First, a simple business school review of comparative advantage…
Assume that a lawyer can charge her services out at 300 dollars an hour. Also assume that she happens to be a very quick typist, and can type 80 words a minute. Her secretary is fairly good, typing 60 words a minute. The secretary is paid 30 dollars an hour.
The lawyer has an absolute advantage in being a lawyer and being a secretary. But she is much better at being a lawyer and only a little bit better at typing. She has a comparative advantage in the law and her secretary has a comparative advantage at typing.
If the lawyer decides to type a letter, or a report, because she is a bit quicker than the secretary, she would lose out overall. Let’s say that it takes her 15 minutes to type a report. The secretary types 25% slower, so it would take her 20 minutes. It costs the lawyer ten dollars to hire the secretary for 20 minutes, but if she types the report herself, she has wasted 15 minutes for which she could have earned 75 dollars being a lawyer.
The lesson? Do what you’re relatively better at than others. Hire the rest.
The concept is simple but I see many smart people fail often. I’m also guilty of this more often than I care to admit.
Usually, it’s a control issue. Few people have an easy time letting go of control.
The second main reason for this is that people don’t hire, communicate or specialize their employees effectively. In all but the smallest companies, coders shouldn’t test. Top strategists shouldn’t make Powerpoints. Top salespeople shouldn’t spend much time organizing their own travel. They should have a top-notch internal travel agent on speed dial who takes care of that, so they can focus on selling.
It’s a simple concept.
It’s often difficult to get started.
But it’s self-fulfilling. The lawyer knows that she types faster than the secretary, but she just billed 8 hours at 300 dollars an hour. Her desire to type anything is gone.
Look at your business. Are you only doing the things where you have a comparative advantage? The combination of the Internet and the current economy have opened up a huge supply of talent, either to hire or to outsource to.
Take advantage.
