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New Normal: Gig Economy (Twins are Meeting beyond Transaction Cost and Agency Problem)

Ritika: Sunil, What do you think about all the changes happening around so fast in this new normal while Businesses are opening up. Shouldn't changes be more gradual? What are your views on these?

Sunil: That's many questions in a few questions. Let me attempt to answer it in two steps:

Broadly you have asked two categories of questions?

A. Types of changes and its implications B. How should these changes be implemented?

First Part: A. Examples of changes happening around and what it means for Organizations, Employees, and Employers?

1.     Trust between Employer and Employees are getting redefined and seeing a new low. Opportunistic behaviour from some of the employers hasn't helped the level of confidence.

2.     Organizations are using the opportunity to complete their optimization agenda, which they missed at the time of the 2008 crisis. 3.     From 2008 onwards, a new wave of digital started to invade the industry, society, and workspaces. While there were pioneers and industry leaders who rode the digitalization wave and created unique digital exponential organizations, a large segment of the industry remain untouched. Where leaders behaved like Ostrich and kept saying that it's not happening. 4.     Now the shake-up is so substantial that even a sleeping ostrich will have to wake-up. One who will not be shaken in this crisis and will still be trying to work old style with old organizational design, leadership, and principles will have a 100% chance of not surviving these changes. 5.     The two duos of Ronald Coase and Oliver Williamson (Transaction Cost Theory) and Stephen Ross and Barry Mitnick (Agency Cost Theory) may have to give way to a new form of economy and economics. Because whether it was lower transaction costs in hierarchical organizations or agency problems are leading to layers of supervisors; Both are getting disrupted in this wave of change. Digitalization has the power to disrupt both. I believe that this will lead to the rise of the Gig economy which will reduce transaction costs outside organizations and Digitalization will solve agency problems. 6.     What does this mean for the organization? Organization Structures traditionally ignored throughout industrial history resources, which were not internal to an organization. While different forms of outsources Employees, which were outsources gained massive momentum with IT and the digital revolution, they sadly never appeared on organization Structures. I believe now is the time when the basics of the organization design, and it represents in the form of organization Structure will change for better, and power balance will shift to Employees. 7.     It will result in more project/service/output based employment contracts in the future, which will be significantly more transactional than what it's today. Now I come to the second part, B. What should be the pace of change? Gradual or the increased speed at which this is happening.

1.     Path Breaking changes are historically always has been very fast-paced and radical. These changes will never come if gradual approaches are selected. There are multiple reasons for it. Let's go one by one and also understand the implications of these changes: i)   to avoid investments, ii)  to prolong benefits from current structures and power equations iii) to avoid the uncertainty of the new order which may emerge iv) to avoid the risk of losing power and v)  to avoid time and effort investment of learning new ways 2.     Gradual changes allow individuals who own the current structures to regroup and delay the change. Question is why they do it? Can't they see that these changes are right for the organization? Any leadership/management knows it fully well. They realize multiple challenges, as well:

i. They will have to learn new ways of working

ii. they will have to learn new technologies

iii. They might have to accept the superiority of individuals who invested in themselves ahead of time to learn these new skills, methods, and technologies. e.g., There are documented research available in multiple domains that how newer patents were bought by existing players and killed so that existing technologies survive. Oil and Gas lobby buying patent of renewable energy technologies and stopping development on them is one such example. They delayed the development by at least 40 years. If you jog your neurons, you will be able to find such a case in every field. Global Pharma giants have also involved in such plays many times. Look at the new Digitalization being readily adopted in this new normal. Most of these technologies existed for 10-15 years. However, barring few firms which always wanted to stay ahead of the curve, most others either ignored or opposed in a sustained manner.

iv. Gradual changes allow individuals who own the current structures to regroup and delay the changes. 3.     There is a considerable part played by employees as well. They also dislike changes in general. They prefer stability over change. Once they acquire skills, they would like to build their career and lives the entire life with the same expertise. This behavior is pretty similar to organizations'. To some extent, it's good as this allows all parties to take maximum advantage of technology, capital, and work involving them. However, in this Hyper VUCA environment, this satisfaction of maintaining the status quo will be dangerous for all. Employees will have to understand that if they don't reskill themselves and keep them ahead of the curve, they will be lagging again during these fast-changing scenarios.

Each employee will have to assess themselves on the following and take quick actions.

i) Assess the skills you possess,

ii) Assess the mix of the new age and old skills you have,

iii)  If New-age skills are missing, take action quickly and build,

iv)  Assess if you possess fungibility in your employability. Fungible skills become critical when many sectors, skills, and technology are disrupting in the new normal. You may have to rebuild your career in a completely different industry, expertise, and technology area. 

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