Perspectives

Best of Both Worlds?

A View of the Changing Workplace

Historically, workers have faced a choice. They could toil for large corporations, with all the benefits — stable employment, health insurance, and pension plans — but also with the downside of hierarchical structures, especially the rigid command and control from above. Or they could work for small organizations or for themselves, enjoying more freedom in controlling their own efforts and setting their own rules and schedules but lacking the economic stability provided by large corporations with their economies of scale and associated perks.

Nowadays, however, we are witnessing the harbingers of a working world in which we may be able to have it both ways: the economic benefits of large corporations and the human benefits of small organizations. Such harbingers signal the “early stages of increases in human freedom for business,” according to Thomas Malone, the Patrick J. McGovern Professor of Management at the MIT Sloan School of Management and author of the new book The Future of Work. These increases in freedom “may, in the long run, be as important for business as the change to democracies was for governments,” said Malone, who spoke at RAND as part of a panel on the future of work.

What’s making this possible, he continued, is a growing decentralization in businesses enabled by a new generation of information technology — such as the Internet, the World Wide Web, and email — that is driving down the cost of communications. One manifestation of this trend is the growing number of workers who are able to do their jobs by telecommuting, or working off-site in “virtual offices.”

In our increasingly knowledge-based, information-driven economy, the critical factors for business success are often precisely the same as the benefits of decentralized decisionmaking: dedication, creativity, and innovation.

The trend portends even more significant changes for business. As Malone noted, the low costs of communications in organizations are leading to decentralization in decisionmaking itself, such that large numbers of people in large organizations have enough information to make sensible decisions for themselves instead of being told what to do by someone above them in a hierarchy who supposedly knows more than they do. The “quality circles” that have emerged in some factories in recent decades reflect this “pushing down” of decisionmaking authority.

When people make decisions for themselves, they tend to be more highly motivated and dedicated, more creative, and more flexible. “They simply like it better,” said Malone. Of course, such decentralization is not always appropriate in modern business. For a company making semiconductors, for example, the key will still be achieving economies of scale.

We Have Seen the Future, and It Is eBay

But in our increasingly knowledge-based, information- driven economy, the critical factors for business success are often precisely the same as the benefits of decentralized decisionmaking: dedication, creativity, and innovation. A prime example of the change we are seeing in business today is eBay. With faster revenue growth since its founding than any company in history, eBay now has 56 million active buyers and sellers.

What is even more telling is that 430,000 of those sellers make their primary living from selling on eBay. “If those 430,000 people were actually eBay employees,” said Malone, “eBay would be the second largest private employer in the country, after Wal-Mart but ahead of McDonald’s.”

eBay has used cheap communication provided by information technology to invent a new way to do retailing. In effect, it has outsourced almost all the functions of retailing — merchandising, customer service, order fulfillment — to independent sellers, who are not eBay employees or even contractors. eBay doesn’t pay them at all — they pay eBay.

DIANE BALDWIN

Thomas Malone, professor at the MIT Sloan School of Management and author of The Future of Work, discusses the transforming workplace with guests at a RAND seminar.

In many ways, eBay has achieved the best of both possible worlds. Its sellers are independent storeowners who have a vast amount of freedom to decide for themselves what to sell, when to sell, how to advertise, and how to price. Yet through eBay, they enjoy a key benefit of economic scale: They can serve a global marketplace. In return, eBay ends up being a very effective and profitable retail organization.

The decentralization brought on by changes in information technology also opens up opportunities for many types of workers who are often left out of the current workplace, such as the elderly, working mothers, and those with disabilities. In fact, a 2004 RAND report on the future of work found that slower U.S. labor force growth will require employers to bring such typically underrepresented groups into the workplace, and the shift toward decentralization could assist employers in this regard.

A world of increasingly independent workers does pose challenges, the most prominent of which is that such workers will have no obvious place to obtain the benefits that they traditionally have obtained from employers. One way to deal with this challenge, according to Malone, is with the rise of a new kind of private organization whose job it will be to fulfill the needs of such workers.

Malone likens these new organizations to “guilds” and envisions them as providing a stable home for workers who move across jobs, companies, and employers. For perhaps a percentage of a worker’s income in good times, these organizations could provide financial security in difficult times, as well as health insurance, job training, and even a place to socialize or to cultivate a sense of identity.

Beyond Business As Usual

To take advantage of this new work paradigm, corporate managers must figure out how to invent new kinds of business models that are as different in their industries as eBay is in retailing. More important, Malone noted, managers must move from their traditional roles of “command and control” to more flexible roles of “coordinate and cultivate.”

He also argued that government regulators should realize that some of the more important kinds of work will increasingly be done by people who are independent contractors or self-employed businesspeople (such as “e-lancers”). As such, the workplace playing field should be leveled for such workers in terms of changes in the tax code and other benefits.

At an even broader societal level, educators should move from training children how to follow orders in factories and in bureaucracies to training children how to figure out for themselves what needs to be done, how to assemble the resources to do it, and how to collaborate with others to get it done — as eBay sellers do.