While freelancers were often seen as a substitute for permanent employees a few years ago, managers are gradually recognizing the benefits and expertise that freelancers bring to companies. In research, too, the negative view of the use of freelancers has long prevailed.
Andrew Burke and Marc Cowling take a new perspective on freelancing, revealing convincing findings on freelancers in companies in the form of clear facts as part of their study “The relationship between freelance workforce intensity, business performance and job creation“ (2019).
Burke and Cowling focused their research objective on analyzing the added value as well as the effect on net employment. According to the two researchers, new studies are important because the given framework and assumptions have changed. Research no longer sees freelancers as competitors to permanent employees. Instead, freelancers are seen as people who can create new jobs – in terms of numbers as well as in terms of job destinations. Earlier studies assumed that freelancers were actually partly responsible for the reduction in labor supply and declines in turnover – which turned out to be false.
Added value through freelancers
If one examines other empirical studies, one quickly comes across some clear signs that the use of freelancers by companies adds significant value It is clear: Freelancers and their services will continue to gain in importance in the future and are already an indispensable component of international labor markets, especially those of industrialized nations.
In addition to the USA and Great Britain, the entire EU can also show a steady growth in freelancing. At the same time, the number of companies working with freelancers to be more flexible, innovative, and agile is also growing. These same companies use the services of freelancers, especially in IT, when they need to further increase their ability to innovate.
In practice: Innovation and sales growth
To showcase the study results, we have a look at the holding company ARM. ARM has been owned by Japan’s Softbank for several years and is a provider of IP solutions in the field of microprocessors.
Currently, chip designer NVIDIA is trying to complete its acquisition of ARM – for $40 billion. ARM’s success story is relevant to this study because the company – in a highly competitive market with Intel – has been able to develop new groundbreaking architectures for computer chips with significant support of freelancers. This freelancer-supported architecture is now in over 180 billion devices, including probably yours. From sensors to smartphones to computers, ARM provides architectures for companies like Amazon, Google, and Apple, and is one of the most innovative companies on the planet.
By the way: Amazon, Google, and Apple also heavily rely on the expertise of freelancers. This is further proof that freelancers have become indispensable, especially in IT.
Back to the study: Study methodology
Part of the aforementioned study is a dataset that includes survey results from 726 owners of small and medium-sized enterprises (SMEs) and 302 senior executives from the United Kingdom. The respondents are part of U.K. private and public sector organizations that have been responsible for hiring/managing freelancers in the past two years. The surveys were conducted in 2013. Interviews lasted an average of ten minutes, and topics discussed included:
The data was analyzed using regression analyses, which were adjusted for the respective study objectives, such as measuring the effect on employment.
The central and, from the researchers’ point of view, most important finding was how elementary it is to achieve a critical mass of freelancers in companies. According to the study results, this critical value is 11% of freelancers to optimize the value chain.
This high percentage can be explained by the fact that companies often use freelancers for large projects that are independent of the rest of the company. Many of our customers also use freelancers specifically for projects in research and development. The study refers to so-called growth areas, for which the use of freelancers is particularly suitable.
These areas are often separated from regular employees and work on a project basis with a high proportion of freelancers. The positive result of this separation of individual business units is that most employees can focus on the company’s cash cow, while freelancers take on highly technical and future-oriented work.
According to the study, it is independent of the size of a company whether their new business units supported by freelancers have an impact on revenue and employment growth. Thus, company size is not relevant to the effectiveness of freelancers. Moreover, freelancers have enabled a turnaround toward greater dynamism and innovation even in large companies.
In practice: Successfully moving from the analog into the digital world
One example cited in the study in this regard is Argos, a catalog retailer operating in the UK and Ireland, which developed and launched its ArgosDirect online shopping business in collaboration with a team of freelancers. The company itself did not have the expertise and resources to launch a digital marketplace, and so used the expertise of freelancers. Although Argos is known as a catalog retailer, around 58% of sales are now made online, with the Argos website being the third most visited retail website in the UK.
What this example illustrates very well is that even companies without distinctive experience and resources in IT can use freelancers to become national or even international leaders.
Continuation: Study results
A particularly interesting result of the study is that using the services of freelancers allows companies to access highly specialized talent that may only be needed for a small portion of production. This limited need for their use means that they do not incur costs for the company during the time they are not needed. This increased flexibility in terms of cost structure makes it possible to respond better to changes in the market, for example new competitors or even macroeconomic effects.
It has already been demonstrated on several occasions in recent years, including the financial crisis and currently also the Corona pandemic, that companies with small, fixed cost blocks are better able to get through and subsequently also out of crises thanks to the increased flexibility.
A look at the real world: Reducing fixed costs, getting a head start with experts
One notable example of the intelligent use of freelancers and their advantages in regard to the cost structure is Alphabet, Google’s parent company. For many years, various subsidiaries have been relying extensively on the skills of freelancers. In addition to the innovative character already mentioned, freelancers reduce the fixed cost blocks and thus contribute to increased flexibility. For example, Alphabet was able to react flexibly to the slumped advertising market in times of global lockdowns and, just in time for the market’s recovery, restocked and posted strong revenue growth. In this way, freelancers help increase revenue and, in times of economic growth, create jobs, as companies face lower risks and therefore reduce barriers to hiring.
Continuation: Study results
Lastly, the level of innovation is also found to be significant by the researchers. Revenue and direct employment growth are positively associated with a higher level of innovation compared to an entire industry. This clearly shows that freelancers take on tasks that are innovative in nature and are successful in generating revenue and employment growth for companies. According to the results of the study’s regression analyses, the higher the level of innovation, the more likely it is that growth will result in both areas.
Based on this finding, differences between industries can be identified. In IT, for example, it is simply easier to utilize the skills of freelance experts in innovative projects. Both, our experience, and employment figures from the USA, validate that especially in IT, the freelance workforce generates great value. Companies such as Google or Microsoft, which can certainly be described as innovative, frequently use alternative forms of employment, such as freelancing.
Whether and when the use of freelancers makes sense depends on many factors. Even outside of IT, there are dozens of areas in which the use of freelancers is well suitable.
Classification of the results
We consider the specific numbers mentioned in the study, such as the critical mass of 11% freelancers of the workforce in innovative companies, not set in. At the same time, however, we recognize the importance of the finding as such and view the study results as guidelines.
In the study, we see a meaningful contribution to the debate around freelancing. Without this debate, there would be no statistics nor research, which we consider to be extremely important. Furthermore, we were pleased to see that scientific research validates what clients tell us every day: Freelancers have a crucial impact and benefit on growth projects and are drivers of innovation.
Positive feedback from our customers and scientific analyses confirm our mission every day. We want to show organizations the benefits of working with freelancers. Our motto: Challenge the status-quo, serve all needs of clients and freelancers alike, strive for productivity and excellence!