Wednesday, July 23, 2014

Employee Costs of firms Firms, Free Agents and Talent Market Exchange that could be LinkedIn

Thomas Piketty's book "Capital in twenty-first century" talks about increasing income polarisation. One of the reasons for this has been the dumbing down of jobs available in the market. There is also a lot of debate about whether robots will take over our jobs. These debates deal with two forces acting on the firm. First is constant need to reduce employee costs and their need to engage with highly skilled talent. The confluence of these two forces can be extrapolated into robots taking over our jobs, polarised incomes or in a utopian view an era of free-agents. But that era has not yet arrived. So what keeps us away from realising an era of free agents? Well let us look at it from our firm model view.

Over the past 250 years we have moved from fairly simple, independent value chains to highly interconnected complex value chains. This means that expertise developed in one value chain has diverse applicability and therefore higher value across multiple value chains. However, from the view point of the firm, their value is limited. Consequently the employee groups developing these capabilities feel underpaid and switch jobs frequently. While there is a marked rise in their pay, I think this is miniscule compared to the value they can potentially create. I believe it makes sense to organise these individual clusters of competencies into tradable units - either as mini suppliers to various value chains or as free agents' agglomeration. 

The agglomerations will need efficient markets wherein you can know, hire and enter into contracts with these entities. In LinkedIn I see a potential market quite similar to equity markets where the buyers are firms and sellers are these micro-agglomerations or even individuals. 

A market where each person is like a listed entity seems ominous. Yet, it is not one market. Specific skills by themselves are a market. So LinkedIn needs to create multiple markets within their entire database. The parallels with equity markets and supplier discovery engines are ever more relevant. The amount of energy LinkedIn spends in validating their "listed entities" is nowhere close to the energy spent in the equity markets and supplier discovery engines. LinkedIn will have to create algorithm based bots to do that effort so that these bots can make the markets relevant to the buyers and sellers.

The responsibility of creating such a market is not simply that of LinkedIn or some such other job site. But it is responsibility of every individual, teams and also of HR departments wanting to leverage their human resources to maximum extent.

The outcome of such developments can unleash substantial benefits in rising pays and lead to healthy development of free-agent marketplace. The ancillary benefits could be substantial development in ideas that these free-agents focus on which may receive a boost because of focussed effort. Lastly, it will lead us to enriched lives of people.

Note: I have used value chain as it is generic word, but readers of the book "Understanding Firms" can appreciate this concept better with Resource Transformation Chains which is explained in the book.