The Story: The question people are asking is, how do video game companies create huge hits with such small teams? The answer is that firms in this industry been riding the outsourcing wave and are adapting more “contract-heavy” business models in response to the dynamic business environment. A side effect to this transition is the emergence of a liquid labor force.
What Does This Mean?: The idea of the liquid labor force was coined by the outsourcing giant itself, Accenture. The firm describes this concept of temporary workers as a new type of labor that is based on flexibility and adaptability.
What Is Everyone Talking About?: Psyonix’s new video game, Rocket League.
Background: For a company that created such a popular game, the firm has very few employees, just 81 to be exact. In fact, Psyonix actually outsources about 35 to 45% of the team that works on Rocket League. This allows the company to preserve its culture and keep the company small so it doesn’t grow too big, too fast, too soon.
What Does This Mean: Twenty years ago, companies that produced some of the most iconic video games, such as Tomb Raider and Grand Theft Auto, were composed of solely in-house teams. Today, companies are finding this is not the optimal organizational structure.
Side Note: The video game industry isn’t the only one riding this wave towards contractor heavy business models. We are seeing many pharmaceutical companies and law firms employing more “project-based work” as well.
Why Is This Happening?: Outsourcing certain business activities has proven time after time to be extremely beneficial for companies in any industry. Outsourcing allows firms to focus on what they do best: their core competencies. This isn’t the only advantage of outsourcing in the video game industry. Some are saying contracting employees is a solution to the hire-fire cycle.
What’s That?: To develop a great video game, an influx of workers is almost always required. However, after the video game is released, the need for work decreases, and companies have to let go of employees. By contracting employees per project, firms no longer need to pay for employee’s downtime. Some critics will argue that companies reap all the benefits and the contractors end up worse off; however, with evidence from Nintendo spokesman, Charlie Scibetta, this can’t always be assumed. Mr. Scibetta says, “about 1/3 of Nintendo’s full-time, entry-level positions in the past five years were filled by former contractors.” That doesn’t seem so bad.
So What’s the Issue?: There are some disadvantages associated with outsourcing, as there are pros and cons to every decision. Companies don’t have as much control over the speed and quality of the work being outsourced and there is no definitive way to ensure contractors will deliver as promised. Due to the fact that contractors and employees rarely communicate face-to-face, solving problems may take longer. BUT. This is why companies should only outsource activities that are not essential to the firm’s competitive advantage. When firms outsource their core competencies, their competitive position will be compromised.
Why Is This A Big Deal?: Outsourcing is coming through various industries like a tidal wave. The next question for companies is…