Saturday, January 07, 2006
Competing in a crazy world
If you are high cost labor in a high cost location, read on. If you are low cost labor in a low cost location, continue reading. If you are high cost labor in a low cost location, you already know what this entry is about.
The main outcome of the late 90s mania around the internet was the massive deployment of telecommunications technology. This deployment, which was clearly financial insanity, increased the market for computer technology (hardware and software) and created access to labor markets in rich areas.
If you are living in an area that is cheap, the opportunity is clear -- build an awareness of your skills and maximize the spread (i.e., the difference between the local labor rate and your cost) to increase your wealth. Rich Karlgaard argues for this approach in Life 2.0. However, if you are living where costs are high and want to stay there, that model does not work. Moreover, if you have children that plan to attend university or your family wants to have access to finer goods and services, it may be difficult to lower your cost enough solely by where you live, given that the price you can charge for your time may move downward. Therefore, you need to do something different.
OK, so if you are still reading, your situation is that your costs are high (absolute or relative) and your income is being or could be squeezed -- you have a couple of choices. Continue to find new places to live and/or adjust your lifestyle so your relative income is always good, or change your approach to one of finding work where the value being created is so great that your incrementally better skills get premium pricing. (I am omitting the political social aspects for purposes of this posting, but the less capable can always get positions using a variety of networks including social groups, ethnic background, religious affiliations, etc. A later argument will be provided as to the long-term folly of such an approach.) For the latter to be successful, two things need to happen: 1) you need to always have a unique skill/competency set (real or perceived); and 2) you need to be aware of the underlying value of the work opportunities so you can focus on the best jobs.
1) is only meaningful to the extent that you can communicate and "prove" your value proposition, and 2) is tough because any buyer of your skills wants to leverage the availability of global labor markets to drive prices down. This model, therefore, begs for far more structure around the valuation of skillsets. The model further suggests a need for sellers of human services, which represents everyone in the labor market, to build skills in building skills and to become promoters or find mechanisms to advertise their unique benefits to the market.
In real life, professional services companies (generally financial, consulting, and legal) have long generated good returns on investments in labor. By fixing the labor cost and selling the "assurance" of the brand, firms like Accenture, Jones Day, and Goldman Sachs have reaped profits for the owners. The penalty in these firms is that the partners and employees live in hotels and their other life interests typically suffer to some extent. As you would expect, people early in their careers tend to be accepting of this exchange (i.e., higher pay and more experiences in return for travel/lifestyle), but the population with the useful experience and advanced skills tends to be older and less tolerant of the trade-offs. Even six and seven-figure income partners of major firms frequently leave to get more control of their lives and livelihood.
In closing, what we know if that highly skilled, experienced labor is under assault. Firms that are generating massive value can continue to allow employees to share in that value via cash or equity compensation models. However, the new labor markets made possible by technology will place ever increasing pressure on all firms to leverage lower cost labor. While a few organizations may be able to indefinitely generate the required massive profits to support high cost labor and/or the growth necessary to provide for strong stock valuations on employee stock plans, we are more likely to see what I call the "Hollywood model." (This topic will be covered in the next entry.)
As such, workers must migrate to a model of cashing-in on skills not only by building skillsets, but also by working on projects that generate high value (and, as such, high margins.) The challenge is build the right skillsets, find the enterprise that will give you the most for your skills at any point in time, and be on the lookout for the next place where you can leverage your skills to create a new high value opportunity. Interestingly, all of the above is true not only at the individual level, but also the organizational level. So this challenge is a great one, and this is the challenge on which I am currently focused. My interest is hearing from you on how you would address this problem.
The main outcome of the late 90s mania around the internet was the massive deployment of telecommunications technology. This deployment, which was clearly financial insanity, increased the market for computer technology (hardware and software) and created access to labor markets in rich areas.
If you are living in an area that is cheap, the opportunity is clear -- build an awareness of your skills and maximize the spread (i.e., the difference between the local labor rate and your cost) to increase your wealth. Rich Karlgaard argues for this approach in Life 2.0. However, if you are living where costs are high and want to stay there, that model does not work. Moreover, if you have children that plan to attend university or your family wants to have access to finer goods and services, it may be difficult to lower your cost enough solely by where you live, given that the price you can charge for your time may move downward. Therefore, you need to do something different.
OK, so if you are still reading, your situation is that your costs are high (absolute or relative) and your income is being or could be squeezed -- you have a couple of choices. Continue to find new places to live and/or adjust your lifestyle so your relative income is always good, or change your approach to one of finding work where the value being created is so great that your incrementally better skills get premium pricing. (I am omitting the political social aspects for purposes of this posting, but the less capable can always get positions using a variety of networks including social groups, ethnic background, religious affiliations, etc. A later argument will be provided as to the long-term folly of such an approach.) For the latter to be successful, two things need to happen: 1) you need to always have a unique skill/competency set (real or perceived); and 2) you need to be aware of the underlying value of the work opportunities so you can focus on the best jobs.
1) is only meaningful to the extent that you can communicate and "prove" your value proposition, and 2) is tough because any buyer of your skills wants to leverage the availability of global labor markets to drive prices down. This model, therefore, begs for far more structure around the valuation of skillsets. The model further suggests a need for sellers of human services, which represents everyone in the labor market, to build skills in building skills and to become promoters or find mechanisms to advertise their unique benefits to the market.
In real life, professional services companies (generally financial, consulting, and legal) have long generated good returns on investments in labor. By fixing the labor cost and selling the "assurance" of the brand, firms like Accenture, Jones Day, and Goldman Sachs have reaped profits for the owners. The penalty in these firms is that the partners and employees live in hotels and their other life interests typically suffer to some extent. As you would expect, people early in their careers tend to be accepting of this exchange (i.e., higher pay and more experiences in return for travel/lifestyle), but the population with the useful experience and advanced skills tends to be older and less tolerant of the trade-offs. Even six and seven-figure income partners of major firms frequently leave to get more control of their lives and livelihood.
In closing, what we know if that highly skilled, experienced labor is under assault. Firms that are generating massive value can continue to allow employees to share in that value via cash or equity compensation models. However, the new labor markets made possible by technology will place ever increasing pressure on all firms to leverage lower cost labor. While a few organizations may be able to indefinitely generate the required massive profits to support high cost labor and/or the growth necessary to provide for strong stock valuations on employee stock plans, we are more likely to see what I call the "Hollywood model." (This topic will be covered in the next entry.)
As such, workers must migrate to a model of cashing-in on skills not only by building skillsets, but also by working on projects that generate high value (and, as such, high margins.) The challenge is build the right skillsets, find the enterprise that will give you the most for your skills at any point in time, and be on the lookout for the next place where you can leverage your skills to create a new high value opportunity. Interestingly, all of the above is true not only at the individual level, but also the organizational level. So this challenge is a great one, and this is the challenge on which I am currently focused. My interest is hearing from you on how you would address this problem.
# posted by John Dohm @ 2:03 PM 
