#Asia How tomorrow works

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As we enter the post-Industrial era, the dynamics of the firm and the workforce are going to change radically

Hubud co-working space in Bali

 

A few years ago I was sitting in a classroom at the London School of Economics debating unemployment with my Nobel Prize-winning professor.

The conversation was centered around another LSE Nobel Prize winner, Ronald Coase, who, in 1937, observed in his scholarly paper, The Nature of the Firm, that firms exist in order to reduce transaction costs and take advantage of economies of scale.

Barring external forces, firms will tend to grow larger and larger over time. This is the fundamental economic framework powering the world economy since the industrial revolution, driving corporate behaviors such as: corporate structure, the rise of M&A and 20th century management theory.

A few weeks later, Ronald Coase at 101 years old, would go on a podcast and declare his 80-year-old Nobel-winning thesis obsolete. No longer do you need to scale the size of a firm just to obtain efficiency, with modern technology and today’s demographics, you can capture the same value with much smaller firms. Companies will still grow to be larger over time, however, they won’t grow as large as they have in the past.

Since then I have been thinking deeply about what has broken down Coase’s theory, which was the fundamental underpinning of the world economy since the Industrial Revolution. After several years of reflection on this, I have come up with four forces:

The rise of the freelancer economy
Millennials’ behaviours and impact
IoT and lean hardware
SaaS economics and the democratisation of IT
The Rise of the Freelancer Economy

According to a report by Intuit, by 2020 approximately 40 per cent of the US workforce will be working as freelancers. Another study predicts 50 per cent by 2025. As more members of the workforce decide to freelance, the number of marketplaces to facilitate them will proliferate.

In the past, you would hire the reputation of a Brand. Tomorrow, freelancers will build a reputation on a marketplace and the marketplaces will build a brand.

This trend will lead to more commodity-based and strategic outsourcing. Commodity-based outsourcing will consist of outsourcing HR, legal, accounting/finance, manufacturing and software development. Strategic-based outsourcing via the freelancer economy will outsource product development, design and even management.

Millennials’ behaviours and impact

By 2020, Millennials will consist of 20 per cent of the workforce, and by 2025, 75 per cent. Millennials were born mobile and digital; their behaviours will change the way companies interact with their customers as well as how companies interact with their employees.

Everything changes, from preferred methods of communications (messaging) to marketing (social media), to commerce (mobile first). Traditional management models start to break down with Millennials managing Millennials and selling to Millennials.

Also Read: In photos: Co-working space ‘Hubud’ is Bali’s Mecca for digital nomads

IoT and lean hardware

At the same time the Millennials are taking over the workforce, we will have 26 billion IoT sensors in production and connected to the Internet by 2020.

Cheap sensors and widespread availability lead to more Big Data-driven analysis about everything from the lighting in your office, self-driving cars, the temperature of your home, to how your dishwasher runs.

Abundant sensors combined with cheaper and small-batch manufacturing will drastically change business models, pushing them to be more service-oriented. Robotics and AI will eliminate most unskilled jobs, driving employment to be more skilled and knowledge-based.

SaaS economics and the democratisation of IT

While the move to the cloud has already begun, over the next few years, it will be massive. The economics of SaaS software has shifted the decision-making power to the line worker from the management and IT.

Since you can swiftly deploy cloud-based software within your organisation with a free trial, cheap monthly credit card payment, and no physical installation, employees are now making the purchasing decisions, not the IT department.

This is breaking down siloed data, enabling remote/distributed teams and creating more capital efficient companies.

Also Read: With platforms like Freelancer.com, the world really is becoming flat

The next 10 years

As we enter the post-Industrial era, the dynamics of the firm and the workforce are going to change radically. As the forces that are breaking down Coase’s model only grow stronger, many companies are remaining stagnant. The success of a company no longer depends on growing larger, but now depends on being the optimal size in order to fend off the disruptive smaller companies.

Google figured this out when it broke the company into smaller pieces and formed the parent holding company, Alphabet.

The larger this gap between big and optimal-sized companies grows, the less chance there is of survival for companies trying to grow by growing bigger, opening up great opportunities for disruptive startup companies.

Even more interesting is that this transformation will happen in the next ten years. How tomorrow works is radically different than it is today.

The article How Tomorrow Works by Stephen Forte on Medium.

The post How tomorrow works appeared first on e27.

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