Yield management of workforce for IT service providers

Many IT service firms often suffer inadequate staffing and a possible subsequent profit loss. This may happen for a number of reasons: the high cost of timely adjusting a firm's workforce capacity, the nature of IT projects, fluctuating market demand, etc. This paper proposes a strategic use of the emerging online market mechanism, known as e‐lancing, for yield management of workforce for IT service providers. By dynamically controlling admissions of online and conventional orders, a service provider can reach customers in the online channel and increase profits. The proposed model considers an IT service firm, which receives IT project orders through two channels: a conventional procurement channel and an online spot market such as Elance Online. We employ Markov decision theory to obtain optimal admission control policies. The structures of the optimal policy, which is not of threshold type, are analyzed mathematically and examples are presented numerically. The base model and its extended models, which can serve as useful tools for demand control problems of IT service providers, capture the most important characteristic of IT projects, where if a project is admitted, it seizes a random number of workers simultaneously, then it releases the workers either individually or in a group.