In Ronald Coase’s seminal work “The Nature of the Firm”, he explored why certain activities were conducted within the boundaries of an organization as opposed to being subcontracted externally. If subcontracting externally offered advantages of cost, efficiency or speed, why did firms exist at all?
His answer was the concept of transaction cost. Coase writes:
In order to carry out a market transaction it is necessary to discover who it is that one wishes to deal with, to inform people that one wishes to deal and on what terms, to conduct negotiations leading up to a bargain, to draw up the contract, to undertake the inspection needed to make sure that the terms of the contract are being observed, and so on.
These frictions are describing:
1. Search and information costs
2. Bargaining and decision costs
3. Policing and enforcement costs
Coase argued that firms exist because inside the firm, these costs are eliminated or reduced - up to the point where the firm becomes so bureaucratically-laden that smaller, more nimble external providers can perform tasks better, faster or cheaper than the firm’s own talent.
In the realm of talent and “the future of work”, this is a hugely interesting exploration. Online talent platforms emerged in the late 90s, and have enjoyed a huge surge of interest in the past decade. At face value they serve needs on both sides of the market; talent wants access to opportunity and additional employment flexibility, while employers want access to cheaper, more on-demand talent.
Mega-platforms like UpWork are fantastic tools to create access to talent - and we’d look foolish to not acknowledge their enormous commercial success - but as anyone who’s used these platforms can attest, Coase’s Search, Bargaining and Policing costs remain ever-present.
If volume of talent and low price are the primary decision factors, these platforms are great. However, for users requiring a repeatable, scalable mechanism - where a fluid, global talent pool replaces full-time employees on an ongoing basis - a different solution is needed.
Now imagine an ideal scenario. What would it look like? Something like:
We couldn’t find the ideal scenario. So we built it.
By tying reviews for work performed to payment for that work, the reputations of the software development vendor teams in the Capaciti network are provably valid. Data written to our system’s blockchain becomes a trusted source of truth, which greatly reduces the Search and Information Costs associated with contracting a 3rd party, and creates an immediate level of trust for buyers.
Scope of work is written to a Smart Contract; payment is only released if the client and vendor agree the milestone was met. In the cases of a disagreement, neutral 3rd parties arbitrate until a resolution is found. This reduces the Policing and Enforcement Costs, and creates a better commercial experience for buyers and sellers.
The result is a mechanism that clients can return to, month after month, to leverage consistent, repeatable value.