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Knowledge@Australian School of Business

The Freelance Imperative: IBM Blazes the Trail for a Liquid Workforce

Published: September 04, 2012 in Knowledge@Australian School of Business
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News broke earlier this year that technology and consulting giant IBM plans to eliminate up to 8000 jobs from its 20,000-strong workforce in Germany. Behind the projected layoffs is a program called Liquid, which has been designed to make IBM's staffing arrangements more flexible by replacing permanent workers with external ones, as required. Germany is just the test market. After the rollout in Europe's largest economy, the initiative – a radical reorganisation of existing work structures – may be applied to Big Blue's operations worldwide.

According to a 25-page internal IBM strategy paper, which was leaked to the German business daily Handelsblatt, Liquid aims to provide a more flexible organisation, one that better suits the digital age. Only a small circle of executives – those who develop IBM's strategy and interact with clients –  will retain the traditional steady jobs at the IT giant. All other staff will be hired on a project-by-project basis, sometimes only for days, sometimes for months, depending on the task at hand. Workers can offer their services on a platform derived from the model of online auction house eBay. Not only IBM, but companies from across the world will be able to access these virtual kiosks in a search for freelancers.

To make these free-floating hubs of creativity work, IBM plans to develop a system to certify individuals. Depending on their skills and training, all suppliers will be sorted into different colour-coded categories from blue to gold.

Any IBM-certified freelancer can book into the training programs the company offers to enhance their chances of scoring jobs on the platform. The ensuing work contracts will be global, not regional, meaning that national labour laws will not apply. Compensation for people in the "talent cloud" will either be defined by time invested or by the achieved outcome.

The Modern Organisation

Workforce networks and cloud computing are changing the shape of the modern organisation and, consequently, the future of work. IBM is the "lightning rod" in a development that will dissolve the boundaries between companies and industries, according to Judith MacCormick, a post-doctorate research fellow at the Australian School of Business and partner in the Sydney office of executive search firm Heidrick & Struggles.

MacCormick sees as many challenges as opportunities in the new development. One standout issue is the protection of intellectual property (IP) if members of an organisation's workforce are also engaged by its competition. "It will create conflicts of interest when one employer asks about the work practices or strategic decisions of another," predicts MacCormick.

Another potential issue is keeping up the level of engagement with a freelance workforce. "People do not only work for money, but also for social reasons," MacCormick points out. "Under the proposed new structures, executives might struggle to get the best out of people if they do not manage to instil some sense of belonging."

IBM's German general manager, Martina Koederitz, has offered only general comment on the Liquid project: "For decades IBM has explored how working environments in our industry change with a changing business model. In 2011, we won the employability award, in the 1980s we started to allow our staff to work from home and we were the first organisation to offer a shared desk system. We are leaders in being a modern organisation – for the benefit of our employees and our customers."

Koederitz has a point. The traditional employment model – working nine to five and for years with the same employer – is declining in almost all advanced economies. In Germany, only 50% of the workforce has such a job. All others are casuals, freelancers, sole traders, consultants, or can be booked via "temp" or casual employment firms. In Australia, 70% of workers are employed full-time, according to Australian Bureau of Statistics figures (August 2011).

Katie Burford, an IBM spokesperson for Australia, supported Koederitz's comments with a brief statement: "Change is constant in our industry and transformation is a permanent feature of our business model. Consequently, some level of workforce remix is an ongoing part of our business. Given the competitive nature of our business, we do not publicly discuss the details of our staffing plans."

Freelancers-to-go

IBM's management may be a frontrunner in pushing the trend, but the corporation is neither the first nor the only organisation wondering about the future of work. Signs of a new order have been emerging for some time and the shift is particularly prevalent in the IT sector.

TopCoder, for example, is a platform for software developers and has more than 400,000 members. The website offers problem-solving services for all technical questions and advertises itself as follows: "In the 11 years since the company's inception, TopCoder has awarded more than US$36 million in member payments to the community for projects ranging in scale from full enterprise systems to conceptualisation contests and marathon algorithm optimisation matches as well as simple bug races and related work –  all delivered by some of the best content authors, independent programmers and creatives from around the globe."

Other industries are also testing the open-source model. InnoCentive is a comparable system, founded in 2001 by pharmaceuticals corporation Ely Lilly. The open innovation and crowd-sourcing platform connects organisations to diverse sources of creativity. Its clients include substantial international players, such as Procter & Gamble and Roche.

For InnoCentive, Forrester Research interviewed 229 decision-makers in late 2011 to test their opinion on outsourcing innovation to open systems. Six out of 10 executives claimed that projects with an external talent cloud were "emerging and expanding" in their company; two out of 10 said they were "experimenting" with open innovation projects. The main reasons cited for the move into the talent cloud were: solving business challenges that couldn't be solved internally; fostering more collaboration internally among employees and divisions; and leveraging diverse talent resources, both internal and external.

The Next Frontier

Lynda Gratton, Professor of Management Practice at London Business School, researches new forms of work. In 2011 she was ranked by London's The Times newspaper as one of the world's top 15 business thinkers. Her book, The Shift: The Future of Work is Already Here (HarperCollins), describes this brave new world: one core group of employees in each company and many freelancers working in small hubs.

Gratton agrees with MacCormick's view that the biggest challenge in the new world of work will be the relationship between the individual and the organisation. "It's been sort of a child-parent relationship, where the employee was the child and the organisation was the parent. Over time and with the new technologies, the relationship has shifted to an adult-to-adult connection," she says. Gratton strongly believes that this has positive implications, meaning that individuals will be more readily able to decide on their own careers and learning.

MacCormick can also see plenty of opportunities in the Liquid model. "When the contributors have more experience in different environments they tend to have a broader understanding of the issues. They bring their learning to the table and for employers that may trigger a lot of innovation," she suggests.

While Gratton anticipates middle managers being replaced by highly specialised coaches, MacCormick envisages the future of management becoming more general, rather than specialised, with a workforce that is more geographically dispersed. "In terms of tasks, managers become the motivators whose role is to ensure everyone is on the same page," MacCormick predicts. "Organisations will differentiate in their ability to create corporate cultures that make people want to engage. In the future, executives will need to be able to manage a network, rather than a hierarchy."

For individuals, personal success will become reliant on their professional digital reputations on platforms such as the one proposed for the Liquid initiative. Individuals' profiles will develop as with other forms of social media but, instead of posting their favourite music tracks, friends or photos, people in the talent cloud will post career achievements and qualifications. There will be more than the one "like" button as employers either express delight with an "immediate bonus" click or place criticism: "Did not meet deadline for last project". The resulting digital CV will provide a basis for future job applications with IBM and all other companies using the Liquid platform.

For employers, "success will depend on their ability to define core competitive advantages, core IP, core staff and their core differentiating factor", says MacCormick. All else will be outsourced to the work cloud.

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