The “make-or-buy” decision is a classic quandary for manufacturing companies. Is the corporation better off making a product or component, or would it be smarter to buy the product from an external supplier?
Also called “the outsourcing question”, the same issues apply when companies are faced with the choice of developing in-house service capabilities or contracting with an external service provider.
Companies that have decided to start up executive protection programs must answer their own “make-or-buy” question: should we hire our own staff – including executive protection managers, agents and security drivers – or should we outsource this work to a partner that specializes in executive protection?
Security directors tasked with implementing an executive protection program often face this decision with little to guide them. Procurement departments are not always involved due to the company’s unfamiliarity with the field and the personal nature of executive protection work. Even budgetary considerations may place such decisions beyond the radar range of corporate procurement departments: there are no precedents for dealing with such esoteric C-Suite costs, and the budgets themselves may not be great enough to trigger direct involvement from purchasing watchdogs.
Even so, we encourage security directors to apply the same tools used by procurement experts to answer the outsourcing question when performing make-or-buy analyses.
Make-or-buy analyses employ four key criteria
There are dozens of make-or-buy decision models and no self-respecting consultancy is without its own “unique” take on how to answer this perennial question.
A quick glance across many models, however, reveals four basic criteria that practically all decisions are based on – or should be:
- Core competence: Are the competencies necessary to deliver the services core to the corporation’s strategy and success?
- Cost efficiency: What are the total costs of making or buying the given service?
- Performance capability: How difficult is it to develop the necessary capabilities, and can we perform as well as industry leaders?
- Risks: What are the risks associated with both insourcing and outsourcing the service?
1. Is executive protection a core competence for your company?
Executive protection is not a core competence of any Fortune 500 corporation. This has particular implications for the HR function. Most corporations prefer not to use headcount or dedicate HR expertise to such non-core, specialized services.
No Fortune 500 company claims executive protection as a core competence. This has particular implications for HR: recruiting, developing and retaining qualified staff.
While the safety and productivity of the corporation’s leading principals are important, of course, the talent required to provide these will rarely rank very high on the corporate HR department’s list of priorities, and those responsible for the EP team face some predictable questions. For example, once a protective detail is established in-house, what is the career path for the agents? How should specialist personnel, who don’t fit the rest of the corporation’s pay structure and promotion schemes, be handled? Who will be responsible for in-house agents regarding pass-fail fitness tests, and other renewable training and certifications for skill within firearms, defensive tactics, emergency medical care and more?
To staff and run an executive protection program on its own the corporation would need to become experts in sourcing, interviewing, security screening, training and developing, compensating, on-boarding and off-boarding executive protection managers and agents – just to mention a few HR issues.
The situation is, of course, different for specialist executive protection providers. They have a vested interest and experience in finding candidates that have the best chance for long-term success. They appreciate the need for developing people and skills and are accustomed to ensuring that all agents have an annual training program including drills, tabletops and recurring basic training to keep perishable skills fresh. They can provide advanced development training designed to increase agent capabilities and performance quality. And they know the importance of spotting talent and encouraging the best to follow career paths of growing expertise and responsibility.
Specialist partners have a deep bench of pre-screened and vetted candidates for executive protection agent and manager positions. If one does not work out – for whatever reason – they can be changed quickly and efficiently. What is more, they have immediate access to a worldwide professional network of closely-vetted vendors, enabling them to provide complementary services globally.
2. What is the most cost-efficient way to set up a corporate executive protection program for your company?
When considering the costs of executive protection programs it is imperative to include all direct and indirect costs, over time, to arrive at a reliable evaluation of total costs of program ownership.
Direct costs are straightforward, consisting largely of salaries for protective personnel. Other direct costs include agent travel, subcontracting secure travel vendors (e.g., security drivers and locally-based EP agents) in foreign territories, vehicles and communication equipment.
Indirect costs are also primarily related to program staff. These include all expenses associated with recruitment, training, bonuses, stock options, benefits, turn-over, insurances, terminations, etc.
The table below summarizes direct and indirect staff costs per executive protection agent at three different salary levels. As the table shows, indirect costs add approximately 40% to direct (salary) costs.
|Salary Level 1||Salary Level 2||Salary Level 3|
|Recruitment costs (Advertising, interviewing, screening, hiring, training and management time; average 67 hrs @ $59)||3,865||3,865||3,865|
|Agent benefits (bonus, health, PTO, de-minimus, etc. Salary x 30%)||24,000||30,000||36,000|
In addition to these direct and indirect personnel costs, organizations should also consider the opportunity costs of establishing and staffing service functions that are non-core to their business. For example, a software company is presumably expert in recruiting and developing engineers but has little experience in creating job descriptions for and hiring executive protection specialists. HR and other management time spent on the core business, i.e., hiring new coders, would thus deliver higher ROI than time spent on an unfamiliar, non-core niche such as executive protection.
Recruitment, however, is just one piece of the HR expertise and cost puzzles. Another important one to remember, especially when considering executive protection agents, is termination of employment. As we note below in our discussion of risks, it is important that corporate executive protection agents can be taken off the team immediately if something as simple – and unpredictable – as personal chemistry with the principal is not optimal.
Even very large corporate EP programs can almost never reassign a non-performing agent to another part of the protection team. Likewise, it is extremely improbable that the corporation can find work for a dismissed EP expert in another part of the business. The consequence for the corporation is that the agent should be fired, which can be both difficult and costly.
An article by the Society for Human Resource Management, The Cost of a Bad Hire Can Be Astronomical, reports that direct and indirect termination costs can be as high as USD 240,000. In addition to severance packages, the article cites such expenses as:
- Recruitment advertising fees and staff time
- Relocation and training fees for replacement hires
- The negative impact on team performance
- The disruption to incomplete projects
- Outplacement services
- Weakened employer brand
- Litigation fees
Another important note on costs concerns distinguishing between what the company pays and what the principal or family office pays. Are the executive protection services to be paid for by the client company, or will the principal pay for some of the costs, for example, those that cover residential protection or protection of the principal’s family members?
Often, the answer is both. This can present the corporation with accounting challenges – and lead to gaps in security for the principal. The utilization of a specialist partner provides seamless protection services regardless of whether the corporation or its employee is footing the bill. Costs can be more easily segregated between business and personal use when services are provided by a specialist partner.
3. How do in-house executive protection services compare against outsourced?
To be successful, executive protection programs must constantly adapt to emerging threats, keep abreast of new trends and technologies, and always combat complacency. If they aspire to world-class performance (and who wants second-best protection, really?), they need to seek inspiration from and benchmark against other teams or organizations.
Specialist partners are, well, specialists. And they build their businesses on these specialties.
Their management teams have hands-on experience in corporate executive protection that can be decades long. They have operating procedures that have proven their worth in practice. They know how to recruit and develop staff who go on to have success. And they can transfer skills learned working for one corporation to another. This is true for specialists of all stripes, whether they’re consultants, coders or chefs. And it’s true for executive protection, too.
Unlike an organization that is building its own executive protection program from scratch, specialist partners which serve many clients can benchmark against other programs. They have a hard-earned sense of what constitutes best industry practice. And they bring this to their clients in many ways, from program design and implementation to full or partial staffing.
Specialist partners enable speedy implementation and adaptation. A specialist partner can implement in less than 48 hours what would take an inexperienced corporation months to accomplish: put in place a fully functional executive protection program that keeps the principal safe, happy and productive wherever the job or personal interests take him or her. Given the backdrop of why we do what we do – often tangible threats to the principal’s wellbeing – fast program implementation can be a necessity, not a luxury.
Specialist partners are also able to respond rapidly to evolving program needs. Should the program need to be scaled up, domestically or internationally, to cover other principals or to provide more protection in more places, this can be done without lengthy onboarding and training processes. Other services such as event security, secure travel logistics and intelligence analysis can be added immediately.
Similarly, if the program should need to be scaled back for whatever reason, then this can be done straight away and without concern for severance compensation.
4. What are the risks of setting up your own corporate executive protection program?
From a security perspective, the most important risk associated with corporate executive protection is poor performance of the protective team. Should the team fail to do its job properly, the consequences can, in the extreme, be catastrophic for the principal, his or her family, the company, and its shareholders. Mitigation of this risk is all about understanding relevant threats and vulnerabilities, then choosing the best possible protection solution relative to the principal’s lifestyle preferences, the corporate culture, and budget constraints.
Other risks related to corporate executive protection fall into two broad categories: the ever-present risk of litigation, especially but not only in the United States, and personnel risks. Both matter. We won’t dig into all the possible ways a corporation can be liable for in-house executive protection programs. Suffice it to say that outsourcing executive protection also outsources significant portions of liability as well as licensing obligations within the U.S. and around the world. Be sure also to read our blog on the subject of common litigation causes.
When discussing risks, let’s not forget that executive protection programs can make or break a corporate security organization’s reputation in the C-suite. Even though EP may constitute only a very small percentage of the total security staff headcount or budget of a company’s global security efforts, exactly this percentage will be under close scrutiny from the very top of the organizational hierarchy. Corporate leadership rarely pays any attention to what fire detector is where, but they will remember if a protective agent looked right, acted right, and was in the right spot at the right time. And if not, there will be consequences not only for the agent but often for the entire security management team. When executive protection is good, then security is typically in good standing with corporate leadership – and vice versa.
In our experience, human nature and corporate politics present a real risk to executive protection programs. Executive protection is by its very nature up close and personal. Relationships matter. Understanding the relational pitfalls of executive protection programs significantly reduces the risk of program hiccups and failure.
Favoritism of one agent over others leads to overreliance on that agent, bigheadedness, and eventual burnout. The risk is real, and inexperienced corporate departments are more likely to run into it than seasoned specialist partners.
Because protection agents spend a lot of time in the immediate proximity of the principal, small things can have a large impact. Personality traits and mannerisms aren’t necessarily right or wrong. Still, personality is plenty of reason to ask for another protective agent, or even to dismiss one.
If the principal becomes dissatisfied with a manager or agent for whatever reason, this might compromise the program and the principal’s security and productivity. It is therefore imperative that the principal not hesitate, due to respect for the executive protection agent’s feelings or corporate HR practices, to initiate termination of a person with whom he or she is not comfortable.
Since the principal often spends more time with executive protection agents than with his or her senior management team (and definitely more time than with the corporation’s security director or chief security officer) their position carries perceived power and heightened responsibility. Agents must be of a special psychological makeup to handle their role.
It can be unfair to put an employee in that situation. Specialist partners have better conditions for handling this sensitive situation than corporate employees because they must treat everyone in the client organization as a customer – not just the CEO. This encourages cooperation and harmony rather than favoritism and rivalry.
From one-off executive protection projects to full-time embedded agents or own employees: Flexibility is key
When it comes to executive protection, corporations tackle the make-buy issue in many ways. But we do see some similarities.
One-off and special projects, such as taking care of a principal on trips to selected destinations, will always be fully outsourced.
Comprehensive programs that provide more complete executive protection are often 100% outsourced initially, as the corporate security department has neither the expertise nor other resources to establish the program on its own. This will typically include consulting on program setup, outsourced executive protection agents and/or residential security agents, and an outsourced executive protection manager.
As the program matures, the corporation may choose to make the executive protection manager its own full-time employee, with or without consulting support from a specialist partner. Doing so squarely places the executive protection function on the corporation’s organizational chart, establishes the function as a corporate priority, and enables the corporate executive protection manager to be a fully integrated part of the corporation’s security setup. Some executive protection and residential security agents may also become full-time employees, while others will be fully embedded contract partners.
Embedding executive protection agents and managers and intelligence analysts has its own advantages. These persons live and breathe in the corporate ecosystem, but also have the benefits of being able to draw on the specialist partner’s network of expertise. Fully mature corporate executive protection programs are often a hybrid of own full-time employees and employees embedded from a specialist partner.