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Value Chain Marketing: Is Gig Outsourcing Gambit Sustainable?

 

 

[Editor’s note: This installment is part of an ongoing series. You can start at the beginning in order to follow its logical sequence.]

gig economyby Kenneth Rudich

One untidy — and even knotty — experiment in outsourcing revolves around the emergence of the so-called “gig economy.”

The nature of this customer fulfillment endeavor tends to be service-oriented, which comes with the necessity to consistently forge customer trust and service reliability as discussed in an earlier post.

Inasmuch as it involves a direct line connection between the product/service attributes component of the value chain, the transactions/operations component, and the market characteristics component, it has core-type ramifications for the enterprise image and brand reputation.

The main thrust of this outsourcing strategy is to minimize labor costs by maintaining a loosely coupled relationship with a significant portion of the enterprise workforce. This is done by bringing the workers aboard as independent contractors.

The work itself typically involves low-skilled or unskilled labor, such as painting, giving rides, housecleaning, doing laundry, grocery shopping and running errands.

Interchangeable Parts

value chain for marketingThough these activities may involve procedural rules to follow, they seldom require a significant degree of formal training for adequate or competent performance.

This characteristic allows the individual worker to be used as an interchangeable part within the larger framework of the value chain.

The resulting operational challenge is that it entails managing a high volume, revolving door worker pool.

But that’s only one of the major operational challenges, and it’s probably among the least daunting of them.

Ironically, the ample reservoir of available workers, which is a mainstay for making this business strategy viable, also may end up as the cause of its undoing — or otherwise force a major overhaul in how the employers in this arena operate.

Fastcompany.com reported, “In 2009, employment law firm Littler Mendelson estimated that about half of the jobs added after the recession will be contingent, making the workforce 35% freelance, temp, and part-time workers. A year later, Intuit estimated that it will be more like 40%. Meanwhile, the United States has a record number of 2.87 million temp workers, who arguably occupy the bleakest corner of the contingent worker universe.”

gig economyBecause the operating circumstances of the gig economy are still in a formative stage, and the long term status of it is yet to be determined, it can result in a turbulent ride for the enterprise. In this milieu, perseverance is both an asset and a liability.

The larger issues at hand relate to the outside-in inside-out dynamic of the value chain – specifically, the notion of an evolving tension — as proposed earlier in this blog series.

Present tensions include the prospect of fending off lawsuits filed by workers who contest the stance of it being an independent contractor arrangement, increasing governmental scrutiny and intervention, worker unification — aka unions — for collective bargaining purposes, and customer complaints or lawsuits prompted by security, pricing and accessibility grievances.

Most notable among the latter are the high profile discrimination lawsuits filed against Airbnb due to the external force of controversial social behaviors, and the prodigious number of lawsuits filed against Uber, which includes filings by drivers, passengers, competitors and governmental entities.

value chain for marketingSuch tensions raise questions about whether the internal strife (and its associated costs) will ultimately neutralize or outweigh the intended cost savings of this latest iteration in outsourcing; and/or if it will adversely impact the ability to provide the low price to consumers that keep these services market competitive.

After all, technology-based innovation has a long history of encountering headwinds from one source or another — especially among those at the forefront or bleeding edge.

Plenty of today’s technology innovation predecessors learned all too well that a deluge of lawsuits can cost enormous sums of money in fees, damages and penalties, enough to make an enterprise ultimately buckle.

Eli Whitney, inventor of the cotton gin in 1794, was said to have lost many profits in legal battles over patent infringements for his brainchild. He ended up turning his attention elsewhere as a result.

He’s not alone. The space of time between then and now is chock-full of similar stories. Technological change rarely comes easy or without substantial hiccups.

On a related front, past labor movements have drawn enormous strength from worker disgruntlement over allegations of unfair employment practices.

This backdrop establishes a dangerous precedent that’s hard to ignore as discontent grows with the status quo, especially in this age of social media. Uber workers already have protested in San Francisco and Los Angeles, and they’ve gone on strike in New York City.

Gig Economy Pros

gig economyBut that’s only part of the overall narrative.

At the other end of the spectrum, the gig economy has gained a foothold in the short term, and it has produced some mighty impressive numbers like Uber’s $40 billion valuation and Instacart’s recent $220 million round of funding.

Fastcompany.com notes, “The influence of these companies is growing: according to an analysis by Greylock Partners, the value of transactions over platforms such as car services Lyft and Uber, grocery delivery service Instacart, courier service Postmates, and others could grow as large as $10 billion this year.” (note: this was written in February 2015)

Though the current gig economy appears to be bustling, these businesses are also in a tentative — and somewhat paradoxical — state.

To wit: it’s entirely conceivable that the more successful they become, the less sustainable they may be (at least, as is).

Continue: Value Chain Marketing – Negotiating the Outsourcing Contract

Twitter: http://twitter.com/KenRudich
LinkedIn: http://www.linkedin.com/in/KenRudich
Email: ken@marketing-strategy-management.com

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