Blog Article

Will digitization kill the modern corporation?

Posted by Eric S. Pelletier

Eric S. Pelletier

Ever since computers came on the scene, we have tried to understand how they will affect the future of work. One of the most recent and thorough studies looked at employment in the US and came to a startling conclusion: 47% of jobs were at risk. This was quickly translated into headlines such as: “Will a Robot Do Your Job Some Day?”

The reality is more nuanced. History shows that in the end, while technology does destroy some jobs, it also increases employment levels. The auto industry may have put most of the buggy whip makers out of business, for example, but ultimately it created more jobs than it destroyed.

Current business trends are hinting, however, that digitization could do something even more momentous. It might kill off the modern corporation itself.

Why companies exist

Corporations are about bringing together assets – capital, labor, clients, technology – to create critical mass. They have existed for many centuries, since ancient Greek merchants formed primitive corporations to spread the risk of shipping cargo in storm-ridden seas. The modern corporation emerged progressively during the twentieth-century, created by leaders such as Alfred P. Sloan, who led GM from 1923 to 1956. In 1973, Corporation Man, written by Antony Jay, neatly summarized the new rules of corporate life, which included organizational design (command-and-control and later, matrix organizations), governance and the social contract between a company and its people. But now digitization is threatening these rules. The need to agglomerate large workforces and give them form may be a thing of the past.

Today, small payrolls make sense

Labor is a strange thing. Usually, when you buy something in bulk, you can negotiate discounts. The reverse happens with labor. The more people you employ, the more collective bargaining power they acquire, which leads to higher wages and perks. Furthermore, there are no real economies of scale for management. The more people on your payroll, the more complex and costly it becomes to manage them. So there is a strong incentive to employ as few people as possible, while at the same time protecting strategic skills.

Modern technology allows for a very sophisticated and automatic allocation of assets. When Airbnb connects you with an apartment in Montevideo, real estate brokers become redundant. Technology like this will soon allow companies to start buying skills as and when they need them – 10 days of an oncologist in Oslo, or 17 days of big data analysis in Kuala Lumpur – saving wages, idle time and management time.

At the end of 2014, Uber operated a network of 180,000 taxis yet employed only 850 people. It is currently valued at about $50 billion, implying a value per employee of $60 million. Contrast this to $0.3 million for Ford, $ 0.9 million for GM and $7.5 million for Apple, the world’s most valuable company. Less is definitely more.

A revolution in human capital?

In the 1980s, former GE CEO Jack Welch was dubbed “Neutron Jack” because his impact was like that of a neutron bomb, which eliminates people but leaves buildings and infrastructure intact. Digitization could have something approaching a reverse effect: wiping out organizations but leaving the people, albeit somewhat dazed and looking for very different types of employment.

We may be witnessing the onset of a revolution in Human Capital. Highly valuable companies with very few employees will buy labor and skills on an ad-hoc basis, destroying conventional forms of organization, flouting most labor and governance laws (just as Internet companies circumvent current tax laws) and increasing their financial returns.

Get employable, get agile

For employees, this means focusing harder than ever on their employability. Corporations, on the other hand, need to understand the proper shape for their business, identifying core skills that must be nurtured, and peripheral skills which can be outsourced. Overall, it suggests a need for an organizational agility that few companies demonstrate today.

 

 

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