THE E-LANCE ECONOMY

Date: 2015-10-07; view: 547.

Summary

Despite the wave of big mergers and acquisitions over the past few years, the days of the big corporation - as we know it - are numbered. While the cash flows that they control, are growing, the direct power that they exercise over actual business processes is declining. Because modern communications technology makes decentralised organisations possible, control is being passed down the line to workers at many different levels, or outsourced to external companies. In fact, we are moving towards what can be called an “e-lance economy”, which will be characterised by shifting coalitions of freelancers and small firms using the Internet for much of their work.

Twenty-five years ago, one in five US workers was employed by one of the top 500 companies. Today, the ratio has dropped to fewer than one in ten. Large companies are far less vertically integrated than they were in the past and rely more and more on outside suppliers to produce components and provide services, with a consequent reduction in the size of their workforce.

At the same time, decisions within large corporations are increasingly being pushed to lower levels. Workers are rewarded not for carrying out' orders efficiently, but for working out what needs to be done and doing it. Many large industrial companies - ABB and BP Amoco are among the most prominent - have broken themselves up into numerous independent units that transact business with one another almost as if they were separate companies.

What underlies this trend? The answer lies in the basic economics of organisations. Business organisations are, in essence, mechanisms for co-ordination, and the form they take is strongly affected by the co-ordination technologies available. When it is cheaper to conduct transactions internally, with other parts of the same company, organisations grow larger, but when it is cheaper to conduct them externally, with independent entities in the open market, organisations stay small or shrink.

The co-ordination technologies of the industrial era - the train and the telegraph, the car and the telephone, the mainframe computer and the fax machine - made transactions within the company not only possible but advantageous. Companies were able to manage large organisations centrally, which provided them with economies of scale in manufacturing, marketing, distribution and other activities. Big was good.

But with the introduction of powerful personal computers and electronic networks - the co-ordination technologies of the 21^st century - the economic equation changes. Because information can be shared instantly and inexpensively among many people in many locations, the value of centralized decision-making and bureaucracy decreases. Individuals can manage themselves, co-ordinating their efforts through electronic links with other independent parties. Small becomes good.

In the future, as communications technologies advance and networks become more efficient, the shift to e-lancing promises to accelerate. Should this happen, the dominant business organisation of the future may not be a stable, permanent corporation but rather a flexible network of individuals and small groups that might sometimes exist for no more than a day or two. We will enter the age of the temporary company.

From the Financial Times

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