Economic laws and theories are useful to explore when trying to come up with ideas about how you organize teams and companies. Over the last few years, I have started to embrace the ideas in the Law of Comparative Advantage to help guide my decisions when it comes to managing and organizing at work. So what is Comparative Advantage?
According to Wikipedia:
The law of comparative advantage describes how, under free trade, an agent will produce more of and consume less of a good for which they have a comparative advantage.
In an interview I heard recently with Economics Professor Emily Oster from Brown University, she gave a great example of this in her personal life. When she got married, the newlywed couple needed to decide who would cook on any particular day. Now they could split the work. That seems fair, but being both economists, they decided to apply the law of Comparative Advantage. Professor Oster and her spouse looked at their skills. Namely their ability to cook and do the dishes.
Together they determined that Oster was much better at both cooking AND doing dishes, but her skills at cooking were much higher when compared to her husband. Therefore, she would do the cooking while her husband would do the dishes.
It seems pretty straightforward. When a resource can do a job better and more efficiently than another resource they should do it. Right? Well, not so quick.
What you need to consider is the gap between the skills of your resources. If you are on a team and you are the most skilled at at a task, you mighty only do it if your skill exceeds your teammates compared to other skills. So let’s look at a tech team that works with PHP and JavaScript where you are the best at BOTH PHP and JavaScript.
Even though PHP might be your stronger skill, you could instead wind up writing JavaScript depending on the gap between your skills. It is easy to see this if you assign numbers to your skills. Let’s make a quick chart to illustrate what your team looks like.
As you can see, you are the most skilled at everything, but because by comparison, you are much better at JavaScript compared to your other team members, you should do that, while you let Team Member 2 do PHP, even though you are better at it.
To quote Oster when discussing how this works with countries.
And so when you want to think about what’s the optimal way to organize production, you want the less efficient country to make the things that they are comparatively better at, the things where the gap is smaller.
You see this applied in sports all the time. When I ran track, my coach would often pull me out of events where I ran my fastest times because I was needed in a race where I could better serve the team. It cuts down on personal glory, but when you join an organization, it is often what is sacrificed.
So if you are a manager or senior member of a team or company and want to start thinking about how Comparative Advantage can inform your decisions, you will need to properly and honestly assess the skill level of your team. After that, you will need to make what could seem like a counter-intuitive shift to what people are working on.
It might ruffle some feathers, even your own, but making the change will improve the productivity of your organization while having the side-effect of putting less skilled people into a position where they can improve their skills while being well-supported.