Managing in the Gig-Economy

Managing in the Gig-Economy

The global economic and technological context is driving companies to hire independent contractors and freelancers, thus increasing the proportion of temporary jobs (Gig-Economy). To remain successful in this emerging environment, managers must master “orchestration” and achieve an in-depth understanding of the technological development that concerns the firm.

The way we work and the way organisations divide up the necessary tasks between technological artefacts and people is constantly evolving with the continuous technological development. This technological development is also continuously modifying the structures that emerge for holding and combining the distributed diversity of useful technical expertise, specialised capital equipment, processes, systems, information and knowledge (of which a large amount is tacit and therefore difficult to acquire) all of which contribute to higher efficiency, effectiveness as well as increased productivity of both the labour and capital that make use of it.

A combination of skill-biased, routine-biased and capital-biased technological development results in a dramatic change in both the internal structure of the institutions that make up an economy as well as in their interaction that forms the workings of the economy.

This means that the way we manage is also changing and I will here discuss some of these changes and challenges that managers must master to succeed in this emerging environment.

Orchestration

ICT have enabled the breakdown of supply chains and operations into component operations that can be managed without incurring any increase in coordination cost. Digital technologies and the business models enabled by them is further increasing the ability to break down activities into component activities both within and outside the organisation and to redistribute which of these component activities should be done within and outside the organisation.

This new environment allows the variabilisation of what used to be fixed labour costs in ways that have not previously been possible and is hence accelerating the speed by which jobs internal to the organisation are being replaced by jobs external to the organisation. This is challenging managers to continuously find new ways to reassemble the non-automated activities into something that makes both organisational sense and sense for those that are to execute these activities. This ability to manage on an individual task level enables the use of labour for time-limited and very specific tasks, changing the relationship between labour user and labour provider.

This provides opportunities for better outcomes as well as threats of disfunctionality for both individuals and organisations. On the positive side, if successfully reassembled, the resulting reduction in waste arising from better matching and scaling of resources and business needs contributes to increased productivity. Managers need to take advantage of this by understanding what employment relationship is optimal for what portfolio of tasks.

As a result of this change the organisation will be made up of both standard work relationships [full-time and part-time employees] and non-standard work relationships. Among these non-standard relationships new concepts such as crowdwork and work on-demand arise. Crowdworking involves completing a series of tasks through online platforms which act as a connection point between an unlimited number of individuals and organisations (Howe, 2006; Cherry, 2011; Felstiner, 2011; Bergvall Kåreborn & Howcroft, 2014; Cardon & Casilli, 2015; Eurofound, 2015; D’Cruz & Noronha, 2016; Codagnone et al., 2016; De Stefano, 2016; Ettlinger, 2016; Vendramin & Valenduc, 2016). Work on-demand is channeled through apps that are managed by firms that intervene in the selection of the workforce and that also set minimum quality and service standards (Cardon & Casilli, 2015; Greenhouse, 2015; Rogers, 2015; Aloisi, 2016; Codagnone et al., 2016; De Stefano, 2016; Vendramin & Valenduc, 2016).

There are three reasons why businesses might promote contingent work arrangements:

  • Firms experiencing short-run fluctuations in the demand for their goods and services, benefit from the flexibility in being able to hire workers on a temporary and contingent basis (Dokko et al., 2015). 
  • Firms seeking to reduce labor costs can use contingent work arrangements e.g. subcontracting relationships allow firms to obtain specialised skills held by outside contractors without incurring the attendant training costs and other investments (Abraham, 1990). 
  • Firms under capital market pressures on short-term performance and efficiency can use contingent work relationships to reduce that pressure, when the announcements of layoffs are viewed as laudable improvements in efficiency, and thus rewarded through higher share price for the firm (Weil, 2014).

De Smet et al., (2016) suggest that organisations should split multifaceted jobs into discrete tasks, automating some and determining what can be done more effectively by humans. Then match those needs with the employees who can meet them, where they are, and when they’re available. They claim that the combination of platforms 1, markets, and deeper engagement with digitally enabled workers holds appealing implications for managing human capital since it would free employees to focus on the more meaningful parts of their roles whilst simultaneously allocating talented people effectively and efficiently. This is aligned with Codagnone et al. (2016) who concludes that the digitally platform enabled work opportunities can increase the pool of employers and workers by removing barriers and reducing transaction costs, improving matching, increasing human capital specialization, with potential net welfare effects such as more efficient labour markets and increased employment. All of which have the potential to contribute to increased productivity. A guarded optimism around the emerging shared economy can also be found in Felländer et al. (2015).

To be able to manage the relationship with non-standard workers well, organisations use four approaches in some combination (George & Chattopadhyay, 2015): 

  • By carefully designing jobs that are amenable for non-standard workers (e.g. jobs that have a lower level of complexity, jobs that demands fewer or lower levels of skills; jobs with which the non-standard worker is familiar, jobs that can be done independent of the rest of the organisation, jobs that are not core to the organisation, jobs that do not involve valuable and proprietary knowledge or technology); 
  • By ensuring fair or appropriate terms of exchange (accepting and understanding that there is heterogeneity in what non-standard workers want and that the social exchange is affected by the labour market at that point in time); 
  • By managing the nature of the non-standard worker’s relationships with people in the workplace (this means developing processes that facilitate good horizontal and vertical interpersonal relationships); 
  • By understanding the core of non-standard workers’ identities (and their related motivations) and engaging with them in a way that can help these workers realize, maintain or enhance these identities.

Firms are less likely to use independent contractors where there is (Productivity Commission, 2016):

  • High interdependence between workers.
  • Concern about the expropriation of valuable intellectual property.
  • Difficulty in specifying or verifying the quality of work provided.
  • A need to have ongoing involvement with the business to develop valuable firm-specific skills.
  • A significant cost in re-contracting compared with maintaining ongoing employment.
  • A need to establish loyalty to the business to achieve maximum productivity and commitment.
  • Scope to reduce wages in exchange for higher job security.

Given that the return on (ICT or ICT embodied) capital deepening is increasing whilst the return on humans are decreasing the above move towards human-as-a-service makes sense from both an economic and a technology point of view. 

From the firm’s point of view the present approach to contingent workforce management is rather complex and multi-layered and depends on spend, workforce, supplier, and talent management principles to maximize the benefits while also maintaining a balance of compliance, cost, visibility, and quality (Dwyer, 2016). Dwyer (2016, p.19-20) forecasts that in just a few years, the business world will be operating in an environment where roughly 50% of the total workforce is considered non-employee, independent, or contingent.

A similar pattern as identified above for employees is also developing on the organisational level where firms are moving from global well-structured and stable supply chains to global dynamic eco-systems.

The conclusion is that the business world is moving from a world of management to a world of orchestration which requires today’s managers to develop new skills to remain both effective and valuable to their organisations since on average 20% of the tasks performed by mangers today can be replaced by technology and the share is continuously increasing.

Investment

The developments outlined are creating an environment where capital equipment will become performance-wise uncompetitive before it becomes technically obsolete and technically obsolete before it becomes economically written-off. This means that obsolescence will occur before the capital equipment’s originally anticipated lifetime (Productivity Commission, 2016), leading to an increased and unanticipated economic cost for the owners of the capital equipment. Therefore firms must invest faster than the depreciation rules indicate to stay competitive. In this world, you cannot have an accounting mindset nor can you “sweat the asset” since both of these, seemingly tactically good approaches, will lead to strategic suicide for the firm. From this follows that managers must understand the technological world in which the firm’s production system exists so as to make the strategically correct decisions.

The speed of the technological development makes hard-won skills obsolete and thereby reduces the value of the individuals’ highly concentrated portfolio of non-transferable assets with heavy sunk costs in the form of education, training, licensing and experience. Ultimately the speed of technological development may accelerate beyond human ability to learn i.e. by the time new knowledge and skills have been learnt they are already obsolete. This is true if knowledge, as claimed, is increasing exponentially (Kurzweil, 2006; Agar, 2015). In this case the number of available jobs that can be held by humans will decrease and the firm must be managed accordingly.

The new way of doing things or the new performance envelope or new cost level enabled by the technological development will lead to failure for some businesses and rapid adaption of other firms and individuals. The more dramatic the impact of the new technology is as compared to the superseded technology, the more widespread the disruption and the more existing capital and labour will be redeployed. In some domains the net effect of this change will be positive and in some it will be negative. It is the manager’s responsibility to maximize the positive outcome.

All the above highlights two of the main changes that managers must embrace to remain successful in the emerging Gig economy:

All the above highlights two of the main changes that managers must embrace to remain successful in the emerging Gig economy:

  • Mastering orchestration as opposed to management of multiple relationships on both the individual and organisational level.
  • Having an in-depth understanding of the technological development that underpins the firm’s product-service-system offerings and its production system. 

In addition, we cannot forget other skills and managerial practices that must be put into practice, such as the following:

  • Having an in-depth understanding of changing consumer sentiments to avoid the demand obsolescence trap.
  • Mastering the simultaneous management of continuous improvement and innovation as well as all the different domain approaches to achieving innovation
  • Understanding and applying lean principles and setting up the budgeting, overhead distribution and key performance indicator systems so that the firm can achieve a continuous journey towards perfection using LEAN principles.
  • Retaining a sufficient amount of under-utilized resources to be able to continuously experiment and innovate as well as having preparedness for change when the unforeseen happens.

All these factors shape a radical new management context that requires an updated vision of manager’s role and skills, a challenge that not many firms are ready to deal with today.

Escrito por Prof. Gorän Roos, South Australian Economic Development Board.

*Publicado en Estrategia #000006

1 Platforms are defined by De Smet et al. (2016) as software layers that gather and synthesize large volumes of data to make digital available and accessible on various devices. That help define the rules and the way work gets done, while better coordinating activities and lowering interaction costs. 

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