Introduction: Historical context of employment
There is a general acceptance of the premise that energized, engaged employees produce satisfaction and loyalty in customers. As eloquently said “What remains to create a differentiating strategy is that it must be elevated to a uniquely human approach”.
Employees are a major factor for the success of any organization, they are the building blocks of any business and they share the load of achieving the vision of the company. Although this notion is fairly intuitive to us, this understanding was not evident in companies until a decade after the work of Charles Babbage and Robert Owen, during the industrial revolution in Europe.
Starting to work from an early age himself, Owen understood that first, workers are responsible for the success of an organization, and second, working people had a very hard life, and argued that a better welfare and more happiness, will increase their productivity. The beliefs of Owen and Babbage spread around the world and were a major contributor to the improvement of work conditions.
Robert Owen 1771 - 1858
Although Owen and Babbage are credited for the start of the scientific approach of management, the birth of human resources as a discipline started a decade later with Fredrick Taylor (Scientific Approach of Management), who’s main focus was to increase the efficiency and productivity of labor in the production process. Although the HR became a formal discipline for all major corporations in the late 19th century, it is only in the late 1940s the subject transformed to academic as well, and extensive research had been conducted to understand and to implement management strategies to increase the productivity of employees.
In the early 2000s big tech companies invested time, effort and huge amounts of money in optimizing the experience of their employees, not only to increase productivity, but also to retain valuable talent and keep them working for their company. Before the industrial revolution and the scientific approach of management, big corporations’ middle management relied on impersonal and hierarchal approach of managing labor, where they executed tactics of fear and punishment with their employees. In today’s world these tactics are invalid, partially because of the surge of companies that had adopted the “relational” approach for management, where the focus is the relationship of the company with the employees, and more importantly, it had been shown that employees have a complex set of needs that need to be met for long lasting productivity.
The power shift: From company to employee
In the late 20th century and the beginning of the 21st century, the power shifted from the company to the talented workforce, especially in the developed countries, mainly because of a simple idea of supply and demand; the more competition there is over the employee, the more benefits he will get from a specific employer. Not only that, but social media and PR campaigns had exposed employees around the world to high standards of workplace culture and experience, that affected their expectations and increased their demand from the current employer to fulfill their needs. This reminds us of the famous experiment done by Frans de Waal and colleagues (2003), where they showed that the primate is completely fine with his current situation until he is exposed to others receiving a better treatment. When that happens, the subject will no longer accept the status quo. This behavior is not only evident in biological creatures but also in physics, inertia: a property of matter by which it continues in its existing state of rest or uniform motion in a straight line, unless that state is changed by an external force; in our example the external force is the exposure to a more satisfying labor management style.
Solutions: Two approaches to overcome workers shortage
Today, more than ever, there is a worldwide shortage of employees mainly in developed countries in a wide range of industries, and for that reason many companies started outsourcing various development and production activities offshore, to service providers who can either provide their own employees to service the client, or take full technical responsibility for the project. For example, in Japan, where cultural awareness is a major factor to get a satisfied customer, a company like COVUE will provide their clients with qualified COVUE employees to take on the sales and support activities, while also managing the recruitment, onboarding and dispatching. More straight forward examples can be found for outsourcing R&D projects and production activities. While this solution (outsourcing) had proven to be effective in improving the focus of the company to its core activities, it has its downsides:
Service and delivery time may be below expectations
Contracts signed with outsourcing companies are inflexible, and changes to the original plan will be costly to the customer
No control over managerial decisions of the outsourcing team working on the project
Security risks are evident when outsourcing to a third party, especially when the project requires sharing customers data
The solution of outsourcing is rather simple in its core, and it answers one of two basic needs a company might have; the “know how” need, and the “bottom-line” need.
Many companies had chosen to export various production and development activities to expert companies, where they already have the knowledge and expertise to supply their clients with their needed solutions, in a time effective manner. Usually, when the goal is to reach an expert company, it will be located in the US, Western Europe and other limited regions in Asia like Taiwan, Korea and Japan. This means that the costs of completing the project will be significantly higher compared to inhouse work, in addition to not expanding the team and markets, that, might affect the general growth trajectory of the company. On the other hand, when the goal is to cut expenses, like we saw in many cases in many developed countries, starting with GE in the 1970s who offshored assembly lines to less developed countries for lower costs. The CEO of GE at the time (Jack Welch) argued that corporations owe their allegiance to the stakeholders, and should always seek to lower expenditure, even by offshoring operations to a cheaper country “.
No matter the need, exporting projects and globalizing the company provides flexibility in many aspects. While this is true, going global and entering new markets is a venture full of risks and challenges, and it is important to mitigate those risks as soon as you define your strategy, some of the risks:
Economic and financial risks: globalization is an expensive endeavor, while it is characterized by rapidly opening markets and consumer expansion, it also exposes the business to new competition and new government policies risks.
Infrastructure risks: well-functioning infrastructure serves an important role in facilitating business transitions. Operating in the wrong location can lead to lack of productivity of the business.
Supply chain risks: the rapid growth of globalization over the last two decades, has required businesses to adapt to more complex supply chains with less control.
Geo-political risks: the political stability between the same regions of a company’s operation is crucial to the growth of the corporation.
COVID-19 and new opportunities for remote employment
We showed that big corporations adopted and developed scientific management strategies to be able to recruit and retain high quality employees in a highly competitive environment. We also showed that employees migrate to different employers because of increased expectations from their current employer to satisfy their needs. While this competitiveness is great for the employees (their negotiation position is stronger when there is a high demand on their skills), it effects the bottom line of many companies that cannot afford to compete with big corporations with a budget of many millions for the HR department. Finally, we showed the main approaches companies around the world adopted to overcome the challenge. We will now summarize the PEO (Professional employer organization) solution available for companies, which is getting more relevant after the COVID-19 pandemic.
The COVID-19 pandemic forced companies to quickly adapt to a new reality of social distancing. To prevent the spread of the virus, companies switched to a remote work model. The solution of remote employment was once undesired, for reasons related to onboarding, supervision and productivity, but research, since the break of the pandemic, shows amongst others, that:
The productivity of the employees did not decrease, and in many cases, there was an increase of productivity for the lack of disturbance usually found in an office environment.
Providing the flexibility of working from home increases employee retention, by allowing them to meet family needs and a better work/life balance.
Many technologies were developed during the Pandemic that allows the companies to be connected with their employees.
Summary and discussion
PEO (Professional employer organization) is a service provider that helps its clients employ around the world without having a legal entity. It acts as the legal bridge between the client and their desired employees anywhere around the world.
Going global will require the company to learn and adapt to a new reality. This includes being financially and technologically prepared to recruit and manage employees and departments located in different cultures, speaking different languages, in different time zone, in addition to learning the new employment laws, company taxation laws and money transfers and complying with them. All of these requirements can be a burden to companies especially SMEs, as it will overload the different departments, like the financial, legal and human recourses, and will divert their focus from the core activities of the organization. Although the company will need to overcome some of the challenges internally, they can still mitigate the rest of the risks to a service provider which is essential, in our opinion, for global expansion.
PEOs are experts in the local markets, they take on all legal responsibilities when employing, including employment contracts, taxation and payroll. In other cases, they even provide more comprehensive packages of service like recruiting and different marketing and business solutions. This is by no means outsourcing your projects to a third party, it is global remote employment made easier.
For decades, employing outside of the company’s main market was a luxury saved for the multimillion dollars corporations, however today, using a PEO to expand your operations and mitigate some of the risks of globalization, is more sensible than ever. It helps not only in risk control, but also with competing over talent anywhere, and achieving the company’s vision.
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