The modern office-based company is a remnant of the industrial age factory. Before mass-production, independent artisans and craftspeople often achieved the work more similarly to how Hollywood movie productions are structured today.
The factory achieved efficiencies by moving materials and people to the same location and creating long-term employment relationships that eliminated internal transaction costs around hiring and negotiating with workers on a per-project basis.
Internationally distributed workers make employment relationships less efficient for several reasons. Fortunately the information technology that enables remote work also reduces the internal transaction costs of a business to make employment, and perhaps even the legal structure of companies themselves, less necessary.
Return of independent artisans
An organization that distributes work internationally has 4 choices: buy from a gig marketplace, set up an entity in each country to employ workers there, work with middlemen agencies that handle employment contracts, or buy services from freelancers running their own corporate entities in their own countries.
Gig marketplaces have exploded in popularity for easily-productized tasks and companies everywhere can benefit from identifying work that can be isolated and outsourced to such marketplaces. Gig marketplaces are however often less appealing to higher-qualified providers for more advanced work, and it can be challenging for buyers to identify talent that can deliver demanding work.
Different national employment regulations and bureaucracies make global employment costly and subject to many liabilities. A company’s local compensation packages are also likely less attractive internationally because of different tax structures and local regulations around benefits.
Employment with high salary can easily correspond to a 25% lower offer paid to a freelancer-owned corporate entity in countries with high marginal tax rates. Regulations around equity compensation also vary widely between countries.
In markets with depressed compensation, middlemen agencies can add their margins and still appeal to advanced talent, but shrinking global talent arbitrage favors more independent corporations.
Restructuring work and autonomous organizations
Much of the world’s technology runs on software that is not created and sold by an explicit company owner. Instead, permissive open source licenses let people from around the world organize and contribute to projects that make up the foundations of the internet.
The software industry demonstrates how information technology enables efficient work even with contributions from many independent actors, without gathering everyone in a single location, and with everyone working asynchronously.
Cryptocurrency payments and smart contracts on blockchains enable more decentralization and even completely autonomous businesses. These organizations are governed by mathematics and programmatic rules rather than national regulations and human executives.
The distributed autonomous organizations (DAO) that exist today are typically smart contracts that handle cryptocurrency related tasks, like lending and borrowing or exchange. Innovations such as oracle networks may however enable autonomous businesses around real-world events and extend decentralization to new areas of work.
A simple example is how sensors in an oracle network that feed a smart contract with weather data can construct an autonomous crop insurance business that lets farmers buy insurance against drought. The smart contract accepts crypto payments of insurance premiums from farmers and triggers a payout if the weather data indicates it did not rain for a month. Everything happens autonomously on a blockchain and no company or person has to run the insurance business.
Remote companies that go beyond using information technology for just communication and start tracking processes and tasks online may notice that the technology not only breaks down the geographical barrier, but can also reduce organizational barriers for who or what can perform the work. What business functions can be broken out to maybe one day run completely autonomously?
