Disintermediation of Professional Services

Professional service sectors often have a guild-like structure grafted onto a Amway-like partnership structure.

Together, these features act to preserve profits to the partners of the companies in these sectors.

For example, the number of practitioners that are allowed into a profession might be controlled, under government decree, by a professional association, completely comprised of leading partners in the industry, that claims to maintain ‘standards’.

The number of practitioners may then be managed by setting a complex process of learning and examination, trainee fees, and even by requiring sponsorship of trainees by a member company of the association.

Managing the number of practitioners effectively allows the association to ensure that the supply of practitioners is managed to ensure that margins in the industry aren’t impacted by an over-supply of practitioners.

Everyone who enters into such a profession is offered the carrot of potential future partnership where the guaranteed wealth of these pseudo-monopolies is collected.

Of course not everyone makes it to the top of the Amway-like employment pyramids but, by the time they realise they aren’t going to make it, most in a profession have a sort of Stockholm Syndrome whereby the structure of the environment is unquestioned.

Another means by which companies and partnerships in such pseudo-monopoly sectors ensure high margins is to control salaries at the lower rungs of the pyramids (wages being their major variable cost of business).

Salaries are controlled in many ways; by working people for so many hours that the hourly rate is less than working at McDonalds, or by making people sign employment contracts that ensure all employment remuneration is confidential information to ensure worker collusion on such matters (i.e unionism) is avoided.

The victims here are the salaried workers in the sector whether they make it to the top or not.

If they make it then they are usually burnt-out zombies that hate their boring lives and the fact that they could never walk away and try other employment without losing their place in the pyramid.

If they don’t make it to partnership then they are victims of the greed of their partners in more ways than one – it’s an environment that seems to breed contempt towards those at the lower reaches of the pyramid.

The other victims of course are the customers that pay through the nose for professional services. The business margins on some of these professional services can be obscene (and many times the multiples of their customer’s margins).

On the multiplicity of such price gouging, it’s but one reason why our exporters are so uncompetitive.

Sometimes the senior partners in a sector might collude to own a key supplier to their own industry. By exclusively using the services of this supplier they can further obscure their high margins.

One would query whether this whole scam is worthy of ACCC investigation. But that is unlikely; not to worry, the internet will disintermediate these guys soon enough.

Probably sooner rather than later actually because those high margins make disintermediation just that much more attractive to the types that like to innovate in these areas.

Just for completeness, disintermediation in this context means using the internet to automate professional services or to make them completely obsolete. If, O’ professional service provider, you aren’t scared of the internet, you should be. Very.

PS to my many friends and colleagues in the professional services, of course I don’t mean your profession.