In March 1997, Honeywell Inc. purchased Measurex, a Cupertino, California, company that built control systems for the paper-making industry. Honeywell then calved a portion of its industrial controls business and merged it with Measurex to create Honeywell-Measurex. To hasten the merger and grab a competitive market position, company leaders resolved to build an integrated enterprise resource planning (ERP) system based on Oracle Applications software -- an undertaking that would require many bodies with ample experience.

But the new business was losing staff, including top IT talent; many of the Measurex employees left because they were nervous about how the Minneapolis-based Honeywell would manage its long-independent Silicon Valley office. And frankly, they had myriad other opportunities. In addition to needing people with Oracle skills, Walsh, named director of information technology at Honeywell-Measurex, required people skilled in Internet and year 2000 technologies, both hot areas. He did not have the desired staff in-house, and he could not fill the open positions in time to complete the project.

"It's probably the most competitive job market in my career," laments Walsh, a 20-year Honeywell IT veteran.

To overcome the hiring challenge and gain needed expertise, Walsh began hiring contractors and consultants and now manages a blended team of in-house and third-party talent. But he finds that integrating a mixed workforce into a smoothly operating team isn't easy, primarily because of personal dynamics. For one thing, in-house and third-party employees may earn different wages for the same levels of work, which can create hostility.

"Sometimes there is this built-in antagonism between hired guns and staff. And sometimes there is a misperception about how much money that goes to a contractor ends up in their pockets," Walsh says. He's still trying to find the right tools to create the sense of teamwork that is essential to a project's success. But so far he's been able to smooth wrinkles by using good people-management techniques such as helping full-time staff develop the business and leadership skills that they wouldn't get as contractors and by including contractors in reward and recognition programs typically reserved for permanent staff.

As the blended workforce becomes commonplace, more and more CIOs are sharing Walsh's predicament. As CIOs require increasingly specialized technologists, a growing number of the most highly sought-after professionals are going independent or working for agencies that represent their interests in much the same way a sports agency represents an athlete's interests.

Labor experts point to several macrodynamics that are contributing to the changing of the workforce in general and the IT workforce in particular.

Downsizing-induced layoffs in the early 1990s dissolved the guaranteed bonds between employer and employed. As companies became leaner, they relied more heavily on brainpower, information and communications to help them compete.

Many workers with special skills, no longer bound by company fealty, found they could make more money and advance more quickly by joining consulting firms or striking out on their own. This is especially true in the IT services sector, which is growing at 16 percent per year, according to Forrester Research Inc. in Cambridge, Mass. The IT consultant population reached approximately 1.25 million in 1997 and will be more than 2 million by 2000, according to Advanced Technology Staffing Inc., an IT staffing firm in Redwood Shores, California.

As it becomes more difficult to hire sufficient full-time staff and as the supply of third-party workers increases, technology managers who aren't managing a mix of independent contractors, consultants and permanent staff on crucial projects will become increasingly rare. But creating an effective team out of a mixed workforce requires careful management. Contractors on mixed teams are motivated differently than their permanent counterparts; in general, they tend to be more independent, more specialized and less concerned with the host company's business and politics than full-time staff, yet they share the need to be a part of the team's social fabric, training and reward structure.

And core staff, working with independent coworkers who may seem to make more money than they do, need special rewards, opportunities and encouragement to remain on board and enthusiastic.

Although there aren't hard and fast rules for successfully leading a blended workforce, CIOs who are doing so find the same broad techniques work well for them, namely understanding workers' different motivations, creating incentives that properly reward teamwork, creating an inclusive culture and, as is necessary in every discipline, communicating effectively.

To understand what motivates independent contractors, consider Ted Peck, a quintessential member of the new class of contract IT professionals. An MIT graduate with a degree in mathematics, the 39-year-old freelance software developer has 16 years of experience and extensive knowledge of application development. After leaving MIT, he worked first for a large software company and then for a smaller one. In 1988 he joined several college friends at an interface software tools company, Oakand Group. After the company was sold in 1991, he stayed with it for another year, then began consulting for former clients. He incorporated as Nivel Partners Inc. in Cambridge, Massachusetts, in 1997, but has been independent ever since 1992, working primarily with and for previous acquaintances.

Working as an independent contractor gives Peck more of what he wants out if his professional life, like flexibility with his time. "I can take a morning off if I want," says Peck. "And it's not that I couldn't do that as a full-time employee for someone else, but I have more psychological flexibility with my time. I know I'm not billing for the hour, so I don't have to feel guilty about not working," he says.

There are other benefits to contracting as well. Peck estimates he takes roughly six weeks of vacation time per year and, billing at US$90 per hour, he would earn roughly double the salary he would earn as a full-time company employee if he didn't take as much vacation time.

"There are a lot of intangible benefits of being a full-time employee, like getting paid while reading the newspapers. But I try to calculate the actual value of health benefits, retirement benefits and the like, and those benefits seem to be a drop in the bucket compared with the salary difference," Peck says.

Peck fits the description of the advanced-skill IT consultant to a tee. In a survey of 1,700 such consultants, Advanced Technology Staffing found them to be primarily between 36 and 50 years old, with an average of 17 years of IT training and education honed to maintain specialized skills. More than 30 percent are college graduates, 61 percent have worked more than 15 years in IT and nearly one-third have 10 years of consulting experience. They combine telecommuting with onsite work and take six to eight weeks vacation per year.

They tend to be male (80 percent) and married with children, and they're motivated by the ability to control their careers, increased earning potential and professional development.

"These people are not between jobs," says Dominique Black, chairman and CEO of Advanced Technology Staffing. "So the issue becomes, what do you do to retain them? The first thing is you offer them strong rates and challenging work, and you accommodate some quality of life issues. Most of these folks are making over $120,000 a year, but they want 8 to 10 weeks off a year, and they're able to do it."The trouble is, blending these highly skilled free agents with a permanent IT staff can cause social friction that hampers teamwork and increases a project's development costs and time. Among the leading problems is that the contractors may not be attuned to corporate culture and may lack a view of the bigger picture of the company. Also, contractors' and consultants' direct pay is likely to be higher than staff pay and, if a company uses contractors to supply all the hot new skills, in-house staff can become cynical and depressed. On the other side, contractors can feel left out of pertinent management information, ostracized from meetings, excluded from special awards programs and unwelcome at bonding functions such as company parties.

One company found that the development of such divisiveness can be deadly to an IT project.

Late in 1992 Northwest Natural Gas Co. in Portland, Oregon, set out to build a new customer information system. The system was designed on a three-tiered, client/server model and used new object-oriented technologies in which Northwest Natural's IT department had no experience. The vast majority of expertise had to come from outside contractors. IBM Corp. won the project management bid and supplied its own people, and both IBM and Northwest Natural hired independent contractors to help install a packaged utility industry system.

The project ran into trouble almost immediately. Because it involved many vendors and some immature technology, both IBM and Northwest Natural Gas spent too much time solving technology problems instead of business ones, which quickly consumed the budget.

Chuck Beyer, CIO of Northwest Natural, arrived at the company in 1995 as the director of its Customer Information System Project. "It was the 'we/they' attitude," says Beyer. "The Northwest Natural people had all these requirements, maybe a lot of them not very realistic. The vendor had a fixed price contract, so they had to say, 'No you can't have that,' or 'No, it's not in the specs,'" he says. "Nobody made much progress until they brought in a new project manager. Once they started making progress, they began running out of money."Experienced managers find that the first step to eliminating such divisiveness and melding contract and permanent staff into an effective team is acknowledging the problem and clearly communicating that teamwork is an unquestionable requirement.

At Northwest Natural, Beyer worked closely with his project manager to stamp out destructive attitudes. They brought all the project personnel together onsite-users, IS staff, IBM consultants and third-party contractors-and stated that that there would be no rank or privilege based on who issued people's paychecks. In some cases, Northwest Natural staff had to report to contractors.

"That was tough. This is a 139-year-old company with a close-knit culture, and to say you're reporting to a contractor, they were taken aback by that," Beyer says.

Nonetheless, the group ultimately developed its own inclusive subculture and beat the revised schedule by delivering a completed system in November 1997 rather than in January 1998. The team spirit wasn't the only success factor -- Beyer also canceled the development project, found a new package and began modifications to keep costs from rising too high -- but esprit de corps was essential to the project's success. "My idea of a successful meeting is when somebody attends and says, 'I couldn't tell who worked for whom,'" says Beyer.

"That's the way it's supposed be, and that's the way it ended up," he says contentedly.

Managers find that another way to help keep tensions down and spirits high on combined teams is by distinctly delineating contractors' and permanent staff's roles and valuing what both sides bring to the table. In many cases, full-time employees possess the broader management skills and company knowledge needed over a project's long haul, while contractors have the more specialized skills necessary for shorter duration. By shaping a project's jobs to best suit workers' strengths and abilities, managers foster cooperative rather than antagonistic spirits.

At PG&E Corp., an energy company conglomerate in San Francisco, the general model is to use internal people for direction and project management and independent resources for specific tasks. Big Five consultants fall somewhere in the middle-they provide project management and subject-area expertise.

Rather than feeling threatened by the outsiders, the extra help assures internal folks that management will source the project correctly, says John Keast, PG&E's vice president and CIO. "And that's a good thing," he adds.

When delineating workers' roles, however, managers find it's important not to sequester contract employees from permanent staff. To avoid doing so, Keast has them partner on tasks. That helps workers build a good personal rapport and encourages them to learn from each other. "If you segregate teams by putting them on different tasks, you don't get that mushing together that makes a project team successful," he says.

Perhaps a stronger stimulus to blended team success is equitable financial treatment. On projects that require staff to work long hours, salaried internal employees or fixed-priced consultants don't automatically get paid for their extra work as do contractors who are paid by the hour. Or, in some cases, permanent staff may feel a stronger motivation to work extra hard in hopes of promotion or because they have ownership interest via stock options, while contractors don't have forces motivating them. To balance the financial incentives, some CIOs are setting up bonus plans for both permanent and contract staff to meet tight project deadlines. In addition, some CIOs give spot bonuses to individuals for exceptional performance, without distinguishing between hired guns and staff.

In a previous position, Walsh surprised and gratified contractors by handing out ad hoc bonuses when they went above and beyond the call of duty. "It's good human psychology. People like to be recognized for doing something good," he says.

In a similar financial vein, managers find that a key to avoiding insider/outsider antagonism is explaining to permanent employees why contractors in the same positions tend to earn higher hourly wages. Forrester Research calculates that when a staff person earns $33 per hour and a contractor earns $70 per hour for the same job, the actual cost to the company is $63 and $74 per hour, respectively, which isn't such a huge gulf. Included in the full-time staff costs are roughly $30 per hour in training, paid time off, bonuses, taxes, insurance and recruiting.

Good managers emphasize other benefits for employees as well, including stability, stock options and potential advancement. "If a person is interested in broader skills as opposed to an exclusively technical focus, we offer something of appeal to them. They can be something other than the world's greatest database administrator with a gypsy life," says Honeywell's Walsh.

While management training can be a special benefit for full-time staff, experts say a key component of building successful teams is providing project-related training to everybody. For instance, although contractors may not require technical training, they should be included in all project-related business process and professional development training. "Make sure that you identify that group as the same team by offering the same training and requiring the same prerequisites," says Marc J. Wallace Jr., a partner with the Center for Workforce Effectiveness, a human resources consulting firm in Northbrook, Illinois, and co-author of Work and Rewards in the Virtual Workplace: A New Deal for Organizations and Employees (Amacom, 1998). Likewise, Wallace advises setting up similar work conditions for all types of employees. If contractors can telecommute, let staff people telecommute. "That helps to avoid the creation of second-class citizens," he says.

Finally, technology managers say that judging project members' social skills is as important as reviewing their technical skills when developing a close-knit crew. Some companies subject contractors to a similar, if not as vigorous, interview process as they do payroll staff. Evaluating the cultural fit is an intuitive process; if a company's IS department has a sneakers-and-jeans demeanor, hiring blue-suit consultants probably won't work very well. In addition, managers tend to form ongoing relationships with workforce suppliers such as agencies and with individuals. "The key is to become more of a relationship manager," Black says.

Unfortunately, workforce experts give most IT departments low marks in relationship management. "If I look at our own client base, I would give most companies a 'C' to 'B' on these things. It's new, so there aren't a lot of best practices that have developed yet," says Wallace.

But CIOs who are having success melding contractors, consultants and staff say many of these techniques boil down to using the common sense they develop from long experience. The trick is applying the old rules of good management-awareness, communication, rewards and incentives-to the new, blended workforce.

"At the end of the day, a team's dynamics are critical to its success. Focusing management time on making sure teams work well together is just something you learn over the years," says Keast.

(Lynda Radosevich, a senior editor at Infoworld, can be reached via e-mail at lynda_radosevich@infoworld.com.)SIDEBAR: There's No "I" in TeamAn eight-step process for achieving a blended workforce1. Establish clear boundaries for skill requirements and scope of involvement for the assignment workforce.

2. Establish human resources policies and practices to support the blended workforce strategy.

3. Institute parallel selection criteria for core and assignment employees.

4. Establish an integrated communications program for core and assignment workforces.

5. Use an onsite manager from the staffing service provider to manage day-to-day employee relations, counsel and supervise the temporary workforce and conduct performance reviews.

6. Include temporary workers in team meetings, process improvement activities and important communication. Provide incentive bonuses to contract as well as to full-time employees.

7. Conduct job training for assignment employees that includes basic team skills, communication and behavior skills.

8. Establish specific metrics to monitor productivity and quality.

(Source: Center for Work Effectiveness)