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In The Elastic Enterprise, Nick Vitalari and I described how companies are evolving new ways to externalize their processes. IBM's Liquid Challenge is, similarly, a way to take jobs out of the company into the global talent pool.
"Liquid" has taken flak. IBM began implementation in Germany, where its liquid workforce policy emerged in the context of large job cuts, according to Handelsblatt, a German economic newspaper. Der Spiegel thought it was a way to end permanent employment. It's also come under attack from employees who see it as IBM doing cheap outsourcing.
It has more merit than that, more of which below. At the Delhi Technological University there is more buy-in to the Liquid concept. There, they see the program as a simple outcomes-based work system, somewhat like crowdsourcing.
In essence, the Liquid Challenge, is about breaking software design and development down into tasks that can be assigned on an open markets basis - and as usual that means you get paid for those parts of your work that are accepted.
There seems to be a broader strategy, though, at IBM to introduce a more liquid, or what we would call, elastic, labor policy and the Liquid Challenge is an instance of this.
I have a suspicion of IBM's business thinking - based on watching them pour hundreds of millions of dollars into Second Life and in their efforts in social business. Put bluntly, IBM will try to bully its way to a new category because the company's executives are so fearful of being the one to miss "the next PC thing".
But in the labor market, IBM have got it right. There is no reason for a professional services firm to have over 400,000 hires on the books. The logic of the elastic enterprise says that many of these roles are better performed by people who have the most up-to-date skills, and the odds on those being found inside the organization are, at best, evens.
The problem with taking an elastic approach to the labor market is that very few professional services firms really know how to manage freelance labor over time.
They have the systems in place to do quick project-based hires or to ingest piece-work, but they believe they can do HR without the need to cultivate and develop people.
In a recent interview with me, Subroto Gupta, of Genpact, pointed out that the hiring process in a crowdsourced labor environment, actually involves new and inventive ways of winning people's affinity - because you still want the best available people, and you want them coming back. Without diligence your hiring costs, or indeed ingest costs, become insupportable.
I also pointed out recently the growth in output-based pricing.
The reality is that the crowd is not necessarily cheaper. It is more flexible and often a provides access to a more appropriate skillset. IBM's revenues declined in Q3 2012, over Q3 2011 both in business services and in technology services (though operating margins were up). Output-based pricing on the other hand looks unavoidable.
IBM has competition from companies, based in locations like India, where the prime focus of the business is to find cheaper ways to reduce the cost of labor in a project, while, hopefully, improving quality. That is their laser-like focus and any company that doesn't feel it, is simply delusional.
You can see the temptation when revenues are down to attack your cost base through crowd-like options and by forcing output based pricing onto labor.
On the other hand clients could quickly learn from IBM and force output based pricing onto Big Blue.
What's needed now is some global education in how to do good freelance and output based hiring. We don't need the laws of the jungle here. We need processes that support good outputs from labor, at prices that keep talented people happy.
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