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Division of Labor by Comparative Advantage

What is Division of Labor by Comparative Advantage?

This is a principle that helps us decide who should be working on what. Determining this may seem straightforward, but it’s not. That’s because it’s not simply identifying what you do better than everyone else. You have a comparative advantage within a group when you work on the things that allow the team as a whole to create the greatest value.

Division of Labor by Comparative Advantage is highlighted in Virtue & Talents and Comparative Advantage Dimensions.

Why is this important?

Because we work in teams! We can organize people and work in many different ways. Division of Labor by Comparative Advantage prompts us to do this in a way that maximizes overall results.

Applying this principle helps:

  • Supervisors work with their employees to maximize what the team can accomplish, such that 1 + 1 + 1 > 3
  • Each team member pursue work they are good at, care about and maximizes their contribution relative to others
  • Employees think more broadly about how they might contribute across Koch (including taking on new roles)

Principle in Brief

A fundamental principle of human progress is the division of labor by comparative advantage and the resulting increase in cooperation. Specialization by comparative advantage with voluntary exchange and teamwork is much more effective at satisfying people's needs than any other form of organization. 

Employees have a comparative advantage in a group when they can perform an activity at a lower opportunity cost than others. For example, selling is typically a comparative advantage of successful salespeople, even though they may also be very good at sales analysis. This gives sales analysts a comparative advantage at doing analysis, even when they are not as proficient at it as outstanding salespeople.  Employees and groups who take account of their comparative advantages (not just competitive advantages) contribute more, thus are more successful. 

In staffing, this principle calls for each of our organizations to begin with a clear vision of what capabilities are needed for making the greatest contribution. Contribution-motivated individuals with the optimal diversity of talents and interests can then be selected to build the needed capabilities. 

Roles and responsibilities are designed not only to fit each employee’s talents and interests but in relation to the roles and abilities of other employees in a way that optimizes the group’s overall performance. This is accomplished through an ongoing dialogue between employees and supervisors with assistance from others. It includes supervisors giving employees frequent, honest feedback to help them understand their performance and how to increase their contribution. It is also essential that supervisors solicit feedback from employees regarding what would enable the employee, the supervisor and the group to improve. 

Because conditions and people are always changing, roles and responsibilities need to be continually reassessed to maximize each individual’s contribution and the organization’s overall performance. When an employee leaves, is added, or changes roles, responsibilities throughout must be re-evaluated. 

One way everyone can contribute is by identifying potential employees who would strengthen their team and other parts of Koch. A beneficial division of labor by comparative advantage requires a diversity of employees who are contribution motivated and have a variety of aptitudes or skills that will increase our ability to profitably expand our current businesses, solve existing or anticipated problems, or capture new opportunities.

Understand it Better


Understanding common misunderstandings about comparative advantage can help you avoid them.

Give it a Try

The power of these principles happens through application. There’s no substitute for learning as you apply.