Hybrid
and remote work aren’t the end of the story, however. The new
capabilities organizations have for remote work have opened up new
possibilities, and now is the time for leaders to assess how other
changes to the employment model could work for them.
A
flexible or open talent model is particularly worth considering.
Flexible and open talent are broad terms, covering scenarios from local
freelancers coming on-premises to globally distributed online
contractors to innovation sourcing through tournaments or contests. The
defining feature is project-based or temporary work that is staffed with
workers who are not permanently attached to a company. If done
correctly, these ways of working can help organizations access skilled
talent while providing the flexibility that many workers increasingly
crave.
Just
like with remote work prior to Covid, companies have been slow to adopt
these models. As the chief economist of a large work marketplace,
Upwork, and an academic who has studied open talent for more than a
decade, we tracked a slow uptick in enterprise use of open talent in the
years prior to the pandemic. But now, as remote work has become
normalized, we’re seeing a rapid change.
To
help companies understand and take advantage of new possibilities that
open talent allows, we want to highlight some trends in the
flexible/open talent landscape, comment on what jobs or tasks are most
amenable to this model, and outline considerations for managers to get
started.
Why Use Flexible and Open Talent?
Flexible models have traditionally served three purposes.
- First, flexibility allows organizations to scale staffing up and down, accommodating labor demand variability.
- Second,
flexible models allow small-task outsourcing for situations where
hiring a full-time equivalent would not be justified and where the
overhead requirements of traditional temporary staffing solutions would
slow the project or be cost-prohibitive.
- Third,
flexible talent strategies provide access to innovative or diverse
skillsets beyond traditional recruiting pipelines. Industry leaders like
Netflix and NASA have found that contests with external participants
often beat internal innovation benchmarks for similar projects.
Still,
there have been barriers to organizations adopting the open model. At
Upwork, a leading online labor market, the sales team saw some common
stumbling blocks from potential clients. Discomfort with remote work was
one of the most significant, as flexible talent is disproportionately
remote. Resistance also comes from enterprise inertia or bureaucracy,
concerns about IP or security risks, and a lack of familiarity with the
tools and management practices that make open talent effective. As a
result, companies sought talent primarily in their local labor markets
or de-facto recruiting networks, and primarily for traditional hiring
arrangements.
Things
are beginning to change, however. In surveys conducted by Ozimek from a
representative panel of firms, more than half of hiring managers
indicated that remote work has opened up their ability or willingness to
utilize remote freelancers, both during the pandemic and going forward.
The supply of workers interested in these models has simultaneously swelled. Self-employment rates have surged
over the past year, supporting anecdotal reports that many considering
adding to the Great Resignation were seeking more flexibility and
control over their lives. In a representative survey of working-age
people in the U.S., one out of five respondents who could work mostly
remotely during the pandemic reported considering freelancing to stay
remote. Among those who would consider freelancing, a more flexible
schedule was what they value most.
In
a series of Upwork surveys, respondents reported both opportunities for
and interest in using more freelance options. Respondents who had
worked with or hired independent staff in the last year said that,
without the external help, they would have done the work themselves
(35%) or asked their teams to do it (28%) — options that could
contribute to burnout. Twenty percent said they would have hired an
outside service company; 3% would have hired a staffing firm. Just 8%
said they would have made new full-time hires, and 6% said the work
simply wouldn’t have been done.
Respondents
also reported having contracted significantly more freelancers during
the pandemic (53% said they made more use of remote freelancers compared
to their pre-pandemic baseline, vs. just 6% who hired fewer
freelancers) and planned to make more use of it over the next two years
(47% vs. 11%).
What Jobs or Tasks Are Most Amenable to the Flexible/Open Talent Model?
The
flexible/open model has proven effective for a wide range of jobs and
tasks. The top skill categories on Upwork are administrative support
(including relatively rote tasks like data entry) and web/software
development. These skills run the gamut from easy-to-find to rare,
highly specialized, and highly compensated. Other platforms, such as
Topcoder, concentrate on contests — a model that has proven incredibly
valuable for innovation — with typical tournaments containing high-level
programming or machine learning work or more subjective design work.
Given
the range of skills available on open platforms, there are a few
situations where it makes particular sense to use open talent.
Specifically, when:
- Insiders cannot be redeployed easily.
- Outsiders are less expensive than hiring a new insider or paying overtime to existing ones.
- Highly specialized skills are needed and they are not available internally.
- Returns on exceptional solutions are high.
In
the first three situations, companies are responding to a simple need
for talent, but the last underscores another important motivation: In
many contexts outsiders have been found to beat insiders head-to-head.
Outsiders can provide many different approaches or solutions to a given
problem, allowing the organization to choose the best one.
But,
perhaps even more important than the situation that brought firms to
open talent, there’s the nature of the task itself. There are a few
important variables that companies should weigh before deciding how to
utilize open/flexible talent.
For
one, the level of firm-specific knowledge required for a project will
typically tip the balance between insiders and outsiders. While
freelancers can build complex database-driven web applications from
scratch — perhaps more efficiently than the internal employees of many
firms — a project that requires interfacing effectively with existing
applications that require significant firm-specific context will mean
either: a) an internal employee is needed to form the bridge; b) the
freelancer must learn the internal systems (potentially at higher cost
than an internal employee); or c) an internal employee will serve an
integration role that builds on the freelancer’s work.
Then
there’s the question of whether a project or task is recurring. All
hiring and onboarding has some costs — whether screening a freelancer,
setting up a contest, or hiring a full-time role. If a project or task
is going to be repeated over time, the scale tips toward making a more
permanent hire to economize on these costs, especially if they involve
training a new hire on firm-specific processes. On the other hand, a
repeated task can be suitable for open talent if it involves common
skills and requires little firm-specific context.
Finally,
there are integration costs of incorporating work from an open talent
solution into the larger organization. These tend to be low for projects
that require little firm specific knowledge and can be very high for a
project for highly firm-specific tasks.
When Open Talent Works
How firms can decide when an open model makes sense.
|
Firm-specific knowledge required |
TASK FREQUENCEY |
Low |
Medium |
Large |
ONE-OFF |
Use open/flexible |
Open/flexible can be used if integration costs are low enough |
Use traditional employees unless tasks can be broken down to remove need for firm-specific context |
RECURRING |
Open/flexible can be used if recruiting/screening costs are low enough |
Open/flexible can be used if integration costs and recruiting/screening costs are low enough |
Use traditional employees |
|
© HBR.org |
With
these factors in mind, we believe that remote work is hastening a shift
that reduces hiring, screening, and monitoring costs for managers and
lessens burdens on workers to understand firm-specific context.
A
few important changes have brought us here. First, we’ve seen a mindset
shift around remote work. Hiring managers for remote positions are now
more comfortable interfacing with people they have not met personally,
opening the door to work from anywhere — and to open/flexible hiring.
Second, companies have invested in virtual communications tools (e.g.,
video calls and screen sharing) that make it easier to troubleshoot
problems remotely and give outside workers a way to interface and
get/give feedback. Third, remote work and tools like Slack have forced
companies to better define tasks, codifying processes and
specifications, making it easier to write specifications that a worker
with little firm-specific knowledge can understand, which can enable
opening up a company.
So, where should companies start?
What Managers Should Do
Platforms
are the primary way freelancers and companies find each other for
open/flexible work, and help establish trust for both workers and
employers. For the freelance workers, they offer protection through
payment guarantees and dispute resolution mechanisms, and the ability to
establish a verified track record of feedback and reputation scores — a
kind of virtual resume. For employers, this track record offers
confidence when hiring from a global talent pool. They don’t need to
understand the specifics of a local labor market — how a college ranks,
which employers signal particular ability, etc. — to find the right
person for a job.
If hiring managers decide to use platforms, there are a few things to think about as you navigate them.
Platforms
make hiding failure much harder, which is likely to be especially
useful for those who don’t have the skills to evaluate a new hire (e.g.,
poets who want to hire quants and quants who want to hire poets).
Market signals from past buyers help with that screening process, and
the platforms provide objective measures of past performance — something
that’s nearly impossible to come by in traditional HR. And because
every transaction contributes not just to current earnings but to future
earnings through public signals of on-the-job performance, the threat
of poor feedback serves as a disciplining device that likely improves
contract fulfillment rates.
Platforms
primarily make money from successful matches, as up-front fees are
minimal. As a result, clients can hire a freelancer for a short-term
project without making a huge investment before deciding to hire them on
a permanent basis. As remote work expands the pool of both potential
employers and employees, the opportunity for better matches increases,
making “try before you buy” with flexible talent more valuable than
ever.
If
you begin your journey outside of platforms, use the insights for why
platforms exist so that you can design your own processes to circumvent
the information problems platforms attempt to solve.
This
likely means you need some way to screen applicants, like with
employment histories, or to use a format like contests that make
employment histories irrelevant. Incentive alignment in this case cannot
come from the promise of a public signal of good feedback, but instead
may come from a pathway to a permanent position or a substantial bonus
upon project success.
Hiring
managers should be aware of firm-specific context and try to minimize
it, while making sure any solution you procure from outsiders can be
integrated. For example, Netflix was able to get more than 2,000
submissions in their famous prediction challenge
by providing an easy-to-understand database of movie ratings that
didn’t force participants to understand the underlying architecture of
Netflix’s backend systems.
You
also can run some experiments and horserace different models. Try to
measure the results of comparable tasks or projects done in different
ways (internally and through open talent). This will allow you to
measure productivity under different conditions. We believe the
idiosyncratic nature of most production means an experiment is more
valuable than broad advice. Experiments may also include trying
different formats — contests or hourly contracts — and different
platforms with different mixes of contractors.
For those firms running experiments, we would be grateful if you let us know how things go. Feel free to send us an email (cstanton@hbs.edu) with your progress.
Finally,
many organizations may worry about information leakage, especially
around trade secrets or intellectual property. However, even before the
pandemic, freelancing and contest platforms evolved to address many of
these problems, and their lessons are useful for managers thinking about
hiring any remote worker, not just a freelancer. Many platforms contain
support for non-disclosure agreements and other legal agreements that
can help to protect IP. It’s also possible that the decontextualization
that helps to facilitate using open talent reduces IP risk — for
example, information leakage without context tends to be a less useful
datapoint than seeing the big picture. In fact, many quantitative hedge
funds manage IP risks in similar ways. As a result, the open model can
potentially create siloes that, in some cases, protect IP better than
traditional working arrangements.
What Will This Mean in the Long Run?
What
will a broader move to flexible talent mean for pay? Managers who are
used to leveraging an army of consultants or temps from staffing
agencies might expect to pay a premium for flexible talent, whereas
those who have outsourced work to low-cost areas may expect cost
savings. Managers should recognize that increases in the willingness to
use open talent will mean competition with the best firms for the best
talent. In a globalized, online economy, Western firms won’t just
compete with local Indian firms for the best Indian talent, but instead
with anyone willing to pay for digital work. As a result, we expect that
open talent will help democratize access to opportunities, and will
potentially raise living standards in places where local opportunities
are scarce.
To
conclude, gaining practice with remote work seems to open up
possibilities for leveraging flexible or open talent. When done well,
these models can drive exceptional results, but they require purposeful
management.
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