Back in the late 1990s our little software company did a project for Hewlett-Packard. Employees on their side of the project were geographically dispersed. Some contributors were in Palo Alto, others in Santa Rosa, and the rest in Oregon. Everyone worked in a fairly sizable physical office surrounded by co-workers, but the co-workers for a given project were not necessarily physically proximate.
I’ve noticed this trend lately in working with some law firms that have between 1000 and 2000 lawyers. A partner in Chicago works closely with an associate in Dallas, for example. In an age where most households have high-speed Internet there is no obvious advantage to both of these attorneys sitting in plush offices rather than in spare bedrooms in their respective homes. However, I’m wondering if larger firms will prosper as the trend is to more interstate and international collaborative work.
If your collaborator works for the same company, but in a different office, it is a lot easier to establish and maintain trust. You don’t have to worry that your collaborator is billing you for time worked but is actually surfing Facebook instead (for one thing these law firms have firewalls that block Facebook! If someone is staring at a computer screen you can be sure that he or she isn’t checking relatives’ photos or friends’ level of righteousness in supporting Hillary). You can take advantage of talent that is located remotely from your location without worrying that your collaborator is handing over documents to a competitor.
What do folks think? Internet was supposed to be a boon to small retailers and manufacturers by creating a level playing field in which consumers and retailers or consumers and producers could meet and interact without friction. Instead it led to giants such as Amazon, Apple, and Google. Is there a similar thing going on where Internet was supposed to help small companies and individuals get paid to do subtasks on larger projects but in fact it will give giant enterprises even more of a competitive advantage?
You’ve basically rediscovered the principle that made Coase a nobel-prize-winning economist; the problem of why firms exist at all was a puzzle long before the internet. In theory, big companies with all that central planning and non-market based pricing should fail to compete with collaborations of individuals. I believe Coase found that transaction costs were the reason that firms could overcome the inefficiencies that came from the centralised planning and lack of internal market prices.
http://www.economist.com/node/17730360
I’m still waiting for someone to outsource the law industry to India, where the profession is much less glamorous. In India, lawyers typically have a small booth in an open road-side market next to a shoe repairman or a food vendor. There has got to millions of English-speaking Indian lawyers who would be thrilled to work remotely for $10/hr. Even if the quality of their work is poor (how would that be quantified?), a dozen remote Indians is still much cheaper than a single American.
This is surely a huge arbitrage opportunity for some sly shyster?
This already happens with paralegal/litigation support work. Document preparation and other non-legal legal organizational stuff is often outsourced on the cheap and then Americans are paid to fix the errors at a combined total that is cheaper than just having Americans do the whole thing.
So you have to prepare eight thousand pages of some deposition. You farm it out to India at a cost of a penny a page. Then you pay Americans forty cents a page to fix the numerous preparation errors. But here’s the punchline.
Before outsourcing the whole thing would have cost 50 cents per page.
Excellent questions without simple answers. In general all human enterprises do get bigger with time and they profit from that increase in size. Even with increased international competition, there are fewer and bigger car companies now than fifty years ago. Supermarket chains dominate the food retail industry. Ships are bigger and belong to fewer companies than in the fifties. Big companies can leverage international price differences (increasingly smaller) better than small ones. Amazon’s investors can accept lower profits while the company grows and improves, can a small corner retail store survive for years without turning a profit?
The internet has created opportunities for small companies: to turn into big ones much faster than before.
Mr G, I’d love to hear your thoughts on the Solow Productivity Paradox.