The Fractionalized Employee

By Restoring the Soul of Business Archives
Cover image for  article: The Fractionalized Employee

Most of us need to work. It is central to our identity. Yet, even though work is important most of us do not define ourselves solely by work. We have many other identities and responsibilities (parent, caregiver, sailor, artist …) that make us who we are or passions we wish to pursue. To integrate and deal with the spectrum of what life brings we could work at a job with all its benefits but also constraints or be a freelancer/independent worker with all its freedoms but uncertainties. Today, due to several forces there is the possibility of another way as we architect the future of work … a way that benefits both the individual employee and the firm.

Three concurrent forces are re-sculpting the nature of work and what constitutes a company in the most dramatic ways in over a century:

Technology. Over the past four decades one wave of technology after another has changed the nature of work, where it is done and when it is done.

This began with the expanded use of the personal computer in the 1980s, the birth of the First Connected Age with the World Wide Web in 1993, cloud and mobile computing of the Second Connected Age of the 2000s and now the coming tsunami of Web 3.0 +5G+AI and more of the Third Connected Age.

Demographics. Except for the continent of Africa most countries -- particularly Europe, the U.S., China, and Japan, which account for most of the global GDP -- are seeing shrinking and aging populations on one hand and a new generation of talent which questions the way companies are organized and run on the other.

Covid-19. The past two years of unbundled and distributed work has changed people's mindsets. They are like champagne corks that once opened swell and do not fit back in the bottle. Everything is being questioned from the nature of work to the role of management.

These three forces of accelerating and enabling technology, declining work forces and new mindsets have significantly shifted the balance of power to talent versus the firm in most white-collar knowledge-based industries.

The firm is likely to endure

Companies of various sizes will continue to exist both as key drivers of economic growth and the creators of jobs. The late Ronald Coase of the University of Chicago wrote the firm exists because external friction is greater than internal friction, which means whether it is from standing behind a brand promise, building and bundling expertise, or re-allocating capital, it is easier to do it as a firm versus a swarm of individuals. As we move into the Web 3.0 world of DAO’s (Decentralized Autonomous Organizations) the nature of governance may change but some sort of firm will likely endure.

But their architecture and how they attract, retain and leverage talent will continue to morph dramatically in the next few years as both capital and labor, management and worker, and employer and talent work to find a mutually profitable win-win scenario.

Work will matter

Despite the anti-work screeds of Reddit (which itself has imploded in a civil war of schism and re-criminations) people will need to work for a variety of reasons including income but also for identity, community and meaning.

The big shift is not going to be about working or not working but how the work is done at a particular time in an individual's career. There will be more flexibility in how talent will work but also more flexibility in how companies can interact with the talent.

Today most companies combine three types of work forces: A full-time employee, a full-time or part-time contracted employee from another firm (e.g., Wipro or Cap Gemini) and/or freelancers (directly or via an intermediate firm).

Full-time employees are usually the backbone of any company and its culture, with contracted workers and freelancers being mixed in to expand expertise and manage oscillating workloads in a cost-effective manner.

We may now want to think of a fourth type of worker to reflect the forces of technology, shifting demographics and new mindsets: the fractionalized employee.

The Fractionalized Employee

Imagine if one could get both the continuity and loyalty of a long-term employee with the flexibility of cost management of a part-time employee and the expertise of a freelancer -- and do so in a way that both grows employees and retains them in the long run.

This is the fractionalized employee.

Every employee in the company is given a choice to work 100%, 75% or 50% of their time. (In the U.S. one needs to be working at least 50% to be eligible for health and other benefits.) They get to select this at the beginning of every year or can adjust to a different level when a life event occurs (health, birth of a child, need to take care of a parent, a passion that needs to be attended to or other life issues).

No longer does an employee have to choose between staying or going or being torn trying to do two things at one time. If they wish to try out a different type of non-competitive job (starting a gaming company --assuming they are not working at a gaming company -- or being an artist or writing a book) it behooves their employer to let them do so, because retaining half or three quarters of a talented person is better than zero.

As importantly, these external skills or vocations will make the employee better rounded and probably more productive. And there will be cost savings from reduced compensation and eliminating the friction and cost of severance, re-hiring and training.

It will probably attract a lot of talent who may want to work 50 to 75 percent of their time -- including the more seasoned who might only want to work half their time. As countries grapple with aging and declining populations this is one way to address this issue.

For the employees, they do not have to give up an income stream, health benefits or a part of their identity to build new skills, pursue new horizons or take care of life’s events. Over the course of a career, they can dial up and down the percentage they work. With a base revenue stream and health care they can decide how to use the percent of time they have bought back or own including building new skills or working as a freelancer or an expert with many new communities of talent. For many people freelance work alone does not work either because of lack of health care, unstable income, or lack of connection to a community (though there are many new models of communities working to offset these issues).

The fractionalized employee model will allow companies to retain talent, grow talent and mix and match talent in ways that are truly win-win.

The company gets access to cost effective talent and a program to differentiate and attract talent. It has a stronger culture than one with lots of people who do not leave or lots of continuous dependence on free-lancers.

Talent gets to retain income streams and benefits and continuity and community or work while balancing life challenges or other passions and interests.

Why the fractionalized employee makes sense today

The Great Attractionlisted the nine factors that make people join, stay and thrive at a firm. They join for money, fame (recognition) and power (autonomy). They stay for values, purpose and connections (with clients, bosses and their colleagues). They thrive when the have freedom (flexibility), story (how the company fits into their lives versus how they are fitting into the company's life) and growth (growing themselves as people as well as skills).

Being offered the ability to work 50, 75 or 100 percent of their time enables all of these -- but particularly the latter three of freedom, story and growth that allows them to thrive.

And if a company is to thrive it can only do so if its employees do.

Modern technology, new mind shifts and changing demographics call for a new way that allows firms to thrive and people to grow. Smart companies, leaders and talent/HR teams should adapt their rules, structures and ways of operating to enable the fractionalized employee.

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