The e-lance economy?

In 1937, economist Ronald Coase published an article, The Nature of the Firm, in the journal Economica. Within the article, Coase argues that firms exist because there are costs inherent to free markets – such as costs of communication, of sharing information, of trying to find goods and services. Given these costs, Coase suggests that firms are formed because it is more efficient and less expensive to complete many of these tasks internally within a formal organization rather than outsourcing them to the market and thus incurring these added costs.

Alex Slawsby on the Innosight Blog looks at the nature of the corporation and how advances in information and communications technologies may be enabling a more modular approach to work, especially networked free-lancers, or e-lancers.

… the ‘e-lance economyâ€ may represent a modular stage of organizational evolution – indeed, an architecture of easily swappable or plug-and-play components (e.g. individuals or resources). In an age where closed, proprietary systems are recognized as inhibiting the ability of organizations to respond to or even identify innovation-borne change, modularity seems a promising answer; virtually every element of the value chain could come together on an ad-hoc, objective, modular basis without being hamstrung by the subjectivity and myopias brought on by business process and the long-term commitments to physical infrastructure, a capital investment in which innovation may quickly make irrelevant.

An example of this economy would be open source software development, with its lack of organisational structure and the ability for anyone with the right skills to plug in or out of the project, yet maintain the integrity of the code. A key question though is whether e-lancing will become the dominant economic model, as the corporation is, or only suitable for certain industries, such as the film industry’s project-based work model. If e-lancing is more effective in most industries and becomes our dominant work model, then organisations will have to rethink everything from HR to supply chain management.