In analyzing factoids from the recent listing of the Fortune 500, I came up with a startling data point. The F500 have a combined total revenue of $12.1 trillion equal to 65% of the US GDP. Yet they only employ 28.2 million people worldwide. Assuming 60% of those are in the US, that is only about 10% of the US civilian workforce. What’s going on here? We have become a clover-leaf labor economy. Let me explain.
Management philosopher Charles Handy was prescient when he wrote in his 1989 book The Age of Unreason about the "Shamrock Organization." With Handy’s Irish roots, the shamrock seemed fitting as the organization he described also had three "leaves":
- The first leaf of the shamrock was made up of key executives and professionals who possessed the skills that reflect the organization’s core competence.
- The next leaf was made up of project specialists who are hired on contract and paid in fees for results rather than in wages or employee benefits.
- The third leaf comprised the contingent work force for short periods of engagement, usually paid by the hour or day, often through temp agencies.
You could argue that if Handy had written the book today he would consider a four-leaf clover as his defining metaphor, with the fourth leaf covering machines, robots, and other automation as an increasing another source of the "talent".
Actually, clovers can have many more than 4 leaves. The Guinness World Records says one was found with 56 leaves (see photo below). If you look at all the ways organizations utilize talent these days, they have clover-leaf talent models, most enabled by advances in technology.
Apple has several thousand employees on its payroll who develop products which are then sold in its retail stores. But those employees are just a small fraction of its talent base. Its contract manufacturer, Foxconn, employs thousands of employees and robots in its manufacturing plants in China. Those plants also have interns and other staff hired through third-party recruitment firms. Apple’s third-party logistics providers like Fedex have a similar mix of man and machine. Apple uses plenty of digital agencies, law firms, systems integrators, and architects. There are also millions of associated jobs around the apps, music, movies, books, and other items in the Apple ecosystem. Just around apps, Apple claims to support a broad community: "Nearly three-quarters of those jobs—over 1.4 million—are attributable to the community of app creators, software engineers and entrepreneurs building apps for iOS, as well as non-IT jobs supported directly and indirectly through the app economy.” Apple says its global developer community has earned over $70 billion since the App Store launched in 2008. Not peanuts.
Amazon has communities of authors who publish using its Kindle Direct tools, couriers who are part of its Flex delivery ecosystem, "providers" who complete tasks in its Mechanical Turk service, and a vast range of third-party merchants who utilize its fulfillment capabilities. (According to estimates, as much as 90% of certain product categories such as patio furniture sold on Amazon come from third parties.)
Uber calls its drivers "partners"—spread across 400 cities around the world. Airbnb has "hosts" who manage over 1.5 million properties that it lists. The partners and hosts are not employees. Rather, they use the technology platforms of these companies to connect with millions of users who use their apps for commutes and lodgings.
Then there is the franchise model, which has come a long way since Ray Kroc built the McDonald's empire starting in the 1950s with his phrase, “In business for yourself, but not by yourself.” Franchises of every flavor – from Ace Hardware to UPS Stores - account for nearly nine million U.S. employees.
Even more mainstream companies use various flavors of outsourcing. Companies use contract manufacturers, third-party logistics providers, digital agencies, product-design firms, law firms, IT providers, and business process outsourcing services that are "off balance sheet”
Most enterprises have been experimenting with customer self service via ATM machines and other kiosks, interactive voice response, mobile apps, and other technologies. It is a version of "the customer as worker"—helping them help themselves rather than depending on an employee for specific services.
Finally, there is the government sector and plenty of small businesses/professional firms which do not interact much at all with the Fortune 500. Think of alternate healthcare providers (acupuncturists, chiropractors etc.) or ethnic grocers or local traffic or divorce focused attorneys or CPAs.
So, what does this mean for talent managers and talent watchers?
- Our systems are too focused on hiring and managing full-time employees. This when our talent base may be 80% to 90% outside our organizations and we may have little understanding of or quality control over that talent.
- There are lots of career choices available to our employees. We should be thinking about recruiting and retention policies with this broader landscape in mind.
- Academic institutions (and their students) have tended to prioritize Fortune 500 brands in their placement activities. They may start to play the probability game and start focusing more on the labor economy surrounding the F500.
- Economists have not been tracking the “surround” economy well – they glibly combine all these talent sources and call it the “gig” economy and even more glibly just talk of all this as the “Uber economy”. From that you get the toxic “the middle class is dead” talk. They don’t bother to check why Costco and Southwest Airline and GM dealer aisles are full. It’s not the 1% ers or the F500 employees. It is the vibrant surround talent economy.
It is highly unlikely the F500 will reverse the trend and start bringing this talent back in. They like the flexibility of this clover-leaf model. They need to be nimble. Only 10% of those on the F500 list 60 years ago still make the list this year. They cannot afford life time employment models and related pensions and other benefits when their average life is under 20 years.
But it does mean our talent management principles need to evolve quite a bit to better understand the other leaves of our clover-leaf organizations. And we need to also focus on what accelerating automation and smarter machines will do to these talent models.