The ROI of a Knowledge Worker
I am a knowledge worker, which means I sit at my desk reading and learning, improving my judgment to solve complex problems. My job is to solve problems faster than I or my employer run out of money.
Now, that looks like a complex job, We knowledge workers love challenges. We would all get bored if the job were linear, like putting sugar cane at one end and getting the crushed sugarcane as waste and the beautiful green liquid sugar cane juice as the final product. It would drive me insane, doing that day in and day out.
We knowledge workers are system thinkers. We want to enter a complex system and solve the problem before it becomes chaotic, which means it’s on fire. We are the people who come in before the firefighters. We will reduce the system’s entropy to prevent accidental fires.
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How does one measure the ROI of a Knowledge Worker?
Knowledge workers are complex; they don’t have a certification or standardization. You can look at their past accomplishments and hire them, but if they can replicate the results from their experience, they have already tamed the complex system into a simple system. They know how to keep the entropy of the system constant (at least for a brief period); eventually, shit hits the ceiling.
My conclusion is you cannot measure the ROI of a knowledge worker. The fact that you have called in a knowledge worker for a job means you have a complex problem which you aren’t able to solve by yourself.
This knowledge worker may or may not be able to solve your problem. What if he demands resources that are not within your budget? Knowledge workers are not consultants; they have “skin in the game,” unlike consultants.
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If you are a knowledge worker, choose projects that have non-linear returns.
Now that I have made a point about the risk a knowledge worker takes in his work, he is more likely to fail 9 times out of 10 because of the complex system he is placed inside. Think of Abhimanyu in a Chakravyu analogy.
This is like what venture capitalists do; they invest in 10 startups and know that 9/10 will lose them money, but just one from that 10 would give them 1000x returns. This has made investors like Peter Thiel very rich. The last time I checked on Masayoshi Son, the Softbank founder, he was recovering.
How do you know there are non-linear returns in a particular job?
If there is a lot of risk, which may be either of reputation or loss of opportunity, you may be working for less money when you could have worked for more elsewhere. Make sure you get some ESOPs or there is some incentive baked in if the project succeeds. This is because a knowledge worker, with all his experience, may solve the problem of a complex system in a minute, but if his employer values his fees by the minute, he is f*cked.
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My conclusion is that one cannot measure the ROI of a knowledge worker, but a knowledge worker can calculate the ROI of a project or a job.
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Glossary
Abhimanyu in a Chakravyu Abhimanyu’s story in the Chakravyuha from the Mahabharata illustrates a tragic example of being trapped by a complex system. Abhimanyu, a young warrior, knew how to penetrate the circular battle formation (Chakravyuha) but not how to exit. Lacking the full knowledge, he bravely entered, displaying immense skill and courage. However, without the exit strategy, he was surrounded and ultimately defeated, highlighting the dangers of incomplete understanding and the importance of holistic knowledge. The story serves as a metaphor for facing complex challenges without full preparation, emphasizing the critical need for complete knowledge and strategic thinking.
entropy Entropy is a measure of disorder or randomness within a system, often described as the number of microstates corresponding to a macrostate. Higher entropy signifies greater disorder and less available energy for work. In essence, it reflects the system’s tendency towards equilibrium and the dispersal of energy. The concept is crucial in thermodynamics, information theory, and even social systems, indicating the degree of unpredictability and the loss of information.
Knowledge worker A knowledge worker is an individual whose primary job function involves the creation, manipulation, and application of knowledge. They utilize their expertise, skills, and intellectual abilities to analyze information, solve problems, and make decisions. Unlike manual labourers, their work is largely cognitive and often involves innovation, research, and strategic thinking. They play a crucial role in the modern information economy.
Masayoshi Son Masayoshi Son’s fortune is known for its dramatic fluctuations, mirroring the high-risk, high-reward nature of his investments. He’s experienced both meteoric rises and steep falls, largely tied to the performance of SoftBank’s Vision Fund. Massive bets on tech startups, like WeWork, have led to significant losses, impacting his net worth. Conversely, successful investments, particularly in companies like Alibaba, have generated enormous wealth. This volatile pattern underscores the inherent risks in his aggressive investment style, making his fortune a rollercoaster reflecting the dynamic tech landscape and his bold, often contrarian, bets.
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Non-linear returns Non-linear returns describe situations where the outcome isn’t directly proportional to the input. Unlike linear relationships where a consistent change in input leads to a consistent change in output, non-linear returns exhibit disproportionate responses. This means that small changes can trigger large effects, or vice versa. In finance, this can manifest as exponential growth or sudden crashes, where gains or losses aren’t uniform. Examples include network effects where value increases exponentially with user growth and situations with tipping points where small changes can lead to dramatic shifts. Understanding non-linearity is crucial for navigating complex systems and anticipating unexpected outcomes.
Peter Thiel Peter Thiel is a tech entrepreneur, venture capitalist, and author known for co-founding PayPal and Palantir. He’s a libertarian with contrarian views, often challenging conventional wisdom.+++
Skin in the game “Skin in the game” refers to having a personal stake or risk in a situation. It means that someone will experience the consequences of their decisions, whether positive or negative. This encourages responsibility, careful consideration, and alignment of incentives. When people have skin in the game, they are more likely to act prudently and in the best interest of the system, as they stand to gain or lose alongside others. It fosters accountability and reduces the likelihood of reckless behaviour.
system A system is a collection of interacting or interdependent components that form a complex whole. These components can be physical, biological, or abstract, working together to achieve a specific function or purpose. Systems can be open, exchanging matter and energy with their environment, or closed, with limited interaction. Understanding systems is vital to studying complex phenomena across various fields, including engineering, ecology, and economics.