Work3 - Companies won’t be hiring anymore

What is an FTE, or full-time-employee?

From Wikipedia:

Inherited from the industrial revolution, this framework is inapt for the service economy, where what truly counts is performance and output.

The first change to cater to this is of course, the rise of remote work. The other one will be much bigger, and it will require companies to reconsider hiring altogether.

This adoption will be driven by these three problems:

1. Talent shortage and hiring cycle inefficiency

2. Talent increasingly switching to become freelance/detach from job ‘monogamy’

3. Increased competition for top talent and need for innovation

1. Talent shortage and hiring cycle inefficiency 🔭

Unless you’ve been hiding under a rock (no, not EtherRocks - you’d be a millionaire) you should be aware that talent shortage is at an all time high; more than 69% of companies worldwide cite having trouble filling open positions, and it’s estimated that by 2030 this will reach over 85 million people across all industries.

This boils down to:

• ⌛️ Longer times for companies to get talent through hiring cycles and hired - usually 1 to 3 months

• 💸 Higher costs when using recruitment agencies (15-20% average commission on yearly salaries)

To make it worse, average employee tenure is getting shorter - with an average of less than three years.

2. Talent increasingly switching to become freelance/detach from job ‘monogamy’👩‍💻

With the removal of barriers to entry and education being more easily accessible, we have already entered the golden age of entrepreneurship. Additionally, COVID has again been instrumental in showing how we could be happy spending less and putting work in perspective for the first time since decades.

The result?

📈 Freelancer Growth - 1 in 5 employees changed job in the Great Resignation, and according to the Knowledge Work Demand Index, 85% of knowledge workers are open to becoming freelancers. Upwork estimates that by 2027, this will become 50% of the total workforce.

The only thing holding them back? Most (73%) are concerned about financial stability, given it’s still hard to get started, find consistent work, manage admin and taxes.

💍 Losing job ‘monogamy’ - Whether directly or indirectly, a lot of people realized that their jobs and main source of income could be taken away in a heartbeat. The pandemic revealed how fragile any industry can be, and how fast companies are able to let go of 20-30% of their workforce or even shut down - leaving people stranded. Many saw this as a wake up call to explore different options, and build a diversified strategy to their income - working for different clients, projects, investing, building their own assets - instead of just renting their time.

3. Increasing competitiveness and need for innovation🥇

At the current talent churn rate, half of today’s S&P 500 firms will be replaced in 10 years.

Innovation becomes increasingly vital to all companies - no matter the size or industry - as we see disruption coming from all over the world from smaller teams and with lower amounts of capital required.

This can only happen with faster acquisition of new skills and onboarding of new perspectives and thinking.

Many companies are building their reskilling and up-skilling programs, but with average tenure shortening to less than three years, it won’t be solving the problem.

🚰 The Solution: a Hybrid model for a fluid organization

Given enough time, companies may get to a point where there are no FTEs. There will be contribution based earnings, orchestrated by new types of organizations - much like DAOs are experimenting today.

In the short term, companies need to adapt and find ways to integrate them seamlessly into their organization - developing a ‘hybrid’ model where there is a ‘core’ internal workforce, and a more fluid independent workforce, working in synergy for shared goals and exchanging best practices.

This needs to be driven by the following pillars:

💪 Skills - Having a clear, data driven skill-mapping of the status quo (current employees), project needs (turning business requirements in skills) and the market (are there any trends to watch out for) will be the main driver of ‘hiring’ - whether it be freelance, full-time, or any other.

🙌 Performance - Developing new ways to measure employee contribution, based on project success and personal performance (not time) will drive decision whether to internalize talent, bring in freelance workers for mentorship

👍 Prioritization - Knowing what the priorities are for the business will drive decisions on the type of hiring. There could be many ways to cut the cake; but this will give way to faster innovation and business development

As to all things, there will be both benefits and drawbacks.

Benefits

• ⏩ Flexibility of costs and talent - Organizations will be able to turn on and off costs much more easily

• 🚘 Speed - Organizations will be treating the independent workforce like a decentralized agency that can speed up launching new products, markets, or acquisition of new skills. Hiring cycles will be much shorter.

• 🌍 Diversity - The best way to get diversity in an organization, is not to hire a Chief Diversity Officer (I’m assuming that’s what’s happening today) - it’s to make hiring much more fluid and fast and come from different places. Remote work enables this much more easily, breaking down any geographical barriers - the last one is going to be hiring much more often, something you can only do with freelance workers.

Drawbacks

• ✋ Making it work - This won’t be easy as having people work remotely. There will be challenges in finding and onboarding the right talent, ensuring minimum quality and a coherent approach. New roles to manage both the transition and the new status quo will be needed, as well as establishing clear responsibilities and goals based on output and project success.

• 👨‍👩‍👦 Internal Knowledge - Usually the other big opposition to freelance work is not being able to retain the know-how and best practices internally. In the scenario of a completely decentralized organization this would definitely be the case, but considering a more balanced solution, I think that handled the right way it can provide an opportunity to increase skill acquisition. It just needs to be a clear goal to measure the success of the initiative.

🌐 The Gateway to Work3: Networks and Communities

Work3: There is a better way to work - I believe the pandemic’s disruption to remote work has forced the better organizations to rethink not just how much control they were obsessing with, but the whole thing - and the same was for employees. Adopting a lot of new technologies and cultural norms. The same will happen with the freelance / decentralization disruption, and as always, the ones who understand how to crack it before others, will have a competitive advantage.

Networks & Communities - Innovation will most likely come from decentralized networks and communities. A good example is Braintrust, a freelance network built on blockchain where talent keep 100% of their bill-rate (most other Web2.0 platforms like UpWork retain 20% - this is a big change). This network has seen huge growth in business, but most of all in their community (grew from 300 to 700,000+ in just a few years) and has 100+ of the Fortune 1,000 as clients hiring on the platform. This is evidence for how both talent and clients are finding a better way to work. 

🔑 My key takeaway for both companies and individuals:

Start exploring these kinds of solutions - join their communities and understand how they are operating. This can be a great tool for networking and finding like-minded professionals.