Most of our economy is based on pay for time and that is inefficient. As corporate clients, we do not want to pay for time, we want to pay for results. And yet we simply pay for time out of habit.
Employees are paid to be present at the designated place of work for certain amount of time. Implied in this is, employees are directed to perform their designated job according to the job description, operational procedures and ad-hoc direction given by supervisors. This is not exactly what employers want. What employers really want is specific results for money paid to employees.
How many car owners would be willing to pay an auto mechanic whatever number of hours he uses until our car is fixed? Not many. And if it worked that way, we would certainly be hovering over the mechanic and needling him or her along to make sure time wasn’t wasted. That’s the way it works in the many office environments because we are exchanging pay for time instead of results.
The consumer economy is based almost entirely on pay for a specific result. Pay to have a garage door installed – specific price. Pay to have the car’s brakes replaced – specific price. Visits to the physician or dentist for specific procedures – specific price.
In manufacturing, we have piece rates. Target output is clearly defined.
And yet, in most of the service economy, especially office work, we are still stuck in pay for time. Of course for any business that has hours of operation, when staff must be available to serve customers, then yes we are actually paying for time.
But for all internal corporate job functions, we have enormous waste. Much of it occurs because it is easier just to pay for time. With this arrangement we are assured people are in the personnel department or accounting department when we actually need them. But the reality is, we simply need the work done without regard to how long it takes.
Increasingly, office and administrative tasks will become priced in exchange for specific outcomes. Why? Because we are evolving away from full-time permanent employees. As that work is moved out to contractors, it doesn’t make as much sense to pay for time. What we really want is just to pay for the result. That in turn will require us to think through the real value of specific outcomes. When that happens, then we will end up with a new market for specific tasks at specific prices.
This is the case in project management, my trade skill. Generally, project managers and software consultants will not commit to fixed rates for 2 reasons:
- We depend on client staff for inputs to complete the work.
- The requested task is too big to estimate – too much variability and risk between the start and finish.
Here is what we can do to make fixed pricing work and reduce risk for both client and supplier:
- We can commit fixed rates for smaller”work packages”, results that are small enough to visualize in detail from start to finish. This is work that can be done for 1 – 10 days.
- We can commit to fixed rates for work that is entirely within our control to complete.
Of course developing a clear idea of what is to be done or produced, requires good documentation, like a cook book or operations manual.
And so it is possible with all kinds of office administrative work. If we specifically describe certain results and price them according to the value received, we can stop paying for time, for those tasks. It will be better for both sides, the person delivering the results and the client (former employer) who gets the benefit of those results.
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