Do You Need an External Talent Cloud?

Do You Need an External Talent Cloud?

The biggest headache of global businesses today—not to mention their most considerable cost—is figuring out how to secure talent.

No matter how large your company or how strong your brand is, the odds are that your organization is experiencing a talent crisis. The numbers tell the story: In March 2021 a survey of 30,000 people from 31 countries found that nearly 41% of workers were considering leaving their jobs. In April of that year alone, 4 million workers quit in the United States. Although the so-called Great Resignation has eased, the number of jobs is growing globally, especially in the tech sector. In 2021, 10 million new tech jobs were created; in 2022 the number rose to 35 million; and according to one forecast in 2025 it may reach 150 million. With this intense surge in demand, which is likely to be turbocharged by the need for AI skills, more than 85 million jobs could go unfilled around the world by 2030, resulting in an $8.5 trillion talent shortage.

This is not just a problem brought about by Covid or advances in AI. Even before the pandemic and the Great Resignation, large organizations in particular were having trouble finding talent when they needed it. That led to a new pattern of behavior: Individual managers, struggling to cope, began quietly circumventing their organizations’ standard hiring processes and turning instead to digital talent platforms—such as Freelancer, Fiverr, and Upwork—to find the skilled help needed to get tasks done quickly and efficiently.

More managers are working this way than you might realize, primarily as a tactical expedient for solving discrete problems or getting through a crunch. “It’s a bottom-up movement,” Hayden Brown, the CEO of Upwork, tells us. According to Brown, some of the company’s biggest individual users don’t want Upwork to reveal their names, especially when talking to people in their own organizations. Why? Because they are often using Upwork as a kind of private career accelerator. A similar dynamic is playing out at Freelancer. Only a few dozen Fortune 500 companies have signed up as enterprise clients, but individual managers at roughly 400 of those companies use the platform to get around their HR bureaucracies.

For companies, that’s a huge missed opportunity—and a strategic mistake. According to our research, there are now more than 800 digital talent platforms around the world, offering the services of an estimated 500 million highly skilled professionals who are connected, vetted, and ready to work. These are people who have taken advantage of new technologies and talent platforms to transform themselves into empowered microentrepreneurs who set their own terms of employment, deciding what work to do, where, when, and how to do it, and what to charge.

This represents a fundamental shift in how work gets done, one that companies need to embrace. It’s a shift to open talent—a term we use to describe the accelerated digital transformation of talent management through a globally distributed workforce, accessible to companies via on-demand digital platforms. On the one hand, it reflects the rise of microentrepreneurs—programmers, engineers, data scientists, creatives, project managers, even CFOs—who look at work as a thing to do and fit it into their lives, not as a place to go or a way to define themselves. On the other, it represents a technology-enabled approach to work in which companies can rent the services of individuals whenever they need help to solve a problem, develop an initiative, or temporarily fill a skills gap.

Workers in the open-talent economy are highly skilled providers of professional services and domain expertise who interact directly with companies and have significant negotiating leverage. They work when and how they want, and they make good money. Companies that embrace the open-talent model can experience all sorts of benefits: less friction in the search for skilled help, fewer fixed salary costs, a greater ability to flex with demand, faster and more efficient work, and substantial cost savings.

Note that the open-talent and gig economies are not the same: Open talent is a broad concept that encompasses various talent acquisition strategies beyond traditional employment, emphasizing flexibility and access to specialized skills. Gig work is more focused on business-to-consumer transactions—for example, between restaurants and takeout customers. It has greatly benefited many consumers and some companies, but for many workers it involves a significant imbalance of power, exploitative wages, and even the denial of basic rights. At its core the gig economy is based on workers’ doing work when and where a company wants them to. In a world more driven by algorithms seeking efficiencies, the gig economy can put workers on a treadmill and never allow them to catch their breath.

Born-digital enterprises understand the value of an open-talent strategy. Most have already developed global ecosystems of talent that give them huge strategic advantages. When the pandemic hit in 2020, for example, Amazon had already established extensive relationships with several talent platforms, which is why it was able to scale up so effectively to meet the pandemic-fueled surge in demand, hiring a staggering 500,000 new workers in a matter of months.

Traditional enterprises need to catch up. In recent years many have invested heavily in digital transformation, but when it comes to talent and hiring, most are still working in a linear, top-down manner. That has to change—as some leaders are starting to realize. “If we can’t figure out how to work with open platforms that tap into a global ecosystem of talent,” one CEO recently told us, “then we won’t be in business in five years.”

We’ve been at the vanguard of the open-talent movement for a long time. What we’ve learned studying and working through talent models across hundreds of organizations, including some of our own, is that companies must change their siloed approach to talent acquisition. It’s no longer good enough just to have HR work with employees and contingent workers, procurement with outsourcing partners, and innovation offices with external collaborators. Companies need to start thinking of all talent as part of a global network of highly specialized workers with interdependent skills. And then, having adopted that new mindset, they need to build themselves what we call an external talent cloud.

What Is an External Talent Cloud?

Imagine being able with a single click to select the best talent from an enormous pool that includes not only your internal staff and regular contractors but also many highly skilled freelancers from around the world who have made their talents available on different platforms. And imagine that this isn’t just an expedient that you can turn to in a pinch but a system that your organization has made integral to your talent strategy. That said, no single platform will be able to supply all the talent you need. Hence you will need to integrate several in an external talent cloud, which you have carefully researched and vetted through initial experiments.

At its most basic level an external talent cloud is simply a pool of professionals who can be accessed for temporary employment. In the analog era, companies turned to temp agencies when they needed help with routine jobs and to consultancies when they needed highly skilled help. Today digital platforms can precisely match the supply of talent to demand instantly and in an orderly, transparent way, providing job ratings, trust scales, skills certifications, job history, and more. This extends all the way up to C-suite positions in companies that need help at the top but can’t afford it on a full-time basis.

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In our research we’ve found that companies that embrace the open-talent model get their work done just as well as those that use traditional staffing models—but four to five times faster and eight to 10 times more cheaply. This doesn’t mean they push workers harder or pay them less. It simply means that they’re introducing efficiencies and cutting out a lot of bureaucracy. As Michael Morris, the CEO and cofounder of the talent platform Torc, tells us, “The quality and optionality of skills specific to a particular initiative are a bonus benefit on top of the already-optimized cost and time savings that open-talent platforms provide over traditional models.” In our experience the benefits are so obvious and measurable that enterprises can’t afford not to pivot toward open talent and embrace it as a strategic imperative.

The need for an external talent cloud will only grow as companies adopt workflow methods—such as agile and lean—that focus less on roles and more on tasks. Nowhere is this shift more apparent than in the burgeoning demand for AI-related skills. Companies will need to navigate the changing dynamics of the job market and seamlessly integrate AI into their operations, but they won’t be able to do that if they engage in the cumbersome and time-consuming process of hiring full-time employees whose skills are likely to rapidly become out-of-date. Instead, they’ll need to rely on external talent clouds to quickly identify and access freelancers with validated skills, reducing the learning curve and accelerating the integration of generative AI into their operations. Such an approach will allow them to focus their internal efforts on higher-level strategic tasks while efficiently handling specific AI-related projects through external collaboration.

Establish a Center of Excellence

Before you can create an external talent cloud, you’ll need to establish a center of excellence (or some similarly named division within your company). Its role will be to research, develop, and deploy open-talent practices.

Your center of excellence might include dozens of people from various parts of your organization, or it might be a single person whose job it is to coordinate open-talent solutions. No matter how it’s organized, the center should focus on the retention of knowledge and skills so that they’re not lost once workers are done with a project. It should also offer support in areas such as problem definition, incentive design, and postsubmission evaluation, with the goal of enabling internal teams to efficiently experiment with new strategies before incorporating them into their structure. Ultimately, your center should help users navigate administrative bureaucracy and streamline processes, enhancing overall operations.

The biggest roadblocks to the growth of an open-talent strategy are cultural rather than technical. That’s why an essential task for your center of excellence will be to create a coalition of support while you work with managers and teams to determine whether open talent would be a good fit for their projects. At times internal staff, fearing the possible loss of their jobs, will push back on or try to undo efforts to externalize aspects of their workflows and systems.

One person who has considerable experience with this job is Liane Scult, the freelance program manager who heads up Microsoft’s equivalent of a center of excellence, which is developing open-talent strategies throughout the company. Scult speaks daily with managers, helping them identify tasks that could be performed by freelancers. The biggest difficulty, she says, is getting managers to take that first step into something they’ve never tried before: “It’s just like when people take their first rideshare.”

Scult asks managers a series of questions when she begins talking with them about the possibility of pursuing open-talent options. These are the questions she asks most often: At the end of the month, are there still unfinished items on your to-do list? Could you make better decisions if you had more time? Are you having trouble catching up, missing deadlines, or working nights and weekends to complete something? What are the projects where that’s happening?

When considering a move to open talent, start by focusing on the areas causing the greatest pain. Your center of excellence should determine this by running workshops for key functional owners, including HR, talent acquisition, legal, procurement, IT, security, compliance, and client delivery. Those workshops should focus on three main topics: strategy, goals, and objectives for changing operational models. It’s generally agreed that a strategy is a plan you’ll use to meet goals and objectives. Goals are broad, long-term outcomes, and objectives are the specific tasks that can be quantitatively measured and that, taken together, compose the goals.

Strategy.

It’s important here to be thoughtful, intentional, and clear. That means asking yourself and your team many questions. What are the exact problems that external talent will solve for you? What is the range of solutions that you hope to come up with? What types of skills are you looking for, where will they be used, and what platforms will best be able to help you find what you need? What are your business case and success metrics? How will you handle systems access, compliance, and security constraints? What is your plan for communications and change management within your organization?

Goals.

This next step centers on taskification—that is, shifting the focus from roles to tasks. This is one of the most critical things to consider as you create an external talent cloud, so be as specific as possible in identifying tasks and the skills needed to complete them. Will your freelancers need to write a certain amount of code? How much? What are your productivity expectations, and how do they differ from those for internal employees?

Objectives.

Be very specific about what you want your external talent cloud to deliver and why. This will allow you to measure your success or failure later on. Focus here on work outcomes and the tasks that need to be done to achieve them. For instance: “Our objective is to establish relationships with four platforms, putting internal systems in place to work with them. Once we’ve managed that, our objective is to hire 20 coders for a new AI project that’s about to start.”

Find the Right Platforms

Once you have alignment on your strategy, goals, and objectives for changing your operational models, it’s time to find the platforms that best meet your needs, including a range of security and compliance capabilities.

This job will take time. As we’ve noted, there are hundreds of platforms in the open-talent space, and it’s important to consider their different strengths and features. Some offer access to niche workers, while others offer access to a broad range of professionals. (For examples of some of the possibilities, see the sidebar “What Are the Leading Open-Talent Platforms?”)

Every platform is different, so you’ll need to compare and contrast how each one works and what the process of using it feels like. We’ve found that it is best to build a business case not only for the overall open-talent effort but also for each platform you hope to work with. Organizations that think of open-talent platforms as potential partners—and that are willing to do the work to form deep and trusting relationships with them—have the best outcomes. Reach out to the platforms that you’re interested in working with, ask them questions, and make sure they understand your industry category and goals. The objective is to build a long-standing relationship, not one that’s merely transactional.

As you do this, it can be helpful to look at a consistent set of key performance indicators, including:

Time to hire.

This can be as short as hours, but it should never be more than a few days.

Cost to hire.

Using an agency to hire a full-time employee typically costs 20% of that hire’s annual salary, and the time it costs to recruit them. On average, using a talent platform reduces this cost to 10% of the freelancer’s pay, and openings are filled four to five times faster.

Cost.

Our research finds that a typical full-time tech employee costs 30% more than a similarly skilled freelancer.

Productivity.

Our research shows that on average, employees work on the projects they’re hired for five hours a day; freelancers, eight hours.

As you consider these indicators be sure to create standards so that when you run a pilot program, the data it produces will be scalable and sharable throughout the organization.

Launch a Pilot

Once you’ve identified the platforms you hope to work with, and you have a clear sense of your objectives and strategy, it’s time to launch a pilot program. Your center of excellence should lead this effort, and it should include everyone who has commonly been involved with the hiring of external talent, especially the procurement leaders who work with contingent-talent vendors for traditional outsourcing. Pay special attention to areas where there is typically friction, such as demand forecasting, talent reporting, onboarding challenges, IT security, concerns around billing, and cost-center alignment. Your center of excellence will also have to navigate tough intellectual-property issues with your legal and compliance departments, especially if a freelancer is creating new IP or technology.

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Launching a pilot helps you learn about operational challenges and assess the different facets of your organization’s readiness. It serves as a practical testing ground where you can streamline workflows, enhance communication, and refine procedures, thus ensuring a smoother experience down the road. Simultaneously, it can be a benchmarking tool, helping the business identify which departments or teams are most receptive to the concept of the external talent cloud and where additional efforts may be needed. The pilot can be a blueprint for creating a scalable model that can be replicated across the organization.

Once you’ve run your pilot, it’s important to evaluate how well it worked. The key to long-term success is to continue to iterate and to include more and more people in order to facilitate organizational change. An internal communications plan is vital too. While piloting and then refining your external-talent-cloud strategy, make sure you have a plan in place for helping full-time employees understand that their jobs are safe and that the changes you’re implementing will boost the overall health and competitiveness of the company. In general, the more transparency, the better—especially as you move to scale up your open-talent plan and become a fully networked organization.

The Road Ahead

The open-talent revolution has only just begun. That becomes clear when you consider where we are in the evolution of the internet.

In the Web 1.0 paradigm, information flowed in one direction, from sites to users: People navigated to pages and looked at information. In Web 2.0, information became bidirectional: People interacted with apps, feeding them data by uploading photos and creating and sharing content. The downside to Web 2.0 is that the dream of a democratized internet was quickly overwhelmed by a few global platforms that not only devastated traditional media and brick-and-mortar retail but also upended collective-property rights.

Now Web 3.0 is ushering in all sorts of change. Decentralized autonomous organizations (DAOs) provide a new way to finance projects, govern communities, and share value. Instead of a hierarchical structure, they use blockchain technologies, along with rapidly evolving governance and incentive systems, to distribute decision-making authority and financial rewards.

This has implications for the world of open talent. For example, the platform Braintrust, which operates as a DAO and runs on the Ethereum blockchain, was founded in 2018 to give freelancers more control and greater rewards. It has created a token that in time will give ownership of the platform to its freelance community, not a central corporation. Its core team is small—only 35 employees—but its network is powered by more than 300,000 community members, who earn tokens for recruiting new members and clients. Thanks to its Web 3.0–based business model, Braintrust is able to lower costs for both sides of the market, eliminating fees for freelancers altogether and reducing clients’ fees by as much as 50% to 75% compared with other platforms.

This represents a new model for open talent, one in which everyone involved benefits from the success of platforms. In this model freelancers will be able to showcase their skills and jump among platforms with ease, collecting skills and credits along the way. Perhaps we’ll even see a new era of badges and the like that offer precise verification of skills. Even more significantly, freelancers at times may be able to take some ownership of the intellectual property they create.

Time will tell if this model will succeed. But in the meantime, bold experiments of this sort signal a healthy, evolving open-talent market—one that companies need to make the most of by creating an external talent cloud for themselves.

John Winsor and Jin H. Paik are coauthors of Open Talent: Leveraging the Global Workforce to Solve Your Biggest Challenges (Harvard Business Review Press, 2024), from which this article is adapted.

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