by Dean Whittaker

In our global knowledge-based economy, manufacturing labor has become a variable expense, with innovation being the only sustainable competitive advantage. Knowledge workers, however, should comprise a fixed cost, since they are indispensable to the organization’s success.

As labor has become a commodity on the world market, a race to the bottom of the pay scale has ensued. But with expertise and knowledge becoming a differentiating factor, we have seen power shift from the employer to the talented employee. Operating a knowledge-based business becomes more like running a volunteer organization or a cooperative, with expert employees becoming associates or even partners in the enterprise.

Automation may soon remove a large portion of the labor component in the service sector, just as it has done for manufacturing. Off-shoring and out-sourcing are beginning to affect service-oriented business as more of the back-office functions are seen as non-core business activities that can be done elsewhere by Business Processing Outsource ( BPO ) firms, particularly in India and China. The theory is that by out-sourcing the non-core business activity, more corporate time will be available to provide higher value-added services to the client by knowledge workers.

There are other benefits to out-sourcing non-core activities besides significantly reduced labor cost: access to large-scale talent pools with a wider variety of resources, reduced response time to client needs due to time-zone differentials, and a new, large-picture focus in the headquarters geared to design, build and run the processes.

What the future holds for many US service companies may be a global enterprise with components of work being performed where the talent pool, language, and communication technology intersect.