Workers Brave New World : The Traditional Job Will Fade Under the ‘Knowledge’ System

When a major Midwestern supermarket chain recently decided to install a network of high-tech kiosks in its stores so that customers could browse through pictures and videos of catalog merchandise, they asked MCI for help.

MCI could handle the communications. But to design the kiosk, MCI’s business consulting division turned to Digital Evolution, a tiny Los Angeles-based multimedia shop.

Digital Evolution came up with the concept for the product and then tapped its own network of independent programmers and artists to develop the key software.

Why couldn’t MCI handle the task in-house? “We want to take advantage of entrepreneurial companies doing new and exciting things,” says Michele Camillo, director of MCI’s business consulting division.

Ask a consultant about this new way of doing business and he is likely to tell you that what you are seeing are “virtual” companies working together in a “networked” economy finding ways to best exploit their “knowledge” workers.

Confused? You aren’t the only one. The business world is awash with a new vocabulary that seems to undermine every notion about what good business practices are all about. But these are not just buzz words reflecting the latest fad.

Fundamental changes are occurring in the economy that place a special value on “knowledge workers,” people with special skills who can solve expensive business problems. Companies can’t always afford to employ a wide range of such specialists, so they are organizing themselves in a variety of new ways to make the best use of the resources they have available both inside and outside the company.

“We are entering an era of organizational change as profound and as pervasive as that caused by the Industrial Revolution,” argued Lester Thurow, economics professor at the Massachusetts Institute of Technology’s Sloan School of Management. Thurow backed a new program at Sloan to study and catalog organizations that are finding new ways to respond to the challenges of the new economy.

“The survivors will be the companies that invent and embrace the entirely new possibilities brought on by technological, social and economic change,” Thurow said.

Today, most corporations are still organized along principles set by the needs of turn-of-the-century factories. Employees work fixed hours because that’s what machines once demanded. Corporate hierarchies are rigidly designed, in pyramid form, so that managers can closely monitor the performance of their underlings.

But the old machine-age organization is ill suited to the emerging world of what management gurus call the knowledge economy, or more simply, the “new” economy. When the worker’s value is his brainpower, close supervision may not necessarily be productive. The strict discipline and admirable work ethic of employees at IBM Corp., for example, didn’t prevent the company from mismanaging changes in the marketplace and posting multibillion-dollar losses in the early 1990s.

As knowledge work that involves brainpower as opposed to manual skills becomes increasingly important--management gurus predict knowledge jobs will account for a third of the work force by the end of the decade, surpassing industrial workers as the largest work group--traditional notions of overtime, retirement and temporary work could fall by the wayside.

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The notion that organizations will face seismic changes that transform the way we work is hardly a new thought. In their 1970 book “Future Shock,” Alvin and Heidi Toffler predicted the emergence of temporary, “throw-away organizations” as bureaucracies are replaced with “adhocracies” of quickly thrown together teams. More recently, some have predicted the emergence of the “virtual” corporations with no fixed identity, work force or geographic base.

What is different today is that new technology and a growing infrastructure of specialty service companies is making this all possible. Small companies can organize in an almost infinite number of ways and still offer the same kinds of products and services provided by much larger organizations.

Of course, the need among many employees for security, the demand among some customers to be served by companies sure to be in business for decades and the large number of jobs that require supervision to maintain productivity mean that old forms of organizations will not quickly disappear. Still, the fastest growth may come from companies that adapt best to the new environment.

Scott Wiener has launched several companies in his career, some of which have had hundreds of employees. But when he came up with an idea for a new software product to help companies share information, he decided to take a less risky approach.

Wiener contracted out the work to six programmers in six cities scattered across four states. He created a “virtual” company based out of temporary offices in Palo Alto. The programmers conducted their meetings regularly in cyberspace, exchanging messages and documents over the Internet. That kept overhead to a minimum.

“Price competition for software is so fierce, you need to build a company that reflects the new reality,” said Wiener. His virtual company, he said, could tap top talent without creating the huge overhead that burdens most software companies. Wiener has since sold the product he developed and dissolved the company so that he can spend more time with his new wife.

As Wiener found, it’s no longer necessary to be a big company to have access to a wide range of skills. Boston-based MacTemps placed 6,000 experts in the use of various computer programs written for the Apple Macintosh. Teltec Resources, an Austin, Texas-based information organization, offers customers access to a network of 3,000 academic experts willing to offer state-of-the art answers to difficult industry problems.

Axion, a South San Francisco distributor of cancer drugs for private practice physicians, will ship $400 million worth of products this year with just 70 full-time employees. It manages the task by contracting out every portion of its business. Its computer system is run by EDS, the computer integration giant, while its warehousing and shipping are handled by Livingston Pharmaceutical Distribution Inc., a drug warehousing specialist in Los Angeles.

“These companies’ results are real and show up on the bottom line, but if you look for the massive empires of office buildings filled with employees, you will not find them,” said Laurence Lyons, a professor at Hanley Management College outside of London and coauthor of the upcoming book “Creating Tomorrow’s Organization.”

The social implications of the move to knowledge work, however, are disturbing. During the Industrial Revolution, uprooted farmers were able to learn to operate machinery in factories with little trouble. But the hundreds of thousands of industrial workers who have been laid off by General Motors and other giant corporations in recent years can’t as easily acquire the education and skills to move into new job opportunities.

Even for the skilled worker, there will be less security. Increasingly, personal contacts and constant job retraining will be important to remain employable as the nature of work shifts.

The transition may be all the more disturbing because of the vastness of the changes and the unpredictability of ways in which they manifest themselves.

Some suggest the “virtual” corporation--also known as a “Hollywood” approach, in which disparate parties are assembled to carry out one-time projects--will be the model for all business in the future. Paul Edwards, a Santa Monica-based expert on self-employment, believes more and more work will become “project-based” so that it can be tackled with this model. Others talk of “networked” organizations that are essentially separate companies tied together by computers in long-term relationships.

Still, large corporations structured along the more traditional lines with large headquarters and payrolls of loyal full-time employees are not headed for immediate extinction.

“We are going through a period of experimentation,” said Robert Kelley, professor at Carnegie-Mellon’s Graduate School of Industrial Administration. While disposable organizations work for many businesses, he said, “if you hire a company to build a nuclear plant, you are going to want that company to be around for a while.”

The best, most dynamic companies emerging today may not be rigid bureaucratic behemoths. Nevertheless, they are usually strong organizations with rapidly growing payrolls and coherent corporate cultures that motivate employees to work hard toward long-term corporate goals.

Microsoft outsources some product development, including some of its more creative CD-ROM titles, but it insists on developing its core products in-house using full-time employees. “We don’t like to hire mercenaries to defend the empire,” said Chris Peters, head of Microsoft’s huge business applications group.

Even the most aggressive proponents of the virtual company admit the approach has its limitations.

Just as Lotus Notes, first developed independently by Ray Ozzie, had to become a part of Lotus and then IBM to have a sufficient sales and support staff to support mass market sales, Wiener foresaw the need to sell his product to a larger corporation to provide the needed marketing and support.

Large organizations are also an important place for training new graduates. Since universities are typically behind corporations when it comes to computer technology, said Wiener, “people have to be mentored. It’s like the medieval days when you had apprenticeships.” Wiener sees large corporations continuing as training grounds and marketers of mature products while smaller, flexible companies drive new innovation.

Heavy use of outside companies can also undercut a firm’s ability to deliver good service. Axion discovered that when it turned to a large multinational to handle its billing and collecting: The billing company lacked the flexibility to give leeway to valued customers and Axion brought the operations back in-house.

“We decided that anything to do with managing our customers was a key competency and we could do it better in-house,” said David Levison, Axion’s senior vice president.

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But virtual companies can evolve into surprisingly large and sophisticated organizations. When terrorists set off a huge explosion in the parking garage of the World Trade Center two years ago, it was Restoration Co., a Norcross, Ga., company with a payroll of just 50, that was hired to clean it up.

Within days, the company put together an army of 3,600 workers, brought in several trailer loads of cleaning equipment and supplies, built a sophisticated radio communications and security system and kept track of the new organization with a team of five accountants.

The cleanup was completed in just 16 days in spite of a blizzard that paralyzed New York City for two of them. Afterward, the employees were paid and the organization disbanded.

“When you are a catastrophe company, there is nothing you can count on so you can’t have a permanent staff,” said Thomas Usher, Restoration Co.’s senior vice president of operations. “You can’t operate like IBM with 8-to-5 hours.”

The range of business activities that can be handled by free-form organizations such as Restoration Co. will increase as new technology makes it easier to communicate over distances.

More and more companies, for example, are being connected to the Internet. As better software becomes available, it will become easier for diverse talents to join into teams. Since electronic exchanges are all recorded, product development efforts can be better documented and tracked than if conversations take place over the telephone. Better and cheaper video phones under development will make long-distance conferencing even more productive.

But if technology is important in tying together these geographically disparate and often temporary organizations, so too are the softer, hard-to-define issues like trust and culture.

Gary Smaby runs a market research and consulting company with eight employees and an outer ring of 20 contractors. When he assigns a project to an outside consultant, he doesn’t monitor the work closely but trusts the executive to deliver a quality product on time. If they don’t, they are dropped. Smaby can’t afford to have weak links in his small organization.

Scott Page, one of the founders of game developer 7th Level and a former saxophone player with the rock group Pink Floyd, said he hires people who don’t need a lot of prodding because they see the opportunities from growth and expect remuneration in the way of training and stock options.

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“We’re on a 7-24 schedule [seven days a week, 24-hours a day),” Page said. “You find people that can stand the pace. It’s not about making money now. It’s about investing in the future. It’s about learning.”

Experts say no single organizational type will emerge as the model for the new economy. That’s because every company will have to custom-design its structure to match its market.

Veriphone, which custom-builds credit card-verification systems for various industries, spreads its 2,000 workers evenly across 40 locations, “forward deploying” its technicians and systems analysts close to the customers. The company’s chief information officer lives in Santa Fe, N.M., its human resource director is based in Dallas and its vice president for operations is in suburban Los Angeles. Chief Executive Hatim Tyabji spends just a sixth of his time at corporate headquarters in Redwood City, Calif.

The company learned the value of decentralization in 1984 when, as a young company, its Dallas branch beat out a Massachusetts-based competitor to develop credit card-verification systems for the big oil companies. By having engineers in Dallas, close to the oil companies, Veriphone was able to more quickly develop and refine the product the oil companies wanted.

A widening range of organizational forms will create more flexibility for many workers of the future. But it will hardly be paradise.

Said Paul Saffo of the Institute for the Future in Menlo Park: “The future is not some nirvana where nobody is anybody’s boss. There is going to be tremendous uncertainty. It is going to be tough for people who don’t like change.”

And even if the companies are more competitive, that doesn’t always make life better.

“I miss meeting the same people face to face everyday and exchanging jokes,” Wiener said. “This isn’t what I prefer. It’s the economics that are driving it.”

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Next Sunday: How “knowledge” companies are managed.