Up until the 1930s, the classical economic view was that businesses should hire employees if and when they required them for certain tasks. In 1937, Ronald Coase put forward a compelling argument in The Nature of the Firm, indicating that because of transaction costs and search-related complications associated with the procurement of resources at short notice, it would make sense to keep employees on the company’s books. In other words, Coase feared that negotiations in an open market would likely increase costs.
The rise of institutional shareholders in the 1990s began to undermine the Coasean doctrine. These shareholders encouraged businesses to outsource certain non-core functions.
Charles Handy observed that “Shamrock businesses” as he referred to them, consisted, of a “core of essential executives and employees supported by outside contractors and part-time help”.
Shamrock businesses still kept a sizeable chunk of employees as there was no certainty that the market would be in a position to supply their needs for extra employees should it arise.
Challenges which had previously threatened the evolution of the Shamrock businesses got a second lease of life with the progress in artificial intelligence (AI) and the convergence of technologies such as machine-learning, virtual and augmented reality, 3D printing and the Internet of Things.
This convergence allowed for real-time information coupled with the rise of professional networking services and platforms such as LinkedIn (a business and employment-oriented service), TaskRabbit (an online and mobile marketplace that matches freelance labour with local demand), PeoplePerHour (a community of talent available to work for an employer remotely - online - at the click of a button) and Expert360, which allows businesses to engage and manage top talent for short- to mid-term project work. Allocating work digitally to be carried out digitally reduces business expenses associated with office space, water and electricity.
As the success of this model increases, other businesses are likely to adopt the Shamrock business model.
Unlike in the Coasean model, where employees are kept on a company’s books because of potential transaction costs and search-related complications associated with procuring resources at short notice, there won’t be a need to keep employees when there is no demand for them. Systems integration will allow potential employers to access references testifying to the quality of an employee’s work at the click of the button so that those who are sourced will be the highly sought-after individuals who are effective and efficient. Advantages for the highly sought-after employees is that businesses that are interested in expanding and improving productivity will begin to bid for them. Integrated technology will also allow highly sought-after employees to compare bids.
The likelihood is that they will contract with a bidder that offers them the most competitive remuneration.
These individuals will also be in a position to take up numerous contracts simultaneously, rather than holding a single, permanent position. Their earnings will improve as a result.
The highly sought-after digital earners will be required to carry additional costs such as pension and medical aid costs. However, these extra expenses will most likely be countered by a reduction in transport-related costs.
Remember, meetings will be held over Skype and related technologically-savvy instruments.
If the need to travel to a physical meeting arises, a technological platform such as Taxify or Uber will ensure that virtual employees are chauffeured to and from their destination. With assistance from Google maps on iPhone, travel will be made easy.
In the scenario painted here, the businesses that do not conform to the Shamrock business model could run into efficiency-related troubles compared with their Shamrock business counterparts.
Employees that are not highly sought-after are also expected to run into trouble. This could be a source of friction, particularly because the income inequality between the haves and the have-nots will rise.
If no effort is made to re-skill employees who are not highly sought-after so that they are seen as having the potential to add value to a technologically- enhanced Shamrock business environment, public finances will have to be reorganised as there is a serious risk that a growing number of jobless people will need basic income grants.
Organised labour plays a huge role in developing countries such as South Africa when it comes to collective bargaining. With technology that allows for work to be allocated - and undertaken - digitally, and a system that encourages hiring employees as and when they are required for certain tasks, unions will experience challenges in organising labour. The most notable feature of the Coasean doctrine was that as long as business revenues exceeded transaction and other costs, these businesses could derive efficiencies in certain pockets of the business and continue to grow while avoiding complications associated with the procurement of resources at short notice. As a result, they convinced themselves that it made sense to keep employees on a company books even during times that they were under-employed.
Modern businesses are interested in creating value for their stakeholders. Size does not seem to matter anymore. Businesses and their stakeholders, particularly employees operating in the modern age, can no longer afford to wait to ascertain the implications of the velocity, scope and impact a Fourth Industrial Revolution would have on them. They must deal with the reality that we have entered the era of the Fourth Industrial Revolution. With converged technology leading the way, the shifting technological culture demands that businesses and employees must be willing to alter their old way of doing things.
As a start, businesses will have to invest in intelligent software and large data analytics that will provide them with the insight and intelligence which will allow them to remain competitive, otherwise they risk becoming obsolete.
To encourage skilling and re-skilling, the curriculum in the education system will have to change to reflect the demands of the Fourth Industrial Revolution if it is to remain relevant. The alternative is to run the risk of producing an irrelevant labour force.
This is particularly necessary in an era in which survival will be dependent upon - and characterised by - whether a business holds the competitive edge rather than its size.
* Moloi is a professor of accountancy at the University of Johannesburg. He writes in his personal capacity.