The traditional model of in-house, full-time executive leadership is evolving. An increasing number of organisations are turning to external expertise for their top-tier roles. In this article, we, discuss the emerging paradigm and highlight some of the pros and cons.
Third-party outsourcing is big business in the Caribbean region. In some countries, offshore outsourcing, and more specifically business process outsourcing, has become one of the largest segments in their services sector – both in terms of job creation and economic contribution. However, in many instances, the roles that are being outsourced are junior-to-mid-level functions in areas such as customer care, administration, accounting and finance, legal, software development and technical support.
However, there is also an emerging trend to outsource senior management and executive leadership roles. For example, it was recently announced that Edufocal, the online learning platform for primary students in Jamaica and secondary students across the Caribbean preparing for the Caribbean Secondary Education Certificate examinations, has hired a financial services firm to take on the functions of Chief Financial Officer (Source: The Gleaner).
Generally, securing executive or specialist expertise on a part-time or temporary basis is not new among start-ups and small businesses, but it has been gaining traction in larger organisations due to a combination of economic, technological, and strategic factors.
The rise of outsourced executive leadership
Outsourcing executive and senior management positions involves contracting external experts to fulfil specific leadership roles on a temporary or permanent basis. This can range from interim Chief Executive Officer positions to fractional Chief Financial Officers, or even specialised roles like Chief Digital Officer or Chief Sustainability Officer. Several factors have contributed to this trend, which are outlined below.
First,economic pressures have driven the need to reduce costs and increase flexibility resulting in organisations exploring outsourcing options. By hiring external executives on a contractual basis, organisations can avoid the overhead costs associated with full-time employment, such as salaries, benefits, and office space.
Second, the global competition for top talent is fierce – with demand outstripping supply. Many companies struggle to find qualified candidates for executive positions. Outsourcing provides access to a wider pool of experienced leaders and facilitates different recruiting and working arrangements that would traditionally be permitted. For example, the employment contracts for rank-and-file employees need to conform to local labour laws, but the arrangements for services procured via contracts of service could be considerably different than the former.
Third, the business landscape is evolving rapidly due to, among other things, technological advancements, globalisation, and shifting consumer preferences. Outsourced executives often bring diverse experiences and fresh perspectives that can help organisations adapt to these changes more quickly.
Finally, coupled with the previous point, some roles require highly specialised skills that may not be readily available in-house. Outsourcing allows companies to access specific expertise without having to build an entire department.
Pros and cons of outsourcing executive and senior management roles
With the gig economy still on the rise, it should be no surprise that both organisations and executives see the benefit of these temporary or short-term arrangements. For the senior managers and executives, there may be increased earning opportunities than if they were employed in one organisation. Further, they could also have greater flexibility and control of their working life and time, thus allowing for more work-life balance as desired.
For organisations, some of the advantages include
- Cost-effective arrangements by reducing overhead costs and the ability to pay competitive rates for specific projects.
- Increased access to talent and the ability to tap into a considerably larger pool of experienced executives.
- Greater flexibility and the ability to scale the leadership resources based on organisational needs.
- Increased objectivity from having external experts bring fresh perspectives and challenge the status quo.
- Reduced risk associated with hiring a permanent executive who may not be a good fit.
On the other hand, and similar to other gig workers, executives and senior managers who are not permanently employed may experience job uncertainty. Also, some of the benefits and protections available to individuals in full-time employment, or who are employed under a contract for service, are not readily offered to part-time or temporary workers.
Regarding organisations, the challenges when outsourcing executive and senior management roles include the following:
- Challenges in integrating external executives into the company culture
- Outsourced executives may not have the same level of commitment as full-time employees
- There is a risk that sensitive or confidential information may be leaked
- Outsourced executives may focus on short-term goals rather than long-term strategy
- Organisations may need to relinquish some control over strategic decision-making to the outsourced executive, with questions of control and trust in an outsourced entity may emerge and would need to be addressed.
Some parting thoughts…
As the business environment continues to evolve, it is likely that outsourcing of executive and senior management roles will become an even more common practice. However, the outsourcing of executive and senior management positions is a complex decision with both potential benefits and drawbacks.
Organisations must thus be prepared to carefully weigh the pros and cons. By carefully selecting external leaders and establishing clear expectations, companies should be able to successfully leverage outsourcing to achieve their strategic goals and objectives.
Image credit: Hunters Race (Unsplash)
Never thought about that: executive outsourcing. But as I was reading through, a myriad of disadvantages kept flashing. While I agree that specific technical and enterprise functional roles have traditionally been well-suited for outsourcing, I am struggling to see the same for executive roles.
I strongly feel, outsourced executives might lack in-depth understanding especially of the industry nuances or the company’s unique market position, which can lead to less effective decision-making.
The presence of outsourced executives might lead to lower morale among existing employees, especially if they feel their opportunities for growth or promotion within the company are being diluted.
Outsourced executives might have other clients or previous associations ( as human as we all are, some of these might even be tighter relationships ) that could create conflicts of interest, potentially compromising their ability to act in the best interest of the current business.