Are you embracing the Fifth Age of Work?

In his new book, Andrew M. Jones, Ph.D., introduces us to the Fifth Age of Work and how both companies and individual workers can adapt and evolve with emerging work trends, harness the energy and potential of the next generation, and ultimately thrive in tomorrow’s economy.

The following is an excerpt from the book The Fifth Age of Work: How Companies Can Redesign Work to Become More Innovative in a Cloud Economy by Andrew M. Jones, Ph.D. Copyright © 2013 by Andrew M. Jones. Reprinted with permission of Night Owls Press.

INTRODUCTION: A New Social Contract

Between 1995 and 1999, a period sometimes referred to as “Alan Greenspan’s Bubble,” American firms downsized its overall workforce by an average of 3 million workers per year.During this same period, the Dow Jones Industrial Average rose from 4,000 points in February 1994 to 11,000 points in February 1999.Several companies saw remarkable gains. In September 1995, AT&T announced its plans to split the company into three separate companies. Central to its restructuring plans were enormous cuts in staff. Around 48,500 employees were downsized and 77,800 managers were “bought out” and forced into early retirement.On the day of the announcement, AT&T’s stock jumped 6.125 points (or 10.6 percent), adding around $9.8 billion to the company’s market capitalization.Years later, this trend continues. In December 2012, Citigroup announced that it would lay off 11,000 people, and on the news, its stock rose by 6.3 percent. Behind the calculus has been a simple message: Reduce the number of people in your business and you will be rewarded.

Granted, economic survival can sometimes make layoffs necessary. If an entire industry is shrinking or disappearing, restructuring and adjusting to a new market size may be the only way for a company in that industry to survive. If an industry is facing competition from new technology, a shrinking customer base, and cheap labor from overseas, layoffs may be the only viable alternative, a natural business response to the market. Automobile manufacturing and newspapers are just some examples of industries experiencing these contractions.

However, cost cutting and downsizing have in many cases become a substitute for future-oriented corporate strategy. Firms very often downsize in response to pressures from investors and analysts who are looking after their own interests and not necessarily the interests of the company in the long term. Managing for share price and quarterly earnings reports enables companies to post positive numbers now, in ways that don’t necessarily lead to growth, much less innovation, down the road. As Tom Peters posits in the subtitle of his book, The Circle of Innovation, “you can’t shrink your way to greatness.” But this is just what many companies are doing. At some point in the near future, firms will need more human capital in their ranks. When that time comes, companies will have to devise new and creative ways to increase the quality of their human capital, without increasing the cost of that capital too greatly.

In this current post-recession economy, firms face a unique challenge. Unemployment remains just below 8 percent, while corporate profits surge (as they have been doing for the past four years), and many of America’s largest firms sit on record-size piles of cash. Companies are holding cash, yet holding back on hiring. According to Moody’s, U.S. non-financial companies held $1.45 trillion in cash at the end of 2012, up 10 percent from the previous year. The tech sector is the largest cash hoarder, holding $556 billion, or 38 percent of the total, a growth of 60 percent since 2009.In March 2013, the Bureau of Labor Statistics’ job growth figures saw gains of only 88,000, lower than the average growth of 169,000 jobs.The trend is clear. While the money may be going into acquisitions, paying down debt, buying back shares, or issuing dividends, it isn’t going toward actually growing businesses organically through innovation.

Companies seem to be saying that innovation can wait. The thinking goes like this: We can now do more with less, so why should we rush to take on more people than we actually need? The result is what many have called a jobless recovery. But this trend potentially shortchanges companies, especially if the prospect of cost cutting affects firms’ ability to plan for long-term innovation. There is an important distinction to be made between unlocking value within a given system, on the one hand, and creating unique value for an end user, on the other. The productivity gains that many companies have realized over the past five years have come from unlocking value and not from generating new products, services, and experiences for customers. Of course, there are exceptions to this. But on the whole, the recovery from the recession has been more about efficiency than creation. As we move forward, a new round of competition for customers seeking value-adding experiences will force firms to think more comprehensively about how they innovate. Fifth Age companies will be better equipped to compete in this environment, while firms that insist on sticking to their knitting will not.

From the worker’s side of the equation, the view is quite different. Not only are 11.7 million Americans out of work, those who are working in corporate America aren’t particularly happy.According to a 2011 Right Management survey, 84 percent of respondents said they hoped to be in a different job by the end of the year. In a separate Right survey, only 19 percent of respondents said they were satisfied with their jobs. Indeed, we know anecdotally that many workers are staying in their current jobs only because of the relatively affordable health insurance and other benefits they receive there—not necessarily because they are engaged in their work and care about the success of their employer.

Meanwhile, since the early to mid-1990s, employees have been voluntarily exiting company employment in favor of individual work and lifestyles. A recent survey of executives by Business Insider showed that nearly 22 percent wanted to start their own companies.Another study found that nearly 40 percent of men and 25 percent of women desired to “become their own boss,” with the biggest desire from millennials (54 percent) and generation Y-ers (46 percent).This movement toward independent work has been called the “Free Agent Nation,” a term first coined by Daniel H. Pink in a 1997 Fast Company article and later expanded into a book by the same name.At the time, Pink suggested that some 25 million people were already living the life of freelancers. After a brief lull during the dot-com bubble and crash, the social and economic impulse behind Free Agent Nation is back in full force. Not only is it back as a broad-based movement of individual knowledge workers in different industries, but many of the demands, conditions, and practices that freelancers expect in their working lives are being built into the employee value propositions of forward-looking companies across the country.

We are, in fact, witnessing a crossing of two parallel forces. On the corporate side of the equation, we see companies rationalizing costs and resources to the point where they have returned to profitability by carrying fewer people and fewer resources on their books. This profitability, though, results from cost cutting and rationalizing, not from actual growth and innovation. On the freelancer side of the equation, we have seen the explosive growth in work movements such as coworking, Jelly meetings, and numerous dynamic startup scenes in San Francisco, Seattle, Portland, Austin, Boulder, and North Carolina’s Research Triangle.

The coworking movement is of particular interest to both independent workers and companies. Since 2006, groups of freelancers—and increasingly company telecommuters—have been banding together to share workspace environments (or “shared offices” in yesterday’s language). The coworking movement has grown from a handful of spaces to over 2,500 spaces around the world today.The influence of the coworking movement is far-reaching, its impact making inroads into a few corporate environments. In many ways, coworking symbolizes the resurgence of Daniel H. Pink’s Free Agent Nation. The intersection of these trends in the corporate and freelance worlds heralds the arrival of what I call the “Fifth Age of Work.”

The Fifth Age of Work

The Fifth Age of Work is an emerging world of work broadly defined by the rise of cloud-based technology such as remote computing, file storage and retrieval (e.g., Evernote, Dropbox), and communication channels (e.g., Skype, Google Hangout), as well as the decentralization and de-localization of work characterized by distributed teams, remote work, flex work and telecommuting, contract and project-based work, and the rapid growth of the coworking movement. But the Fifth Age is also much more than this. These myriad arrangements are manifestations of more fundamental, evolutionary changes in our economy. The Great Recession in 2008, in fact, was an inflection point that marked the arrival of this new epoch, where we are now witnessing culture and technology colliding to disrupt and redefine the what, when, where, how, and even the why of work.

The concept of the Fifth Age of Work is built on the framework developed by Nigel Nicholson of the London Business School. In the book Managing the Human Animal, Nicholson introduced the four distinct periods of social and economic development in human history. These periods—what he called the “four ages of work”—are summarized here:

The First Age: Around 4 million years ago, early proto-humans emerged in parts of Central and East Africa. Then, between 150,000 to 200,000 years ago, modern humans emerged as Homo sapiens on the savannah plains of East Africa. From this first development to around 10,000 years ago, at the dawn of the Agricultural Revolution, humans lived in clan-sized communities of nomadic hunter-gatherers. Work during the First Age was comprised of hunter-gatherer groups that opportunistically collected roots, fruits, and vegetables, as well as hunted small and then eventually large game.

The Second Age: Ten thousand years ago, human groups in the Near East began domesticating plants and animals, ushering in the markers of early civilization: significant food surpluses, sedentary living, population growth, the development of cities and city-states, the administration of food distribution, taxation, the differentiation of labor, craft specialization, status differences, inequality, slavery, standing armies, and many of the other “arts of civilization.” Work during the Second Age was a combination of agricultural labor and craft production. Artisans and farmers paid tribute to civil and religious leaders who, in a sharp break from the egalitarianism of the First Age, placed workers in various and increasing forms of debt and servitude as part of an emerging, hierarchical social order.

The Third Age: Improvements in agricultural production and transportation by the 14th century created the conditions for radical innovations in economic systems. Able to travel and expand through mercantilism and international navies, the powers of Europe began to spread throughout the world, conquering regions and gobbling up natural resources. First was the growth of the Portuguese Empire in Africa, and then the expansion of the Spanish Empire in the New World in the late 15th century. Colonialism spread and empires became the bedrock on which later industrialization was advanced in England and later in Western Europe. Fueled by free labor from slavery and abundant natural resources from colonies in Latin America, Africa, and Asia, the Industrial Revolution in the 1700s and 1800s transformed and connected all parts of the world.

The Fourth Age: The Fourth Age of Work started roughly at the beginning of the 20th century and is best understood as the era of the “Information Revolution.” After the Second World War, societies organized and controlled massive amounts of information about business, trade, government, science, and education. The rise of personal computing in the latter half of the 20th century and later the ubiquity of the Internet, smartphones, e-commerce, and cloud computing all culminated to ever-increasing control of and access to information. The modern-day corporation has been the primary beneficiary of this information technology revolution. During this period, the modern-day firm also became the centerpiece of the world of work, with manufacturing work eventually giving way to knowledge and service work.

In the wake of the Great Recession, companies are now faced with a new age—the Fifth Age of Work. The modern-day firm that crystallized during the Fourth Age of Work is now undergoing fundamental and even radical change and dissolution. The web-based technologies that have proliferated and developed over the past two decades now make many of the Fourth Age assumptions about the management of work obsolete. The Fifth Age’s seamless integration of technology in the management of work has also drawn into question many of the organizational arrangements—massive offices with fixed workstations for every employee, long commutes, fixed jobs and job titles—we have taken for granted. If the Fourth Age was about the promise of technology, the Fifth Age is about the realization of that promise.

Inevitably, realizing the promise of this cloud-based economy is both disruptive and painful. Both corporations and workers have to readjust to a fundamentally different social contract surrounding work. As the title of this book implies, I explore and advocate for a new social contract in this new age of work. The Fifth Age of Work addresses what the new social contract means for both companies and independent workers, and how those two groups can adapt and evolve in ways that are advantageous to both sides of a burgeoning corporate–freelancer relationship. As I maintain throughout the book, this isn’t just a matter of accommodation, but a huge opportunity for large firms to tap into three things: the technological underpinnings of the cloud, the growing cloud of talented, independent freelancers, and new ideas about working on the cloud—in order to spark a lean innovation renaissance.