown by as much as 22.1% compared to offline job growth of 3%. 

Looking ahead, Elance-oDesk predicts that around 40% of the U.S. workforce will "go independent" by 2020, fueling more than $10 billion of work annually via the company's online workplaces.

Getting the skills you need when you need them

Every human resources executive knows that finding suitable job candidates can be an exacting and time-consuming task. Platforms like Elance.com and oDesk.com make this process easier and faster by providing a venue for companies and talents to connect.

In general, online work marketplaces could be beneficial to businesses since they enable them to get the skills they need for as long as they need them. This equates to more flexibility, better risk management in times of economic uncertainty, and less production cost. Business owners are relieved from the health care, social security, and other benefits linked to keeping an employee on the payroll over the long term.

U.K.-based ARM Holdings (NASDAQ: ARMH) often makes use of freelancers from the clerical level up to senior interim executives, not only to decide the viability of innovation but also as a means of breaking into new markets.

"We are incredibly cautious about adding permanent headcount and hence use freelancers to manage risk in innovation and growth," Bill Parsons, executive vice president of human resources, said in an interview by Professor Andrew Burke for his report on the role of freelancers in the 21st century British economy. "Our development process involves a freelancer initially providing advice on doing business in a region, then if this works he or she will then typically move into an employee role," he added.

The downsides of taking on freelancers

Many well-respected companies adhere to an intense and lengthy hiring process, even though it might not be cost-effective.

Google (NASDAQ: GOOG), for instance, is renowned for its high hiring standards and strict requirements. However, at the end of the day, this attitude toward discovering prospective employees enhances its reputation as the stronghold of exceptional talent. Only the most talented can live up to its high standards and often unconventional selection criteria, such as valuing leadership and humility over GPAs.

Boston Beer (NYSE: SAM), the maker of Samuel Adams, prides itself in being highly selective about who it brings on board while avoiding "desperation hires" -- the concept of hiring someone just because a job needs filling, not because that person is the best fit. Founder Jim Koch recently told Business Insider that the record time for an unfilled position in the company's history is 18 months. "Was it worth waiting a year and a half to hire somebody who's going to be with you for 15 years and just gets better and better? Absolutely," he asserted.

Finally, investing in keeping employee turnover rate low by creating an environment in which workers can receive constant training certainly pays off.

German auto powerhouses from Audi to Daimler (NASDAQOTH: DDAIF) have taken the "train your personnel" thing to a whole new level. Both of these companies have embraced a system of apprenticeships combined with vocational schooling over a 3-year period.

This is a highly costly process. Still, by investing in developing talent for the long term as opposed to cycling through freelancers, the companies eventually get their money's worth. The return on investment includes establishing a culture of trust and loyalty in the workplace, on top of providing the companies with expertise that caters to their specific needs.

Final thought

With the ubiquity of connectivity, it was only a matter of time before work transitioned online. In the world of e-working, freelancers open up new possibilities for businesses by enabling them to get the skills they need whenever they need them. Nonetheless, it's likely that the pros-and-cons scale of relying mainly on freelancers could tilt more toward the cons rather than the pros.

Fani Kelesidou has no position in any stocks mentioned. The Motley Fool recommends Boston Beer and Google (C shares). The Motley Fool owns shares of Boston Beer and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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