Remote Work Has Opened the Door to a New Approach to Hiring

Imagine a consultant telling a C-level executive in 2019 that huge swaths of their company could transition to remote work with only a few days’ notice, they would experience a productivity boost after an adjustment period, and many of those workers would not want to return to the office. The consultant’s contract likely wouldn’t be renewed. Even so, surveys conducted independently by both authors indicate this is an accurate description of the remote work evolution for many firms. The forced experiment with remote work over the past two years has shown some organizations the upside of approaches to work they would never have otherwise considered. It also showed workers that they aren’t as locked into the traditional, in-office 9-5 at one company as they might have thought. For both, there’s no going back.

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:

1. Insiders cannot be redeployed easily.
2. Outsiders are less expensive than hiring a new insider or paying overtime to existing ones.
3. Highly specialized skills are needed and they are not available internally.
4. 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.

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 ([email protected]) 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.