The Sharing Economy — It’s all about ‘Yield’

Spend Matters welcomes this guest post from Jay Lash, principal consultant at Compass Rose Advisory.

With all this talk about Uber and Airbnb and the way these “shared economy” platforms are changing our lives, I thought I would help to explain how and why this will also impact staffing and how work gets done in the future. These human cloud platforms are all about “yield.” Let me explain.

Anyone who has been in the restaurant business understands that statement. You can have people lined up at your door and turn tables all night long, but volume is only one component of a winning formula. After everyone is fed and the help is happy, the question is what percent of the revenue went toward food and labor. You can buy cheaper food or you can make portions smaller. You can cut back on staff and ask the salaried help to work more, but we as consumers know, that usually results in a bad experience and your volume eventually goes down. The interesting component (and the reason this article relates to staffing) is efficiency. Making sure every table is full of happy paying customers, ordering drinks and dessert and nothing in the kitchen is getting wasted. Sound simple? It is not, but it is basic Restaurant Management 101.

When you think of your business, you can draw the same analogies. You may have strong demand and your essential costs are in order, but if your team is not productive or you have a lot of returns or change orders, then the duplication of effort or lack of efficiency is what will cause your business to fail. Maybe you have lost a key team member and you think you’ll save some money and just ask for people to work harder to pick up the slack. Sounds like a good plan, but then you find out people are tired, they are making mistakes and they get fed up working long hours and just quit. Or haven’t we all been tempted to step out of our benchmarked, best practices and bid on a “lost leader” and compromise with “economies of scale” only to find out your customer is unhappy (people forget their price break as soon as the contract is signed, right?) and your overall profit margin suffered too.

This is why I have always focused on “yield.” It is the No. 1 way to impact a business and make it more successful. Yield can almost always be improved. The point of diminished return is pretty obvious, so it becomes a simple tool once you figure out where the waste or capacity gaps are. What does this talk of “yield” have to do with staffing, you ask? A new tool is emerging that, if used properly, can be a critical factor in getting better “yield” out of your business. That tool is the freelancer management system (FMS).

FMS is a human cloud platform that, like a vendor management system (VMS), connects workers who have extra time or for other reasons, aren’t looking for a “job,” with companies that need work done but not enough to hire someone on a regular basis. The VMS is used to connect worker and work through an assembly of vetted staffing agencies. The FMS is software that uses the Internet as a platform to connect workers directly with the work. The reason this improves efficiency is because the worker as a resource is under its capacity and probably willing to do tasks at a slightly lower cost and with no strings attached. At the same time the work is too small or too specialized hire a full-time regular employee so unless a connection is made the work tends to stall. The demand side (work) and the supply side (worker) can now get together and be more efficient, thus creating improved “yield.” Without a full-time, fixed-cost overhead commitment, the true labor cost is much lower as well.

In the Uber case, there are cars driving around with capacity for passengers and passengers with demand looking to get somewhere. By connecting the supply and demand, a business is made and efficiency is gained for both parties. In the Airbnb example, there are empty rooms or beds with capacity for guests and demand for a place to spend the night. By connecting the supply and demand, a new way to improve efficiency is realized for both parties. In fact, in both examples, new business models are invented and instead of taxis there are regular cars and instead of hotels there are regular homes. What is fascinating about these new models is both the taxi companies and hotels could have done this just as easily by utilizing the Internet platform model to facilitate that direct connection between supply and demand, but instead they just used the software as another intermediary. Expedia helps fill the empty rooms at hotels or seats on airplane but by acting as a reservation agent. It is still standing between supply and demand. This provides some level of yield improvement, but the revenue is compromised and the costs are not mitigated, thus no big improvement using that business model.

So how is an FMS different from the Expedia example? The real efficiency is gained when there is no intermediary. The platform does all the work of connecting and takes a small fee for doing that. The FMS enrolls members with time to do work and gives them a profile of the work they do and their credentials to do it. In the meantime, companies that need work to be done go on the platform and describe the work and what they think needs to be done. The FMS connects the two who ultimately talk it through and make a deal. An FMS like vBENCH has software developers in local areas ready to jump in a do these short term projects. They also work with VMS to give the enterprise buyers an alternative to their agency suppliers if they need immediate local access to talent. The greater the complexity of the task, the more discussion is needed. Simple tasks might need no discussion. Complex tasks might need more. A mature platform like Field Nation has added functionality that handles more complex components of the work. If work needs to be done at a specific site, the platform can use a GPS feature to verify location and attendance. If a photo or a signature is needed to verify completion, a mobile app is added to allow photos or documents to be exchanged. No manager is needed to go check on the work, no time lag to send the photo of document and no third parties hired as intermediaries to validate and more importantly, send or pay the bill. Can you see the improvement in yield if you have thousands of these tasks inherit to your business?

Of course these new platforms like Uber have issues to be worked out. Government regulations were not designed to include these relationships. Entire agencies of state and federal government are not involved to facilitate these transactions, but since they exist, they are trying to find their worthy place by applying their jurisdiction. There are plenty of reasons why we needed licensing or certification for cab drivers or hotels, but in the new economy, let the buyer and seller beware. Then there is the employment factor. Are these freelancers an employee or an independent business? An electrician hired to work on your home is independent, so why isn’t a freelancer hired to review some copy or draft a logo an independent business? If they are employees then there needs to be taxes, benefits, employment laws and more — all questions that will get answered over time as the courts and legislators wrestle with these issues. At the end of the day these forms of work platforms are still more efficient ways to get work done and are not going away. Think of the music sharing platforms like Napster. They paved the way for iTunes and Spotify. Efficiency eventually wins out.

If you are in charge of getting work done at your company or if your business needs a boost in efficiency look into the human cloud platforms and the specific FMS’s that serve your business. When it comes to the new shared economy, it’s all about “yield.” There are far better ways to connect supply and demand than the old traditional employee, employer model.

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