Orchestrating workforce ecosystems
Elizabeth J. Altman, Katherine C. Kellogg, and David Kiron
Today’s businesses rely increasingly on external contributors to perform mission critical work and to accomplish strategic objectives. A recent global management study found that over 87 percent of respondents consider some external contributors – long term contractors, gig workers, app developers, professional service firms, and software bots – to be members of their workforce.
Firms now face a significant operational and strategic challenge: how to efficiently and effectively implement an integrated workforce ecosystem, in which external workers play a large role and internal employees have opportunities for advancement, learning, and development. We argue that a centrally coordinated workforce ecosystem – one that includes employees and external contributors creating value for customers, the enterprise, and the organization’s stakeholders while pursuing their own goals -- can help firms find, engage, and retain the right talent at the right time for the right length of time. Orchestrating a workforce ecosystem requires managing the interdependencies and complementarities that exist between and among internal and external players of various types.
Workforce ecosystems are becoming more common because of demand-side and supply-side factors.
On the demand side, companies facing skill shortages due to digital transformation, AI adoption, and automation are embracing and enabling higher skilled external contributors. Organizations recognize that they can fill gaps in ways beyond the traditional approach of hiring full or part-time employees. They value the ability to find workers with differing backgrounds and skillsets who may live (and want to work) outside the company’s geographic neighborhood. Businesses are focusing on diversity, equity, and inclusion initiatives. Open and flexible ecosystem structures support these activities by enabling people to contribute in novel ways. Corporate leaders also increasingly desire flexibility to grow and shrink workforces as business models change and conditions wax and wane (as seasonal industries like retail have done for generations). As markets rapidly evolve, organizations must quickly adapt and increase the pace of implementation. As the nature of work becomes more short-term, skills-focused, and team-based, firms can better deliver products and services using a variety of internal and external contributors.
On the supply-side, highly skilled workers, often with advanced technical degrees and certifications, are increasingly available through external marketplaces. Societal shifts related to desires for work-life flexibility and greater mobility add to supply-side forces driving workforce ecosystems. While many prefer the stability of full-time employment, more and more people are interested in working remotely without geographic constraints and with flexible hours and benefits and consider gig work to be a viable long-term career path. Similarly, entrepreneurial and established firms want to gain access to new markets by joining ecosystems; in the process, they become valuable contributors to workforce ecosystems. For example, Amazon’s Marketplace includes over 2 million independent sellers offering products and services to their mutual customers. Digital labor platforms of a more general nature (e.g., Upwork, Toptal, Freelancer) and those catering to niche categories (e.g., LiveOps for virtual call centers and TopCoder for technology freelancers) that efficiently match workers with clients are growing in popularity. Traditional staffing agencies (e.g., Manpower), particularly with shared systems for tasks like performance management, remain prevalent and effective, especially for large-scale and long-term engagements.
In the past, firms could manage internal workforces using a set of workforce management practices from talent acquisition to performance management and compensation, to learning and development. Today, leaders are seeking and adopting a more integrated approach that extends to external contributors. Firms use a mix of workers, engaged through a variety of sources, to create and deliver products and services and work in flexible, adaptive, and complementary arrangements. Some fulfil long term needs while others address critical shifts. For example, the U.S. National Basketball Association (NBA) needed to very quickly marshal workers with new skills when they moved their 2020 season to operate in a ‘bubble’ in Florida during the pandemic. They required digital media and audio-visual technology skills and needed to re-think business models to monetize their product (basketball games) without any in-person fans. To keep players and staff safe they needed medical and safety expertise. To succeed, they drew upon all types of workers, including contractors and professional services firms, to augment their employees and infuse new types of talent. These external workers collaborated with internal employees as the NBA quickly deployed new systems to deliver their offerings.
An integrated approach to orchestrating workforce ecosystems
While more organizations depend upon both internal and external workers, most organizations use reactive, local, and uncoordinated approaches to enlisting and retaining external talent and complementary contributors, which we define as workforce ecosystem complexity. Managers in different departments with diverse needs use combinations of external and internal workers. These dispersed efforts may not be aligned with a firm’s overall strategic priorities and, if uncoordinated, undermine the pursuit of new strategic directions.
Leaders realize such uncoordinated efforts are both cost and resource inefficient and risk demotivating internal employees. Yet, they struggle to establish a centrally managed workforce ecosystem with interdependencies and complementarities that benefit all parties. They are asking the following questions:
- How do you identify the right set of stakeholders to create an integrated workforce ecosystem approach?
- How do you get stakeholders to engage in local workforce ecosystem experiments to tailor shared goals to specific contexts?
- How do you promote coordinated learning from local experimentation?
- How do you improve your workforce ecosystem implementation process over time?
Firms are starting to address these issues by, for example, adopting software systems (e.g., SAP Fieldglass) to manage diverse types of external workers in a more integrated way. PayPal engages freelancers in multiple countries with varying labor regulations and uses a centralized system to manage compliance risk and control costs. Similarly, Siemens, Europe’s largest electronics company, engages over 6,000 external workers with US$150 million in annual spend. While divisions within this organization initially managed these engagements separately, they have moved to an integrated system enabling unified reporting and management. Across industries, we see organizations grappling with the intricacies, costs, and opportunities of workforce ecosystems and adopting solutions to more holistically manage them. Building upon our previous research on workforce ecosystems and workforce development practices, we present a summary of workforce ecosystems and propose a phased process that firms can use to orchestrate workforce ecosystems. We expect this process to be most appropriate for large established organizations just starting to embrace workforce ecosystems. However, key elements should be helpful for all types of organizations adopting workforce ecosystems. Essential to the orchestration process is identifying structural design, political, and cultural challenges, and using a four-phase approach to address them. (See Figure 1.)
figure 1. four phases of orchestrating a workforce Ecosystem
Phase 1: Creating the orchestration team
One element of workforce ecosystem orchestration is leaders recognizing that a multiplicity of hiring managers across different functional areas, product teams, etc. are tackling a common problem. They are expeditiously filling skill and functional gaps by using digital market platforms, traditional staffing agencies, and other marketplace tools, at various scales. However, very few firms have developed a comprehensive approach to managing internal and external marketplaces and contributors.
The first step is to assemble a central orchestration team to develop a working plan, goals, and metrics for workforce ecosystem orchestration in consultation with relevant local and central, internal and external, stakeholders. Who should be on the orchestration team? To answer this question, it is helpful to consider three kinds of issues: structural design (division of labor, goals, incentives), political (resources, power, and status), and cultural (individuals’ search for meaning and identity).
From a structural design standpoint, start by taking an inventory of departments that already bring in external workers. Also identify groups that will soon face skills gaps because of a mismatch between skills required for evolving work and current available skills.
Politically, it is important to choose local champions with resources and status to effectively lead the transformations, usually general or line managers responsible for product or service offerings. Choose champions to lead pilots in their own business units and to serve on the central orchestration team. Good champions are well-respected in their own organizations, understand the importance of workforce ecosystems, and are ready to take action. Choose several employees from the pilot departments and several external workers to provide worker voice in the orchestration process.
Involvement by leaders from central functions is also important for workforce ecosystem orchestration. Find an HR leader who can help with employment issues. Involve an IT member who can bring expertise on information systems (e.g., platform integration, data governance, etc.) and topics such as security and access, since external workers often need to see sensitive data and interact with internal systems. In a large consumer products firm we recently studied, senior managers from both HR and Procurement emphasized the necessity of building cross-functional teams to manage workforce ecosystem development. When leadership remains siloed, integrated ecosystem management processes are bound to fail.
Culturally, a critical role to include on the central orchestration team is that of boundary spanner. This person serves as the go-between, or bridge, between the central orchestration team and local teams. This person plays the essential role of protecting local teams from too much central involvement while ensuring that the central team gains lessons and value from local experimentation.
Phase 2: promoting local Experimentation
The central orchestration team can introduce pilot programs designed to generate comparable experiences and outcomes. The central team should provide local pilot teams with guidance that explains the importance of a coordinated workforce ecosystem and how it addresses local managers’ needs and supports organization-wide learning and experimentation.
Regarding structural design challenges, many teams struggle to staff projects with external workers; to divide projects into concrete tasks; and, to identify necessary skills for each task. Teams also may find it difficult to assess the competencies of external workers, and to ensure work quality. Geographic variation adds complexity. How a manager legally interacts with a contractor in the UK is different than how one does so in Thailand. Finally, teams may have a hard time working with a revolving set of external colleagues. Local teams should experiment with various solutions to identify which ones best address these issues.
Regarding political challenges, internal employees may resist external workers whom they see as threatening their own opportunities. Managers can help smooth collaboration by emphasizing how employees can offload less interesting work and learn new skills by collaborating with people with different competencies. Another challenge arises as marketplaces become more prevalent and workers gain more autonomy to move more easily between groups. Local managers may feel a loss of control over team composition. Leaders need to recognize this and highlight benefits of adopting more dynamic workforce practices.
Regarding cultural challenges, existing employees may struggle with the shift in role from individual contributors to facilitators. Managers may need to adjust performance management processes to accommodate these new roles. We often see an employee-first mentality within companies that prioritizes internal workers. Thus, freelancers often feel like outsiders. To build a more inclusive workforce ecosystem, managers need to foster a sense of community by including external workers in team-centric activities and recruiting freelancers who exhibit solid teamwork skills.
Phase 3: Coordinated learning and Resourcing
As teams engage in pilots, local champions should regularly meet with the central orchestration team. They should report on performance, roadblocks, best practices, and support needed from the central team. The central group can help with structural design, political, and cultural issues that arise locally, but require central solutions.
Regarding structural design challenges, organizational policies and procedures help employees get work done in traditional ways while also protecting intellectual property and complying with regulatory constraints. However, some traditional structures developed to protect the organization may cause difficulties when local teams increase their reliance on external contributors. The central team can help solve these problems by escalating them and facilitating changes. For example, they can change policies to allow local teams to more easily hire freelancers, develop training for collaboration with external workers, and introduce new performance measurements to reward solution seeking rather than problem solving.
Politically, free rider problems may arise when local managers benefit from increased availability of resources to hire contractors but then don’t follow the guidelines to free up resources for this hiring. The central team can address this by monitoring progress against agreed upon solutions. Another political challenge that may arise is lower-ranking employees on the local teams not feeling comfortable speaking up about issues for fear of being seen as complainers. Employees on the central team can speak on behalf of their local counterparts; rather than being perceived as resisters, they can be solicited for valued opinions.
Finally, regarding cultural issues, counterintuitively, while CEOs and local managers may see the benefits of workforce ecosystems, senior managers and HR leaders may be slower to embrace them. Senior managers may resist because they are daunted by the complexities involved in changing deeply embedded policies, processes, and technologies. HR leaders may continue to focus on the internal workforce and continue to use traditional workforce management practices for recruiting, managing performance, and rewarding employees while leaving challenges associated with engaging external contributors to those in Procurement and elsewhere. The central team can help address these challenges by spreading locally developed solutions. However, for the organization to invest in these changes, local teams must be willing to use proposed solutions sometimes developed by other groups. This is often not easy. We’ve found that it doesn’t work to ask managers to make a big sacrifice with the hope that it will lead to a big gain. Local managers are usually not willing to take this leap of faith. What does work is making provisional commitments, agreements to experiment with a new solution to determine if it works well in a particular local context, before committing to use the solution in the longer term. Boundary spanners on the central team can work with local champions to both gain these provisional commitments and assess how well new solutions work in particular local contexts.
Phase 4: Ecosystem Expansion
Finally, goals, metrics, and practices should be periodically revised in response to problems and possibilities revealed by the review process. Because goals and the means for achieving them are explicitly conceived as provisional, problems identified in one phase can be corrected in the next.
Two important structural design practices in the ecosystem expansion phase are adopting processes, tools, and systems that have been shown to be successful across multiple local experiments, and collecting information on performance across key metrics. For example, a large pharmaceutical company that engages extensively with external workers learned through local experiments that categorizing external workers can help expedite hiring and managing them. In response, the organization now categorizes contingent workers across the highly dispersed company into three types: managed services (areas where they don’t have internal core competencies such as catering, maintenance, etc.); consulting services (where contributors such as management consultants come in under contract); and contractors (including individuals recruited for a specific capability or skill).
By standardizing categories, the organization has a common way to describe external workers within their Workday software system, allowing them to create more insightful analytics and reporting, and to reward local managers who are successfully implementing the workforce ecosystem.
Politically, two key practices for ecosystem expansion are broadening the central orchestration team to include new stakeholders and developing a collection of workforce ecosystems that span organizational boundaries. For example, a large multinational service provider we studied highlighted the benefits that both they and their clients are accruing now that they have begun much more actively working together, including sharing senior level employees for extended assignments (for 6, 12, and 18 months). Clients benefit by gaining access to new talent during the assignments. And, the firm sees benefits by providing new experiences to their own senior leaders, many of whom have never worked in client organizations.
Culturally, two useful ecosystem expansion practices are developing tools and forums for distributed learning and getting C-suite leaders to promote culture change by signaling and storytelling. Tools allow local managers to measure themselves along key dimensions that have been identified as critical during piloting, and forums allow for peer-to-peer sharing of best practices. C-suite leaders can signal their support for a mobile and fluid culture that discourages talent hoarding by individual managers and provides employees with more growth opportunities within the organization by drawing attention to managers who are piloting workforce ecosystem projects. Leaders can also use storytelling to vividly paint opportunities available to internal employees who successfully transition to adopting workforce ecosystem orchestration practices.
In conclusion, by using a phased approach to orchestrating workforce ecosystems that addresses structural design, political, and cultural challenges, firms can integrate internal and external contributors to perform mission critical work and accomplish their strategic objectives.
Elizabeth J. Altman is an assistant professor of management at the Manning School of Business, University of Massachusetts Lowell, and guest editor for the MIT Sloan Management Review Future of the Workforce program.
Katherine C. Kellogg is the David J. McGrath Jr. Professor of Management and Innovation at the MIT Sloan School of Management, and Group Head for the Work and Organization Studies Department.
David Kiron is the editorial director of MIT Sloan Management Review, and leader of its Big Idea programs, which include Future of the Workforce and Artificial Intelligence and Business Strategy.
Related work by the authors includes:
Elizabeth J. Altman, David Kiron, Jeff Schwartz, and Robin Jones, ‘The Future of Work is Through Workforce Ecosystems’, MIT Sloan Management Review, 14 January 2021.
Elizabeth J. Altman, Jeff Schwartz, David Kiron, Robin Jones and Diana Kearns-Manolatos, ‘Workforce Ecosystems: A New Strategic Approach to the Future of Work (Findings from the 2021 Future of Workforce Global Executive Study and Research Project)’, MIT Sloan Management Review and Deloitte, 13 April 2021.
Katherine C. Kellogg, ‘Local Adaptation Without Work Intensification: Experimentalist Governance of Digital Technology for Mutually Beneficial Role Reconfiguration in Organizations’, Organization Science, 31 March 2021.
Jenna E. Myers and Katherine C. Kellogg, ‘State Actor Orchestration for Achieving Workforce Development at Scale: Evidence from Four US States’, ILR Review, 28 July 2020.