Clients benefit by having access to a wider pool of talented professionals. The word ‘talent’ is used deliberately, because it is talent, rather than credentials, that matters most. The decentralized interfirm agency benefits by being able to leverage the network effect to find the best possible candidates for every assignment. And professionals benefit by being able to choose assignments that are interesting to them, rather than having to accept whatever work they can get.
Because the relationship between the agency and the client is highly decentralized, there is no need to rely on third parties. This has several benefits.
Solving the Agency Problem
In addition, the decentralized agency model solves the agency problem. The agency problem is the problem of how to motivate professionals to work effectively. It has been an unsolved problem since the emergence of the profession of management consultancy. The problem is that the client can’t know whether professionals are working effectively, and professionals can’t be sure that the client will pay them if they do work effectively. This makes it hard for professionals to work effectively.
The decentralized agency model solves the agency problem by making it impossible for the client to withhold payment from the agency. This is because the agency is an independent business, selling its services to the client. If the agency does a good job, the client has to pay for that job. And if the agency does a bad job, the agency has to pay the client for that job. The client has to pay for a good job, and the agency has to pay for a bad one. The client and the agency therefore both have an incentive to do a good job.
Simplifying Relationships with a Decentralized Interfirm Agency
Added to that, the decentralized agency model simplifies the relation between the agency and the client. Their relationship is purely commercial, based purely on exchange. There is no ethical relationship. That has several benefits.
The client gets the benefits associated with the commoditization of professional services. As professional services become commoditized, it becomes easier to compare the costs and outcomes of different providers based purely on price and technical outcomes. It becomes easier for clients to hire and fire providers based on this information. It becomes easier for the market to provide feedback to both clients and agencies about which services are high quality, and which providers tend to provide high quality services. The relationship between the agency and the client is therefore much more disciplined than the traditional relationship between, for example, a law firm and its best clients.
Access More Professionals
At the same time, precisely because of this commoditization, the client can use the decentralized interfirm agency to access a wider pool of talent. Neither the agency nor the client has an incentive to contribute to the commoditization of professional skills, and there is no reason why they should. The agency is in competition with other agencies. If it gets too good at providing services so that it becomes easier for the client to hire and fire other agencies, it will lose business. The client is in competition with other clients. If it gets too good at using agencies to provide services, it will lose business to those other clients. They therefore both have an incentive to make every transaction more complex. Some transactions should be made more complex in order to help them to control the agency. And some transactions should be made more complex in order to help them to increase their bargaining power relative to other clients and to other agencies.
So the decentralized agency model creates a business model in which the client is simultaneously able to choose the lowest price they can find and the highest quality they can find. It allows clients to systematically refine their search for the lowest price and best quality from the market. It provides a discipline that is missing in the traditional agency relationship.
The Decentralized Interfirm Agency Methodology
The decentralized agency model is based on the decentralized agency methodology. The methodology comprises several steps.
1. Identify a market need for professional services that you can solve.
2. Identify the least glamorous segment of the market that needs your services, for example, small businesses with up to $1 million in revenues.
3. Outsource the development of your software platform to a development team (for example, using outsourcing marketplace Upwork).
4. Work through your potential clients, explaining how your software platform is uniquely able to solve their needs. Tell them that they can hire you for as many hours as they like, while implementing the software platform themselves.
5. When one of your clients decides to hire you, you should negotiate a fixed price for the package of services. That fixed price should be lower than the price you would charge if the software platform already existed.