How technology changed work, the workplace, and contracts

Richard Baldwin 24 April 2019

a

A

Technological change and competition are accelerating for US service sector companies, and many are changing profoundly in response. They are becoming more flexible and more project-oriented. 

This isn't arbitrary change. The changing needs and habits of their customers and the digital technology they use are allowing, or forcing, many service sector companies into adopting less stable, hierarchical organisational forms. 

To do this, they are breaking down departmental silos in favour of ‘agile’ organisation structures. To pull this off, they need more flexible arrangements with the people who do this work, mashing up payroll staff jobs with freelancers, ‘satellite’ workers, and software robots. 

Work that was steady is now precarious. Workplaces that clustered are now dispersed. Work contracts have weakened, shortened, or disappeared altogether.

Old-school working practices made sense

Corporations that continue to base their hierarchical structures around on-the-spot workers and static silos are feeling the heat. But until recently, those old-school jobs, workplaces and contracts made perfect sense, for three reasons.

  • A steady job. When business demands evolved slowly, as they did between the 1950s and 1970s, services and products changed less rapidly. This meant that cost optimisation of standardised products and services was critical to profitability. One way to optimise was to put all the workers and bosses next to each other in the same building. Physical closeness established useful for implementing cost-saving or time-saving processes. Proximity helped colleagues build trust and mutual understanding, building unchanging, efficient teams. And so the slow evolution of services and products fostered organisational silos focused on making processes, and the people who ran them, as efficient as possible. This, in turn, encouraged stable employment. A secure employer–employee relationship was part of cost optimisation. Firing was disruptive to these teams and processes. Also, training a team and getting it to work together was a big investment for firms, so they had a cost incentive to keep people in their jobs. Good pensions, generous benefits, and promotion all cut staff turnover, and so these were tools that helped optimise costs. 
  • Paper-based administration. These stable organisations kept the information they needed to do their business on paper, in folders, stored in files and binders. Need to find some information? It's best to be close to the filing cabinets. 
  • Water-cooler communication. The way workers interacted also fostered clustering. Business was often done by talking to the people you worked with. Phone calls in the 1970s were expensive and, without mobile phones, you needed to know where someone was before you called. We made appointments by writing letters, because there was no email. So it helped to have everyone in the office, in predictable locations, every working day from 9am to 5pm, and make them take synchronised coffee and lunch breaks. Even discrete tasks were done in specific spaces. Need to write a memo? Companies had floors full of typists (the ‘typing pool’) to do that. 

That is why, when someone said, “I have to get to work,” it meant they were about to go to a physical location, not today's meaning that they are about to settle to a task. 

To summarise: if firms wanted to remain competitive in a word of slow change, poor information technology, and difficult communication, work teams needed to cluster to optimise cost. This created hierarchies and silos to manage the clusters, and lowered incentives to change these employment relationships once they were in place. Our labour laws and office norms evolved in a setting in which, generally speaking, companies had good reasons to treat workers well enough so they wouldn’t leave.

But this old-school organisational model works much less well today. 

The digitech-driven pace of change, and pressure from customers

Competitiveness now depends less on cost-optimisation, and more on responsiveness. Why? Because customers can, and will, switch suppliers and products more quickly. So those suppliers have to adapt faster. 

Getting the right product or service out quickly, and constantly evolving it in response to competition, has become more important than optimising stable processes for long-lived products and services. 

In companies facing this type of competitive pressure, this has reduced the need for strict hierarchy and stable teams. Static hierarchies, fixed desks, long-term contracts, and routine processes are being replaced by agile, project-oriented corporate structures. This means flat management and temporary, cross-functional teams. 

This means that jobs are more precarious. Contracts shorten, weaken or disappear altogether. Physical workplaces de-materialise.

Adaptiveness increases the demand for flexible workers, who can be anywhere in the world. They provide today’s service-sector companies with agility. In the words of Accenture's Technology Vision report in 2017:

“The future of work has already arrived, and digital leaders are fundamentally reinventing their workforces. … The resulting on-demand enterprise will be key to the rapid innovation and organizational changes that companies need to transform themselves into truly digital businesses.” 

Decode the jargon, and it says: those steady jobs won’t be so steady any more.

Information and communication technology has changed too. Those filing cabinets are potentially within reach of anyone anywhere with a laptop and a secure connection to the cloud. In cyberspace, everyone’s inbox is equally close to everyone’s outbox. The buzzword that Accenture, a consulting firm that specialises in this type of organisational change, uses to describe this new world of work is the ‘liquid workforce.’

If this were the cable entertainment industry, we could call this use of remote workers as the ‘pay-per-view model of work’. Soon, companies might browse online for the workers they need, pay them per project, but only when the need arises. The number of employees can grow fast to seize opportunities, but can also shrink fast to cut losses. This also means shifting work organisation to cloud-based platforms that allow people to work anywhere anytime. Much of the technology to provide this is already a reality.  

One really radical thinker, who was years ahead of this curve, is Michael Malone. In 2009 he wrote The Future Arrived Yesterday (Crown Business), in which he projected a world in which the 'Protean Corporation' is an everchanging company that can continually re-invent itself. It has only a small set of core people on long-term contracts. Outsourced providers do everything else.

Snapchat, the US social media company, is potentially one such Protean Corporation. It was worth $16 billion in 2017, but at that time had only 330 employees. Compare the same figures for a traditional corporation. General Motors is worth about $50 billion, but it employs 110,000 workers worldwide. 

The Protean Corporations that we see today in the developed world are the cause of, and are caused by, a handful of technical and organisation changes. For now, much of the ‘liquid labour’ is hired domestically, but there is plenty of similar labour in other countries eager to work for a fraction of US or European wages. This means that these changes will have international implications. These changes are opening the door to direct international wage competition in the service sector.

In The Globotics Upheaval: Globalisation, Robotics, and the Future of Work (OUP 2019) I argue that both globalisation – international freelancing – and white-collar robots are driving automation and globalisation of service and professional jobs at an explosive pace. And both are changing the future of work. 

As I argue, the de-materialisation of workplaces, and the reorganisation of work in a way that encourages the use of remote workers, are not just domestic issues. 

Globotics is creating great opportunities in emerging markets. In those markets it is opening service-export opportunities, because the cost of service and professional workers is smaller than in advanced economies. But I call this the globotics 'upheaval' because the opportunity for service workers in developing economies will be a threat to all equivalent workers in rich nations. 

The need for a rethink

That threat is worse when we consider that international governance has not begun to keep pace with these technology-driven changes. The costs of change are often born entirely by workers – not shared between workers, firms and society as they used to be. 

Clearly, it’s time for a rethink. 

Author’s note: This blog is based on remarks at the Graduate Institute, Geneva on 11 April 2019, as part of the ILO 100th anniversary 'Global Tour' of 24 one-hour panels in 24 locations.

a

A

Topics:  Industrial organisation Labour markets

Tags:  Digital technology, working practices, digitech, liquid workforce, Protean Corporation

Professor of International Economics at The Graduate Institute, Geneva; Founder & Editor-in-Chief of VoxEU.org; exPresident of CEPR

Vox eBooks

CEPR Policy Research