A Smart Balance of Staff and Contractors

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"We remind everyone that it's about thinking about how you can communicate to others," Gluck says. "We tell the permanent employees to put themselves in the contractors' place as far as what you would need to do that person's job."

Patti Rooney, a permanent employee who serves as office manager for Smart Balance in Paramus, considers the virtual workforce of equal status to the permanent staff. "Aside from the fact that you can't walk into someone's office, it's not so different," Rooney says, "There are a lot of e-mails and phone calls, which is what we do here anyway for the most part." The twice-yearly meetings have time built in to them so the on-site permanent employees and the virtual ones can socialize in person.

Cost Savings

So if contractors get paid some fringe benefits—in addition to the higher rate of pay contractors traditionally receive to compensate them for lack of health insurance, pensions, etc.—how do they help Smart Balance save cash? "If we hire a regular employee, we are paying him whether he's sitting around doing nothing or not," says Gluck. "A lot of our contractors are paid by the job. We won't add a contractor to our permanent staff unless we've determined we need that contractor 40 hours a week, so we don't have to pre-invest in personnel."

Contracted employees also mean savings on office space, supplies, health insurance, accident insurance, and life insurance.

Although Gluck says the arrangement is a harmonious one, it is not without a few challenges. "People look at how much contractors make and get jealous," explains Gluck, who acknowledges that contractors' basic pay tends to be higher than that of its permanent workers. "We have to explain to [permanent employees] that contractors don't get health insurance and pension plans."

Potential Pitfalls

Other companies considering this type of business model, however, should know that just because it works for Smart Balance doesn't necessarily mean it'll work for them. Lipnack of Net Age advises companies to watch out for corporate guidelines that might be contradictory—and to make adjustments as necessary. "If the policy for sick days and expense reimbursement is different for each set of employees and they get together and start talking, it can cause resentment and make it hard to do good work," Lipnack says.

Other perils exist, too. "If you make a business plan that takes a year and a half to implement and the contract with marketing is only for a year, you diminish the incentive for sustained success," says Brad Jensen, an associate professor of economics and international business at Georgetown University's McDonough School of Business. "The subprime mortgage crisis happened because bankers were compensated on achieving a deal—not on the long-term quality of the deal."

Nonetheless, Gluck feels confident Smart Balance contractors' sense of long-term purpose will prevent problems. First of all, its manufacturing contracts are multiyear. Second, the one-year contracts it uses with some contractors are usually either renewed or "evergreened" (continued on a month-to-month basis indefinitely once the initial contract has expired). "We want contractors to have a feeling of ownership, not of a sword hanging over their heads," Gluck says. "We emphasize winning the war, not just the battles."

Ken Rice, the northwest vice-president for Acosta, the company Smart Balance hired to run sales, says that despite the one-year contracts between the two businesses, his sales team thinks of their relationship as long-term. "Most of our contracts from other clients are short-term, too, but they tend to become evergreen over time," says Rice, whose other clients include Ocean Spray and Heinz (HNZ). "We're part of the success of Smart Balance's brand, and that looks good on our record."

And that success includes Smart Balance's goal of reaching $500 million in sales by 2012. Given its prospects for growth and profitability, Gluck contends that the company will continue looking for ways, large and small, to deepen its relationship with its virtual workforce. "Next year," Gluck says, "we'll probably invite the contractors on the cruise."

Rebecca Reisner is an editor at BusinessWeek.com .

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