Whose business is it to create jobs?

From ‘The Concept Of The Corporation’ to ‘The End Of Employees.’

When Peter Drucker published The Concept of the Corporation in 1946, he defined the idea of management as it is known today.

His thoughts were developed by observing General Motors, a large, well-integrated global company. In codifying how this company effectively marshaled its thousands of employees spread across functions, departments and the world, Drucker formalized a concept of the corporation as a singular, integrated unit.

In February 2017, a Wall Street Journal article titled “The End of Employees” that focused on the rise of global resources, contractors and other changes to work noted that never before “have American companies tried so hard to employ so few people.”[i]

We have come a long way from The Concept of the Corporation to “The End of Employees.”

This evolution from Drucker’s integrated General Motors with thousands of employees to a company with no employees was not predicted in 1946. The path to this outcome had several milestones: Decentralization, lean manufacturing, re-engineering, refocusing on core competencies, globalization of labor markets and technology all contribute to where we are now.

“Have we come down the wrong path?”

Answering this question requires re-examining three fundamental questions:

· What is a business?

· What is work?

· What is a job?

What is a business?

At its core, business is an economic activity conducted through a legal entity to provide goods and services for money, at a profit.

What is work?

Work is what needs to get done for a business to provide goods and services.

Looking deeper at work, it need not be performed by any one business. To explore this, consider a simplified example — the business of providing milk. The business could purchase milk from some other business and resell it. This would require a small amount of work, namely locating a provider and setting up a contract. The milk could be produced in a nearby city; it would not necessarily need to be done on the premises of a business. Therefore, a business is not a place where work is performed.

Alternatively, to provide milk, you could purchase a cow, and then contract a company that feeds, houses, cleans, and milks your cow and cows that belong to other businesses.

In both cases, the work required to provide the milk is not done by the business itself. Work can be bought and is not a necessary function of a business.

It is, in fact, a separate concept from what constitutes a business.

What is a job?

When a person is paid to perform work, a job is created.

Returning to the example above, employing someone to clean, house and milk a cow you owned would result in a job being created. Purchasing milk from a separate party or contracting a company to care for your cow would result in jobs done by someone, but your business would not employ anyone.

A business inherently is not a device to create jobs.

Jobs are an outcome of a business, not a goal. In order to provide goods or services, ‘work’ is needed. When ‘work’ can be only be done by a person, a job is created. In actuality, a business has little responsibility to create jobs. If the work required for an economic activity could be done by any means other than employing people, no jobs would be created.

A business, its work and jobs are distinct, independent and unrelated factors.

The divergence of business, work and jobs

That a business, its work and jobs are all distinct, independent ideas might seem a new concept, but it has been an inherent truth since the inception of the free market.

The trend is only more visible now due to the evolution of technology, and the growth of the global economy.

Businesses, work and jobs all used to be closely related in the past because they had to be. In the early 19th century, cottage industries lacked the scale and technology that corporations possess today. Businesses could only perform work by creating jobs locally, within the business, fusing three separate concepts as one.

A business is a provider of goods and services, but it need not be the producer of either.

In fact, while the delivery of goods and services can be faster than ever before, production is becoming so complex, it is impossible for one entity to be able to produce them in their entirety. Consider as example, a car, which today is as much a computer as an automobile. The computer in the car is an aggregation of navigation, engine efficiency, safety, air-conditioning, music and the warmth of your seat. Any business would be unable to house under one roof the entire set of capabilities needed for a car, from mechanical engineering to electronics to algorithms to stitching fine leather.

A business has to buy work from other experts to produce a good or service.

A business is a network of suppliers, partners and other connections — much more than a producer.

Given how crucial GM was to Drucker’s concept of the corporation, consider the Fortune magazine article describing how Tesla avoided a massive recall by using a software patch distributed over mobile networks to raise the chassis of its 2013 Model S an inch when traveling at highway speeds after two cars had caught fire when debris struck the battery. Tesla and GM both provide essentially the same product, but they are very different companies with very different technology and radically different business models. The difference: Tesla creates about five times as much value per $1 of physical assets and 10 times the market value per employee as GM.[ii]

Globalization, technology and other factors have underscored the separation between businesses, work and jobs.

Value creation by the redefined corporation

Given the reality of how businesses are run today, the word ‘outsourcing’ is outdated. When there is no ‘in-’ to begin with, there is no ‘insourcing’ that can be ‘outsourced’. Most businesses are realizing some portion of their business they used to do themselves is better done by others and are now buying that work from experts.

Consider the smallest of small businesses: individual craftspeople. If someone wants to sell the goods they create by hand online, they have a choice. They can produce their own online shop by creating a website, building their own payment processor and the other time-consuming tasks from the ground up. Alternatively, they could use a service like Etsy or Ebay and be ready to sell within a day. Both of these companies employ workers all over the globe to run their retail platforms. Work is done. Jobs are created, but not by the craftspeople. Large companies make the same choices, just at a greater scale.

A redefined concept of the corporation is necessary in today’s era of heightened customer expectations, digital disruption and increased competition. Companies in virtually every industry must transform.

There is simply a greater understanding of businesses as providers of goods and services, not just producers. Consider how insurers partner with other businesses to process insurance claims. When customers filing a claim speak with an employee of one of these partners, they are working with a representative of a company the insurer believed could do this job better or faster than they could themselves — a decision that also keeps premiums at competitive prices.

Businesses create much greater value if they are able to visualize and create a network of partners that help them get the ‘work’ done for their business in the smartest, most effective way. Smart businesses are now at the center of an eco-system of expert organisations that they create. Smart businesses do not try to do all the work themselves and employ all the people that are needed to do this work.

The concept of the corporation has changed.

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To read a detailed version of this paper, please read my white paper, that answers the question, “What every CEO needs to know about job creation.” at:

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[i] https://www.wsj.com/articles/the-end-of-employees-1486050443

[ii] http://fortune.com/2015/10/22/the-21st-century-corporation-new-business-models/