One of the most elementary principles in the world of business strategy is the idea of an entry barrier. Simply stated, it is extremely difficult to set up an aircraft manufacturing company to challenge a Boeing and an Airbus. It’s a lot easier to set up a mom-and-pop grocery store to challenge the cross-street store owner, who has a bad attitude.
Barriers to entry are not just about size though. They involve all the inputs needed to operate a business — capital, skilled labour, land, raw material, machinery, intellectual property and, of course, markets. Any enterprise where one or more of these is harder to obtain makes it tough for a competitor to challenge an incumbent.
Idea of barriers
As societies developed, we extended the idea of entry barriers to individual professions too — and for good reason. When you decide to go under the knife, you will definitely feel a lot more comfortable knowing that the surgeon is licensed and board certified.
In most cases, if a profession involves public health and safety, there is a legitimate argument to have it regulated.
Regulated professions are those where the government has a compelling interest in seeing that people working in those jobs are qualified. The competence of the professionals — and the assurance that they are trained to serve in their respective professions — is typically verified through licensing, certification and, often, periodic re-certification of credentials from a regulatory body.
Universal examples are doctors, nurses and pilots. In advanced economies, nearly 20 per cent of all jobs are regulated, including those of automotive technicians, electricians, crane operators, plumbers, A/C mechanics or welders. In India, we would simply laugh at the idea of an automotive mechanic operating out of a single garage at the street corner needing a certificate of competenceby some professional society.
But if you look at it closely, certification may make sense considering that a mechanic who wrongly repairs a critical function on a motorcycle — such as, say, brakes — could end up causing serious injury, or even death.
The counter argument, of course, is asking exactly how many injuries have occurred because an uncertified mechanic performed wrong repairs on a motorcycle. India is one of the largest two-wheeler markets in the world and, given the number of motorcycles and non-gear bikes plying on the roads, the number of accidents attributed to unqualified mechanics is likely to be extremely low — so low, in fact, that it is a statistical outlier.
Which is why we need to be sceptical of the thousands of professions that are now regulated, and ask if they really ought to be. What exactly are the motives of these professionals seeking to get their professions regulated, or semi-regulated?
In most States in the US, a hairdresser (for women) and a barber (for men) needs to be licensed by the State. In Texas, athletic trainers, dieticians, laser hair removers, animal breeders and even massage therapists have to obtain a licence to operate. While some of these could impact the health and safety of the State’s residents, the probability that someone will be injured or may even die due to intentional, wilful malpractice is rare.
Clearly, one reason that these professionals have lobbied the State to classify their professions as needing regulation is to raise entry barriers and protect themselves from competition. If you’re a dog lover and would like to start a dog breeding business, you can’t just start doing so over the weekend.
By the time you learn about all the rules and regulations and the process of certification, you may get discouraged enough to look at something else. This isn’t good news if you’re a challenger, but for an established dog breeder, it is great news. His/her job (and his business) is protected, at least for now.
A second reason is for these workers to create an exclusive glass-walled community around them so they feel privileged. They make political contributions to the powers-that-be to keep justifying that their professions need to be protected.
One of the most hyped professional certifications is the Project Management Professional (PMP). As one myself, I can attest to what a farce such a requirement really is. Designed originally for managers who run large construction projects — such as a bridge or a stadium — to keep project quality high while managing resource, cost, and schedule constraints, increasingly, more and more IT professionals are seeking PMP certification.
More than 90 per cent of what PMP aspirants learn about while studying for the exam is not what they practise on the job. And once they earn the certification, they throw it around as a badge of honour, sometimes pre-empting college degrees in the process. A person’s credentials may well read BE, MBA, PMP, as though the PMP certification is somehow in the same league as that of earning a hard-fought MBA degree that requires mastering dozens of topics over nearly two years.
The professional organisation which manages the PMP programme, Project Management Institute (PMI), has grown from an obscure entity into a global colossus, adding new rules for re-certification, tightening relationships with vendors, and making money. Earlier, for project managers on the job, re-certification largely involved demonstrating that your work experience was keeping you on top of your game.
Now, however, re-certification involves taking many paid courses to earn Professional Development Units (PDUs) through authorised vendors, that kick back a portion of the revenues to the PMI organisation. PMP has become a needless entry barrier that needs to be overcome if one has to succeed in the world of IT Project Management.
As a form of protest, I refuse to renew my PMP credentials this year and will let them expire after nine years as a PMP. I never needed PMP-certified competencies during any of my jobs. Unfortunately, though, as long as employers demand this certification from IT professionals, the PMI organisation will continue to grow in size (and revenue). Because each new PMP will have to spend thousands of dollars to keep his or her PMP certifications alive.
In a world of scarce jobs, it has all come down to this. Those who have jobs set up artificial barriers through needless licensing requirements to protect their own jobs. The underlying rationale — that competencies need to be verified to serve society when public health and safety are paramount — is sadly lost.