Short-term, project-based business structures may help in reforming the way subsidiary tasks are performed by those firms trying to attain higher efficiency.
Short-term, project-based business structures may help in reforming the way certain subsidiary tasks are performed by firms trying to attain higher levels of efficiency. Nonetheless, it will still not be able to replace the old fashioned corporate methods used to execute the core competency tasks of firms.
“More of us will see our working lives structured around short-term, project-based teams rather than long-term, open-ended jobs.”
Adam Davidson wrote an article in The New Yorker pointing out that the organizational set-up of work in the future would follow the “Hollywood model”. As explained by Davidson, in a Hollywood model “a project is identified; a team is assembled; it works together for precisely as long as is needed to complete the task; then the team disbands.” Basically the process followed during filmmaking.
Filmmaking is ideally, a six months to a year long process starting from the script. Once the script is conceived, the cast and crew are assembled based on their specialized skills. The entire process of film making thereafter, is overlooked by the director and the producer of the film. Once the film is made, the team disbands to work on other projects which may or may not include the same collaborators.
According to Davidson, this type of set-up helps firms as it is more adaptable, timely and requires a limited financial commitment. This model also assures higher wages for those employees with highly sought after skills, and helps them to upgrade their market value by keeping them updated about which skills are most valued in their field. He concludes by saying that the Hollywood model will benefit “tens of millions of Americans, many of whom won’t have advanced degrees in engineering, but will have curiosity, creativity and more tools available to help them connect with their audience”.
As per Davidson, the aggressive competition faced by the USA from other countries has ripped apart the domination of cost-based competition. According to him, the organization set-up is shifting to a “short-term, project-based business structure” in order to make the production process cheaper and more adaptable. In management theory, this form of process is referred to as project management. A project is defined as a temporary endeavour undertaken to create a unique product, service or result, for example, the construction of a building, creation of a digital application, etc.
In recent times, Indian IT companies that are looking to hire employees on a project basis in order to keep costs manageable are using a variant of this method. Hiring an employee on a project basis will provide two key benefits, the first being a reduction of the cost incurred on providing compulsory employee benefits. However, this also means that wages will increase as the employees will look for increased economic security. The other benefit is that it will help in maintaining a highly skilled employee pool, as it will increase the inflow and outflow of employees.
It is evident that the cost efficiency and the adaptability of the short-term projects will alter certain aspects of the work in the short run. However, Davidson overlooks two major shortcomings of the Hollywood model that may restrict its impact on the future of business:
First, is the high transaction cost. Project based organization process suffers from a major flaw: firm have to incur high transaction cost every time they look for a new team. To begin with, a high search cost incurred in the form of resources like money and time spent looking for an employee. It is followed by a bargaining cost incurred while negotiating the terms and conditions for the task allotted. Finally, the amount of resources spent to assure that the employee sticks to the contract falls under the policing and enforcement cost.
In the current organizational structure using the long-term employees to perform the same task every-time reduces this cost. Thereby, reducing the transaction cost incurred. However, short-term project-based team structure will require robust and effective signaling platforms to bring down the transaction cost. The current job portal available for signaling is inadequate, as they still require a cumbersome process of interview and contract negotiations after the employee is shortlisted from the portal. Therefore, until a platform is created which makes the cost of acquiring employees substantially lower than the gains from the project, this business structure will not be economical.
Second is the limited scope of application. This set-up is only applicable on temporary operations undertaken with the aim to create a unique product service or result. Hence, this process will be mostly used for the tasks where the firms do not have a comparative advantage and do not mind shedding off some of their resources to reduce the opportunity cost. With regard to the core competency tasks, the firms will still rely on the long-term employees, as these functions require additional qualities like loyalty and discretion. Therefore, permanent employee base that is well acquainted with the ways of the firm will overlook the core projects of the firm. While the tasks that do not disclose the internal strategies would be outsourced using the project based business structure.
Devika Kher is a Research Associate at Takshashila Institution. Her twitter handle is @DevikaKher.
Image Source: Wikipedia