They're Not Employees, They're People.
by Peter F. Drucker
Copyright © 2002 by Harvard Business Review School Publishing Coporation. All rights reserved. February 2002
"Employers no longer chant the old mantra “People are our greatest asset.” Instead, they claim “People are our greatest liability.”"
The Splintered Organization
Beyond the desire to avoid the costs and distractions of regulations, there is another major reason for both the rise of temporary workers and the emergence of PEOs: the nature of knowledge work and, most particularly, the fact that knowledge workers are extraordinarily specialized. Most large, knowledge-based organizations have lots of experts; managing all of them effectively is a big challenge – one that temp agencies and PEOs can help to address.
Not so long ago, even in the 1950s, as much as 90% of the U.S. workforce was classified as “nonexempt” – subordinates who did as they were told. The “exempt” were the supervisors who did the telling. Most nonexempt employees were blue-collar workers who had few skills and little education. They typically did repetitive tasks on the plant floor or in the office. Today, less than one-fifth of the workforce is blue-collar. Knowledge workers now make up to two-fifths of the workforce, and while they may have a supervisor, they are not subordinates. They are associates. Within their area of expertise, they are supposed to do the telling.
Above all, knowledge workers are not homogeneous: Knowledge is effective only if it is specialized. This is particularly true among the fastest-growing group of knowledge workers – indeed, the fastest-growing group in the workforce overall – knowledge technologists such as computer repair people, paralegals, and software programmers. Because knowledge work is specialized, it is deeply splintered work, even in large organizations.
The best example is the hospital – altogether the most complex human organization ever devised, but also, in the past 30 or 40 years, one of the fastest-growing types of organizations in all developed countries. A fair-sized community hospital of 275 or 300 beds will have around 3,000 people working for it. Close to half of them will be knowledge workers of one kind or another. Two of these groups – nurses and specialists in the business departments – are fairly large, numbering several hundred people each. But there are about 30 paramedic specialties: physical therapists, lab workers, psychiatric caseworkers, oncological technicians, the teams of people who prepare patients for surgery, the people in the sleep clinic, the ultrasound technicians, the cardiac-clinic specialists, and many, many more.
Each of these specialties has its own rules and regulations, educational requirements, and accreditation processes. Yet in any given hospital, each specialty area comprises only a handful of people; there may be no more than seven or eight dieticians, for instance, in a 275-bed hospital. Each group, however, expects and requires special treatment. Each expects – and needs – someone higher up who understands what the group is doing, what equipment it needs, and what its relationship should be to doctors, nurses, and the business office. Also, there are no career-advancement opportunities within the hospital for any of the specialists; not one of them wants to be the hospital’s administrator or has any chance of getting the job.
Few businesses currently have as many specialists as hospitals do, but they’re getting there. A department store chain I know of now counts 15 or 16 distinct knowledge specialties – for instance, the retail buyers, the display people, the salespeople, and the promotions and advertising group – and employs only a handful of each kind of specialist in any one store. In financial services, too, there is increasing specialization among knowledge workers and fewer career opportunities for them within the organization. For instance, the experts who select the mutual funds to be offered to retail customers probably will not become salespeople, servicing individual accounts. And it is likely that they will not be particularly interested in managing anything larger than a small group at the firm – a handful of fellow specialists, at most.
Hospitals in the United States have largely tackled this problem of specialization through piecemeal outsourcing. In many hospitals, each knowledge specialty is managed by a different outsourcer. For instance, the group that administers blood transfusions may be managed by a company that specializes in this procedure and that simultaneously runs the transfusion departments at several other hospitals. Like a PEO, it is the coemployer of the blood transfusion staff. Within this network, the individual transfusion specialists have career opportunities: If they perform well, they can move up to manage the transfusion department at a bigger and better-paying hospital, or they can supervise several transfusion units within the network.
Both the large temp company and the PEO do across the board what in the hospital is done piecemeal. Each of their clients – even the biggest – lacks the ability to effectively manage, place, and satisfy highly specialized knowledge workers. Thus, temp firms and PEOs perform a vital function for employees as well as their employers. This explains why PEOs can claim, and apparently document, that the people whose coemployer they have become report high job satisfaction – in contradiction to everything human relations theory would have predicted. The metallurgist in a midsize chemical company may be well paid and have an interesting job, but the company needs and employs only a handful of metallurgists. No one in upper management understands what the metallurgist is doing, should be doing, could be doing. There is no opportunity, except a remote one, for the metallurgist to become an executive; that would mean giving up what he has spent years learning to do and loves to do. The well-run temp agency places the metallurgist where he can make maximum contributions. It can place the successful metallurgist in increasingly better-paid jobs.
In a PEO full-service contract (and many PEOs won’t offer any other) it is expressly provided that the PEO has the duty and the right to place people in the jobs and companies where they best fit. Balancing its dual responsibilities – to the corporate client and to the employee – is probably the PEO’s most important and challenging job.