Over the course of my career, I have worked as both a full-time employee and a contractor for various firms and have seen the positive and negative aspects of both. I am going to discuss using both from the perspective of the firms using them. I have hired contractors in the past for projects my firm has done for clients, so I have been on both sides of the fence.
In an ideal world, firms would hire contractors or consultants to perform duties that are not a part of their core business or competency. These would include projects or tasks that a firm may only need occasionally or as a one-off. Full-time employees would be used to perform the activities associated with the core business of the firm on a long-term basis. Unfortunately, in far too many cases, firms hire contractors, often via contracting firms, as indefinite staff augmentation. This can wind up being unhealthy for both the firm and the contractors in the long run. It is one of the reasons I limit my time at any one client or on any one project to no more than six months to two years, depending on the project.
Early in my career, a colleague told me that we would be luck to get 70% of the productivity of a full-time employee from a contractor. Over the course of my career observing contractors, hiring contractors and being a contractor myself, I tend to agree with this statement.
A contractor, by definition, is not bound to an organization by benefits, stock vesting, retirement plans, etc., and is therefore prone to leave more frequently than a full-time employee. Technical roles within organizations are rarely truly “vanilla” roles. They typically require some domain knowledge that is only gained by working at an organization or on a project for some time. When the contractor leaves, he/she takes this domain knowledge with them.
Using contractors or consultants for projects or tasks that are necessary for an enterprise, but not a core function of its business can save money over hiring a full-time employee to do something similar. A good example would be, setting up and customizing a Salesforce.com implementation for the sales departement of an organization. It may not make sense to hire a full-time salesforce.com developer for tasks that will only be done occasionally. An effective and much less expensive option in the long term, is to hire a contractor or consultant to do this sort of work.
A lot of thought should be put into whether to use contractors for a particular job or task. This goes without saying. The value of using contractors and consultants should be constantly re-evaluated with reviews occurring at least every six months. If an organization finds that it continuously needs contractors for a business critical task over the long term, it may be better bringing in full time employees for to do this work.