What to Delegate First: Comparative Advantage
We all have some concept of competitive advantage. I like Investopedia as a resource, generally, and they define competitive advantage as
“In simple terms, a competitive advantage is a unique attribute or capability that enables a business to stand out from its competitors in the marketplace.”
How our business sets itself apart from the competition. Economics has a close relative with one word changed. Comparative advantage is a theory from international trade used to explore the differences in capabilities between countries. Say you’ve got the imaginary nation of Wakanda, with its Vibranium deposits and its advanced technologies, and you’ve got the United States with its boring computers, oil, and wheat.
In the traditional sense, let’s say the United States is far more capable of growing wheat than Wakanda. So, the United States would focus on, and have an absolute advantage with, its wheat production. And Wakanda would focus on Vibranium and high technology, where its absolute advantage lies. Trade between the two would occur, maximum benefit for all.
That’s a fairly simple example.
What if Wakanda is just a superior nation in every aspect? They’re better at wheat production, they’ve got huge oil deposits they don’t need (because they’ve developed fuel sources beyond oil), all on top of their Vibranium and their high technology which makes the computers from the US look like the Bop-It from the 90s.
Does this mean that Wakanda should do everything itself? In spite of how advanced it is, it has limited resources. Its population isn’t infinite. The time available, the funds necessary, even the use of land are limited. It is a small country, in spite of its might and magnificence.
Wakanda has an absolute advantage in everything, so from one standpoint it might seem that they don’t need the US for anything. But there is an opportunity for Wakanda to find even greater prosperity if it focuses on its greatest comparative advantage and allows the US to fill in the gaps where the US has the smallest comparative disadvantage.
Wheat.
The United States has far more land. Its technologies aren’t as advanced as Wakanda’s, and its workforce is far less productive. But if the US focuses on the area where it has the smallest comparative disadvantage, the US benefits … and Wakanda focuses on where it has the greatest comparative advantage, Wakanda benefits … and the global economy prospers even more.
Now let’s turn that concept toward the inner workings of your business. You (representing Wakanda) have an absolute advantage on much of the work that needs to be done by your firm (representing the global economy). Your employees (representing the US) cannot compete with you, but that doesn’t mean they shouldn’t be hired or given work that you could do better.
You are most interested in the prosperity of your family and your firm. That additional prosperity comes from focusing on your own greatest comparative advantage and handing off the work where your employees have the smallest comparative disadvantage.
Are you the best at everything? No. Probably not, but you’ve likely convinced yourself and your firm that you are. And even if you are, it still doesn’t make sense for you to do or oversee everything yourself.
So which work do you give up first? The work where the gap between you and your team is smallest, even if you’d still do it a little better. That’s your wheat.
This week, write down everything you did, Monday through Friday. Next to each item, put the name of the person on your team who’d be the second best. Start with the item where that gap is smallest.
Tell me what’s on your list. Reply, poke me the next time you see me, or put it on the calendar and we’ll talk about it.