When you think about outsourcing, what comes to mind? Offshore manufacturers? Freelance writers?
According to project management software provider Mavenlink, a growing number of firms is opting to outsource roles once thought safe: C-level executives. While the Mavenlink report noted that 47 percent of surveyed executives would consider filling senior-level roles with contractors, the real surprise was that 63 percent of them say they’d prefer contract work to traditional full-time arrangements.
Why, exactly, are companies outsourcing top-level leadership roles? Their reasons vary, but the big two are time and money. The Center for American Progress found that, because executive searches tend to take months or years, the replacement cost for highly educated executives is up to 213 percent of the role’s salary. Replacing a CEO making $200,000 per year, for instance, would likely cost a company upwards of $400,000.
Outsourcing at the Top
In the context of replacement cost, it’s perhaps not surprising that employers are outsourcing their leading roles. Some of them, however, are better candidates for outsourcing than others:
1. Chief marketing officer
At first, this executive position might seem like the worst to outsource. After all, the CMO steers the company’s brand and customer relationships: How could an outsider possibly be the best choice?
The main reason, according to Erik Huberman, CEO and founder of Hawke Media, is trust. “When we start a marketing strategy, we look at awareness, nurturing, and trust,” Huberman, an outsourced CMO himself, explained in Forbes. “You can’t expect people to go for it right away. Seventy-five percent of consumers won’t buy from a brand if they don’t trust it.” A Label Insight survey confirms that 73 percent of consumers view transparency as more important than price.
Why, exactly, is outsourcing the right choice for building trust? Because trust-building is notoriously hard, CMOs with experience cultivating it at multiple firms tend to fare better than those with little experience in the role. But given that a veteran CMO makes more than $170,000 per year, few non-enterprise firms can afford to hire one.
2. Chief financial officer
Although many entrepreneurs know their way around a basic budget, they quickly find themselves in over their heads as their companies grow. Startup leaders usually start searching for a CFO once lenders begin asking them for cash flow projections and covenants, CFO Paul Shackford, founder of outsourced CFO firm B2B CFO, told Entrepreneur.
On one hand, entrepreneurs could hire a full-time CFO — at a median cost of more than $425,000 per year; on the other, they could contract it out. Although Shackford noted that outsourcing the CFO role can save 20 to 30 percent compared to the cost of a full-time employee, a competent outsourced CFO should actually add 1 to 2 percent of a company’s net income via his or her investment strategy.
3. Chief investment officer
Like the chief financial officer, the chief investment officer is an executive-level steward of the company’s assets. Compared to the CFO, though, the CIO is typically managing more money at a larger organization, with fewer day-to-day responsibilities.
Thanks to those factors, four in ten institutional investors studied by Natixis Investment Managers already outsource to some extent. The number interested in outsourcing their CIO, however, continues to grow: Natixis found that across the year duration of its survey, the number of organizations considering outsourcing at least some CIO responsibilities grew by a third. Cited by 49 percent of respondents, the top reason was access to specialist expertise.
Cary Grace, CEO of consulting firm Aon Hewitt, suggests multiple market factors are to blame for the outsourced CIO’s rise. “The markets are more complex and volatile, there’s increasingly geopolitical uncertainty, so (asset owners) are continuing to seek outside expertise,” Grace explained to Pensions & Investments.
4. Chief information security officer
At enterprises and startups alike, information security is another place firms often need outside expertise. Not only is this role critical for safeguarding users’ data, but it’s actually required by law for certain New York state firms.
What if a startup in New York or elsewhere can’t afford a CISO? Fortunately, the law allows businesses to outsource the function. Capstone IT points out that the cost of outsourcing the role costs merely v what the New York State Department of Financial Services charges firms for noncompliance.
Not sure where to start? CSO suggests searching for a virtual CISO with broad expertise. He or she should, for instance, have experience writing corporate security policies, complying with industry frameworks like HIPAA, and conducting vendor risk assessments.
The C-suite might seem like an unusual place for contractors, but virtual executives make it possible for firms to get the expertise they need at a price they can afford. If that’s not enough reason to experiment with executive outsourcing, what is?