Is HR over funded?

Last year I paid a researcher to count the number of HR, Procurement and Contract Managers in 2,000 companies. Guess what? for every 25 (!) professionals in Human Resources, there is often only one (1) in Procurement or Contract Management. This is legacy but a structural fault line running through the modern enterprises who have 50%+ of their human resources as external resources. This reflects a fundamental misunderstanding of the modern "total workforce," which is increasingly composed of that core group of non-employee talent.

My analysis shows profound shift in workforce composition that isnt reflected in the number of people managing those resources. I think the solution lies in a new but old paradigm: Total Talent Management (TTM) - or maybe TT&SM (Service), a holistic strategy built on a robust HR-Procurement partnership and enabled by an integrated technology ecosystem. I'm trying to coin a new phrase - the time has come to look beyond traditional headcount and begin a choreography of the entirety of work.

Here is the data with my thoughts afterwards:

Part I: The 'workforce' has evolved

To grasp the severity of the organizational imbalance, one must first accept a fundamental truth: the traditional definition of a "workforce" as a collection of permanent, full-time employees is obsolete. The modern enterprise runs on a blended model, a complex and dynamic ecosystem of talent that extends far beyond the names on the payroll. This extended workforce is not a peripheral concern; it is a core, strategic component of value creation, and its scale is expanding at an explosive rate.

The standard HR-to-employee ratio, a cornerstone of human capital benchmarking, is typically calculated as the number of HR full-time equivalents (FTEs) divided by the total number of employee FTEs. This formula creates a dangerous illusion of control; a company might proudly report a "healthy" ratio of 1.7 HR professionals per 100 employees, in line with SHRM benchmarks. However, if that same company engages another 100 non-employee workers who contribute significant value but fall outside the FTE calculation, the effective talent management ratio is halved to just 0.85 per 100 value creators. This state of critical under-resourcing is completely masked by an obsolete metric.

Part II: A Tale of Two Functions

The 25-fold disparity in staffing between HR and Procurement is not an accident of organizational design but the logical outcome of 35+ years of divergent evolution. These two critical functions grew up in parallel universes, developing distinct languages, mandates, and metrics in response to different external pressures. Understanding this history is essential to diagnosing the root cause of today's dysfunctional silos and appreciating the challenge of integration.

The genesis of Human Resources lies in the administrative "personnel" departments of the early 20th century, which were created to manage the basic transactions of employment in the industrial era: payroll, timekeeping, and rudimentary compliance. Its evolution was not driven by commercial strategy but by social and legal imperatives. The rise of organized labor in the post-war era expanded HR's role to include labor relations and collective bargaining. This history forged HR's identity and its core competency: the management of the employee as a legal and social entity. Its focus became the entire employee lifecycle, from hiring and onboarding to performance management and separation, all within the legal framework of employment law.

Procurement, conversely, was born from commercial necessity. Initially a transactional "purchasing" function buried within finance or operations, its strategic importance was ignited by external market shocks. Its evolution was subsequently fueled by the pressures of globalization, the relentless pursuit of cost efficiency, and the recognition that strategic sourcing and supplier relationship management could be powerful levers for competitive advantage.

This history cemented Procurement's identity and core competency: the management of the supplier and the contract as commercial instruments. Its focus became the source-to-pay lifecycle, centered on risk mitigation, cost control, and value extraction from third-party relationships.

This profound historical divergence is perfectly encapsulated in their modern-day performance metrics. HR departments measure their own size and effectiveness relative to the number of people they manage, with benchmarks like "HR staff per 100 employees" being the gold standard.⁶ Procurement, on the other hand, is measured against commercial value and productivity, using metrics like "FTEs per $1 billion in spend," "number of contracts managed per FTE," or "purchase orders processed per FTE". They are fundamentally measuring different things because they have been conditioned to see the world through different lenses.

This creates an organizational "no man's land" where the rapidly growing contingent workforce resides. An independent contractor or a team engaged via a Statement of Work (SOW) is a hybrid entity that defies these neat, historical categories. They are not a traditional employee, so they fall outside the purview of HR's processes and legal frameworks. Simultaneously, they are not a simple supplier of commoditized goods; they are a provider of specialized skills, services, and talent. Yet, they are often managed by Procurement as just another line item on an invoice, a transaction to be processed with minimal consideration for the "human" element of the resource. This governance vacuum is the direct result of these parallel evolutionary tracks.

Part III: What to do about it

The organizational chasm between HR and Procurement is not a theoretical problem; it is a source of tangible and escalating risk that directly impacts the bottom line, legal standing, and strategic agility of the modern enterprise. When no single function has clear ownership of the total workforce, accountability dissolves, and predictable failures emerge. These risks are not isolated but form an interconnected system where a weakness in one area triggers a cascade of negative consequences across the organization.

Financial Leakage and Value Erosion

The most immediate consequence of under-resourcing the management of non-employee labor is significant financial leakage. Research from World Commerce and Contracting reveals that poor contract management can cost companies up to 9.2% of their annual revenue. This value dissipates through a variety of channels, including missed renewal opportunities, failure to enforce discounts, and "maverick spend," where hiring managers engage contractors outside of established processes and negotiated rates. Furthermore, McKinsey & Company estimates that inadequate post-signature contract oversight can lead to a deterioration in vendor performance and a value erosion of as much as 15% to 30% of the total contract value. When the function responsible for contract management is staffed at a 30-to-1 deficit compared to the function managing employees, this level of value destruction is not just possible; it is inevitable.

Compliance and Legal Exposure

Far more perilous than direct financial loss is the vast and complex landscape of legal and compliance risk. The primary danger is worker misclassification. As the nature of work becomes more integrated, the legal lines between an independent contractor and an employee blur. When a company exerts significant control over a contractor's work—dictating their hours, providing tools, and managing their daily tasks—it risks having that worker reclassified as an employee by regulatory bodies like the IRS or Department of Labor. The consequences are severe, including liability for back taxes, unpaid overtime, employee benefits, and substantial penalties.

Closely related is the risk of co-employment, where a company and its staffing supplier are both considered legal employers of a contingent worker. This can make the client company liable for a host of issues it thought it had outsourced, from wage and hour violations to discrimination claims and workers' compensation. HR possesses deep expertise in navigating these complex labor laws, but this expertise is rarely applied to the contingent workforce, which is often managed solely through a procurement lens.

The potential costs are staggering. In a widely reported case, a major U.S. technology company faced potential liabilities exceeding $100 million for the systemic underpayment of temporary workers across 16 countries. In a separate ruling, the same company was deemed a "joint employer" of its contract workers, obligating it to negotiate with their union for the first time. These are not edge cases; they are stark warnings of the liabilities that accumulate in the governance vacuum between HR and Procurement.

Strategic Inefficiency and Talent Blindness

The final category of risk is strategic. Without a unified system for tracking all workers, leadership lacks a true, holistic view of its total talent pool. This makes strategic workforce planning impossible. Key questions cannot be answered: What critical skills reside within our contractor base? Where are our talent dependencies? Are we developing or buying the right capabilities for the future? This blindness leads to redundant efforts, critical skills gaps, and a crippling lack of organizational agility.

This fragmented approach also creates a poor experience for the non-employee talent itself. Inconsistent onboarding, delayed payments, and a lack of connection to the company's mission damage the employer brand in the freelance marketplace. In an economy where top-tier independent talent has a choice of projects, a reputation for being difficult to work with is a significant competitive disadvantage.

These risks are deeply interconnected. A lack of strategic oversight (a strategic risk) allows a hiring manager to bypass approved channels and engage a contractor directly. This creates rogue spend (a financial risk). To get the project done, the manager integrates the contractor into their team, setting their hours and directing their work. This behavior creates a high probability of misclassification and co-employment (a legal risk). An audit then triggers fines and back-pay liabilities (a financial risk) and damages the company's ability to attract top freelance talent (a strategic risk). The entire destructive cascade begins with the initial failure to properly resource the function responsible for managing the commercial and contractual engagement of talent.

Table 2: Risk Matrix: The Dangers of a Disconnected Workforce Strategy

Part IV: Unifiying talent and services

Addressing the structural flaws exposed by the 30-to-1 ratio requires more than incremental adjustments; it demands a fundamental rethinking of how an organization acquires, manages, and optimizes its entire talent base. The solution is a three-tiered framework that moves from a guiding philosophy to a practical operating model and is powered by an enabling technology engine.

Total Talent & Services Management (TT&SM)

The journey begins with a strategic and philosophical shift toward Total Talent & Services Management (TT&SM). TT&SM is a holistic approach that breaks down the artificial barriers between different worker types. It is the practice of managing all sources of talent—permanent employees, contingent staff, freelancers, and SOW-based service providers—under a single, integrated strategic umbrella. The goal of TT&SM is to ensure that for any given business need, the organization can access the right skills at the right time and in the most effective and efficient way, regardless of the worker's classification. Adopting a TT&SM philosophy means moving away from siloed, reactive requisition-filling and toward proactive, strategic workforce orchestration. Tellingly, one of the most significant barriers to successful TT&SM implementation identified by industry analysts is the very organizational silo between HR and Procurement that this report addresses.

A New Operating Model: The HR-Procurement Partnership

TTM cannot be executed by a single function. It requires a new, collaborative operating model—a strategic alliance between HR and Procurement that leverages the unique strengths of each. This is not a merger or a takeover, but a partnership with clearly defined and complementary roles, often governed by a cross-functional steering committee.

• HR's Role: HR takes the lead on overall talent strategy, ensuring that the acquisition of non-employee talent aligns with the organization's broader human capital goals. It owns the development of consistent policies, governance frameworks, and DE&I initiatives that span the entire workforce. Critically, HR applies its deep expertise in labor law and risk management to proactively mitigate people-centric risks like worker misclassification and co-employment.
• Procurement's Role: Procurement leads on commercial and financial stewardship. It applies its expertise in strategic sourcing, supplier management, and contract negotiation to build and manage a high-performing network of talent suppliers (e.g., staffing agencies, consulting firms). It is responsible for cost control, rate card management, performance monitoring, and ensuring operational efficiency throughout the source-to-pay process.
• Shared Responsibilities: Together, in a governed partnership, they oversee strategic workforce planning, jointly select and manage key talent suppliers, co-develop integrated technology roadmaps, and monitor the overall performance and health of the total talent ecosystem.

Conclusion: Going From Managing Headcount to Orchestrating Work

The observation that HR departments are often 25x times larger than their procurement and contract management counterparts is more than a curious statistic; it is a powerful diagnostic tool that reveals a company's fundamental preparedness for the modern world of work. It is a clear indicator of an organization still anchored in a 20th-century model, one that over-invests in managing a shrinking portion of its value-creating talent—the traditional employee—while dangerously under-investing in the systems, processes, and expertise needed to manage the burgeoning external workforce.

The modern blended workforce, a dynamic mix of permanent staff, contingent workers, freelancers, and service providers, has rendered this legacy structure obsolete and hazardous. The analysis is clear: the siloed approach, where HR focuses exclusively on employees and Procurement treats talent as a simple commodity, systematically creates unacceptable levels of financial, legal, and strategic risk. Value leaks from poorly managed contracts, legal liabilities mount from misclassification and co-employment, and strategic agility is crippled by a lack of visibility into the total talent ecosystem.

The path forward requires decisive leadership and a commitment to fundamental change. The future of competitive advantage lies in Total Talent Management, a holistic strategy that views every contributor, regardless of classification, as part of a unified whole. This strategy is not an HR initiative or a Procurement project; it is a business imperative. It must be built on the bedrock of a strong, collaborative HR-Procurement partnership, where people-centric talent strategy and commercial acumen are fused. This partnership, in turn, must be powered by an integrated technology ecosystem that connects the VMS and HRIS to create a single source of truth for the entire workforce.

This transformation is a C-suite responsibility. The Chief Executive Officer, Chief Human Resources Officer, and Chief Procurement Officer must collectively sponsor and champion the breakdown of these legacy silos. The directive for every leader must be to shift the organizational mindset from the simple, outdated task of counting heads to the complex, strategic imperative of orchestrating work. The survival, resilience, and growth of the enterprise depend on it.