MIT professor Thomas Malone is an expert on organizations. As co-director of MIT's initiative Inventing the Organizations of the 21st Century, he's spent a great deal of time studying the way companies are structured. His 1998 article, "The Dawn of the E-Lance Economy," published in the September/October 1998 issue of the Harvard Business Review, chronicles a new way of organizing work, e-lancing: groups of highly-skilled knowledge workers brought together via electronic networks to form temporary teams to complete specific projects.

IT contractors have been operating this way for some time now, but e-lancing is quickly spreading to other professions, other industries. Contract lawyers, anesthesiologists, accountants -- all are commonplace in today's economy.

But whether the e-lance economy is here to stay, or just a temporary experiment, remains to be seen. For Malone, the country is at an important historical crossroads. Freeing up knowledge workers to migrate to temporary projects where their skills are needed is a distinct competitive advantage for the individual, the companies that employ them, and the economy at large. One need look no further than the recession of the early '90s which transformed into one of the healthiest economies in American history as downsized engineers and knowledge-workers quickly retrained themselves to join an emerging e-lance economy.

To survive as a dominant employment model, however, Malone believes the e-lance economy will need new standards and fixed protocols to free up the brokering of knowledge and opportunities. Who will set those standards? Malone modestly says he's not a futurist, but he suspects the answer may lie with the e-lancers themselves. One thing he does believe: The E-Lance Economy is here, prospering, and changing as fast as the technology that makes it possible.

CP Executive Editor Jim Wolken talked with Professor Malone about the growing momentum of this new work style and what it will mean to IT contractors and the economy at large.

CP: When I hear the word e-lancer I think of Web-based workers. But you define an e-lancer much more broadly.

Malone: We define e-lancer as an electronically connected freelancer. That is, a freelancer or independent contractor connected to the world of their work, in part, electronically.

CP: So there could be e-lance lawyers, e-lance accountants, e-lance writers?

Malone: Absolutely. They're already here.

CP: Describe this e-lance economy and how it works.

Malone: In today's economy, it's still the case that the majority of work is done inside large corporations, companies that employ hundreds, thousands, or in a few cases, even hundreds of thousands of people. They're hired to do a continuing series of tasks. Another way of organizing work is the way that is already used in a few industries like the film industry, where there are temporary teams of independent contractors that work together for the purpose of performing a particular project. For instance, when a film gets made there is a producer, a director, actors, technicians, and so forth, many of whom are independent contractors who work together for the purpose of one project, making a movie. At the end of that project they're recombined in different ways for other movies.

The question we posed in the article "The Dawn of the E-Lance Economy" was: What if this way of organizing work became more common in other industries?

CP: It's certainly common in the IT industry today. Are there advantages to this new type of organization?

Malone: In many cases, this way of organizing work can be much more flexible and efficient than traditional organizations. Companies and projects can be continually reconfigured to meet the changing needs of the market and the changing opportunities provided by new technology. It also makes labor markets much more efficient. As a by-product of that, I think it frees up companies to focus much more on their core competencies.

For example, Topsy Tail is an $80 million company that makes plastic hair products with only three employees. They outsource all functions not in their core competencies, including manufacturing, distribution, sales, and logistics. About the only things they do internally are new product development and market strategy. In this case, a whole company was built around a single creative idea and the skills of three employees.

CP: If the e-lance economy centers on the individual, by implication can one assume that it would provide more opportunities to individuals than the old model?

Malone: It will definitely reshape the possibilities of a career. Career possibilities have already been reshaped significantly in the last two decades. I remember when I was a high school student I read Alvin Toffler's book Future Shock. One of the things that struck me very strongly then was his notion of traditional careers within a single organization being replaced by what he called career trajectories, which was a series of jobs and series of careers in different industries doing different kinds of things over the course of a lifetime. In 1970 that was a pretty radical idea. But it's been true for my career, and I think true for a lot of people today.

CP: Career trajectories would require much more continuous learning, I would assume?

Malone: Definitely. And the e-lance economy certainly lends itself to that career trajectory theory. It inherently brings with it a variety of new experiences, projects, and ideas that a person can build upon, an ongoing knowledge base that they bring with them from project to project. Will it give them more opportunities? For some people, yes. It's already happening. For others, the financial gains may be no different but the work experience more rewarding. For others, e-lancing may not work at all.

CP: So the chance of better opportunities lies in that structure?

Malone: I didn't say that. I think there are a lot of opportunities in a traditional hierarchical organization. Some people are able to take advantage of them, others aren't. Or they don't want to for whatever reason.

One of the best ways of thinking about the e-lance economy is that it has the potential to make labor markets much more efficient. If you spend your career inside a single organization there's a set of opportunities for you there. But there are other opportunities to which you will never be exposed because they aren't in that particular pond.

CP: So a person should pay attention to the type of work experience and environment they enjoy or thrive in?

Malone: I think so. Because there are some people who will thrive in the e-lance world and others who won't. If you think of a population of people, there is some spectrum of distribution over that population in terms of how capable they are of being independent and entrepreneurial. Some people think they're capable and really want to. Other people couldn't do it and you couldn't push them to even if you tried. Most people are somewhere in the middle.

My sense, my intuition, which I can't prove, is that in today's world there are more people who have both the ability and the desire to be independent, entrepreneurial, and autonomous than there are opportunities in today's organizations. My hope is that an e-lance economy would provide a better match between people's desires and opportunities. People wanting more career independence could have that opportunity, but there would also be stable, long-term jobs for people who want that environment. That way, both kinds of people would find situations that would make them happy.

CP: It's interesting that you mentioned happiness. When I meet and talk to readers of Contract Professional -- and I've talked to a lot of contractors over the past three years -- inevitably the conversation gets around to why they stay with contracting. To the person, I hear three things: "Better money, more interesting opportunities, and most of all, I'm happier." Is that a by-product of the e-lance work style, happiness? Or maybe I should say a sense of self-actualization because you control your future?

Malone: That's an interesting question. Let me answer that in layers. I often start my talks by asking, "How many of you are happy today?" And I end my talks with how new technologies and new ways of organizing can give us more of what we really want. I did that pairing unconsciously at first, but there's definitely a connection in my mind.

I think today we have a historical window of opportunity in which we, our generation, have an opportunity -- you might even say an obligation -- to make some very serious choices about how work will be organized in the next century. Most audiences I speak to believe that the changes we are going through today are as significant as those in the Industrial Revolution, which means it's a historical change, and I believe historical changes like this often have the property that chaos theorists call a point of punctuated equilibrium.

CP: You'll have to explain that one to me.

Malone: That refers to a period of transition when a system that has been relatively stable for some time rapidly changes to some new point of stability. One of the characteristics of these points of punctuated equilibrium is that it's often indeterminate at the beginning where they will end.

Historically, we are at a kind of point of punctuated equilibrium in choosing the ways of organizing work that will be common for ourselves and our children and our children's children. I think that we do have an opportunity, if we have the insight and the wisdom to understand and choose wisely, to help create a world in which more people will genuinely be happier and more fulfilled.

CP: You describe the remarkable development of Linux as an example of how an e-lance economy could work. By the way, I love the point you made that if Linux were a company-owned product there would have been turf wars, burnouts, cost overruns --

Malone: And, these days, maybe a made-for-TV movie.

CP: Starring Noah Wyle, no doubt. But is the emergence of Linux really an example of what may happen with products in an e-lance economy or just an anomaly of this Internet craze we're going through?

Malone: I think it is an excellent example of what may happen with many kinds of products, in many kinds of industries, if a decentralized structure becomes much more common. I'm not sure the "free" aspect of Linux would be widely replicated. I say this with some hesitation because for many people it is the free aspect that's appealing.

But I also think that a lot of the things that get done very well in business would probably not be done by purely volunteer workers. It's very useful to have economic incentives as a way of motivating people to do things that they might not do purely for the love or recognition of doing them.

The Linux analogy is more interesting if you can imagine its decentralized structure, but with the addition of more economic incentives. Imagine that you had, let's say, a software system that was distributed by a single company to customers who paid money for it, but that this software system was developed by a whole constellation of programmers from all over the world. If you have that model, then the money that the customers pay could be used in part to pay royalties to the programmers whose contributions created the product. And then, all kinds of economic motivations kick in. The programmers want to write a modification that would be selected for inclusion because then they'll get a royalty. They also want the system to be as good as possible because then there will be more sales and their royalties will be bigger. The person who is selecting the modifications will want to select the things that will make the most desirable product so people will pay the most for it. So all the standard incentives work.

However, the Linux model would work less well if the creators were not the typical user. A word processing application, for instance, would need other kinds of market research or user testing to create the very best product. So additional experts beyond programmers would be needed. Linux is an example of what's possible from a decentralized group who have a common interest and common knowledge base.

CP: In the essay you pointed to a flock of birds flying in formation as an example of how decentralization is often unrecognized. Can you explain that?

Malone: I'm indebted to my colleague Mitch Resnick from the MIT MediaLab for this example. People often assume incorrectly that a system is centralized when it's not or, more importantly, need not be. When you look at a flock of birds flying in V formation, many people assume that the point bird is in some sense the leader of the flock or guiding the other birds. In fact, as we have learned from biologists, all of the birds in that formation are basically following the same simple set of rules about where they fly in relation to their neighbors and the air currents they feel. From those simple, decentralized rules emerges a globally coherent pattern of the V formation. But if you watch a V flock of birds flying for some time, often the lead bird will shift off as it tires.

Decentralization doesn't mean that there is never anybody in charge. Rather, who's in charge may change quite frequently even within one project.

CP: In your article, you mentioned the impannatori in the Italian textile industry, high-level brokers who coordinate and organize projects for independent textile houses. Will an e-lance economy do away with brokers or staffing organizations? Or perhaps change their importance?

Malone: I think the brokering function will become much more important in the e-lance economy because that's how you match the buyers and sellers, in this case the talent and the project. In a hierarchical organization, that matching of tasks to people is done by the hierarchical managers. An e-lance interaction can be decentralized down to the buyers and sellers directly.

It will be possible to do many brokering aspects much more efficiently and cheaply with fairly simple electronic systems. Rolodexes and telephone calls will be replaced with electronic markets.

Does that mean that the need for brokers will go away? Not at all. It means that the brokers who are successful will be able to recreate themselves or take advantage of the electronic markets and provide a kind of value-added service on top of pure brokering. For instance, pure brokering is just matching the stated needs and the stated capabilities. But, in many cases, an insightful human can know a person or a job situation well enough to make an insightful judgment about a good match. Or they may advise a particular contractor about what kind of jobs they should accept in order to maximize their career. In that case, the broker is acting more like a talent agent or business manager. We're a ways away from having computer systems good enough to do this. I think there's still a lot of opportunity for humans to fulfill that kind of role.

CP: I was curious about your call for standards in an e-lance economy. That we'll need to develop new business protocols, new types of agreements, dispute resolutions, if the e-lance economy is going to succeed. You used Internet protocols as an analogy. Could you expand on that?

Malone: It's a little bit paradoxical, but it's often the case that standardization or rigidification at one level frees you up for much more flexibility at other levels. The Internet is a prime example of that, where the rigid standards at the level of the IP protocol frees us up for much more flexibility and experimentation at other levels on the Internet.

If you have to negotiate every detail of how you are going to work together, separately, each time new individuals come together, well, that's a very inefficient model for organizing work. If you have some agreed-upon standards about those things then it becomes much easier for different individuals to come together.

An example of this is surgical teams. Because of their professional training and socialization, surgeons, anesthesiologists, nurses, etc. know their roles so well that individuals who have never worked together before can be very productive and efficient immediately. One of the things that will facilitate the e-lance economy is the emergence of standards for these things.

CP: One of the rewards for us at Contract Professional is the sense that we're covering one of the most dynamic audiences in American history -- IT contractors and consultants. Not only are they the fastest growing e-lance group in the country, but their work involves developing and improving the very technologies that make the e-lance economy possible. Do you think that IT e-lancers and the IT outsourcing industry may very well be the control group that sets these employment standards you're talking about?

Malone: Very interesting hypothesis, and quite plausible. It's historically true that new organizational forms first become common in industries that are emerging at the times those new forms are becoming feasible.

For instance, the railroad as a product made possible more centralized organizations. And of course the railroad industry was one of the first industries to have a dominant centralized organization. So it's not unlikely that the IT services industry would be one of the first to adopt this e-lance model on a very large scale and greatly influence the standards for other industries in the future.

CP: You touched upon this earlier, that we are at an important historical crossroads. And in the article you suggest that how we approach the e-lance economy right now may determine whether we have a golden age of employment, what you called a flowering of individual wealth, freedom, and creativity, or an economy that leads to disruption and cutthroat practices, and larger gaps between society's haves and have nots. Are there steps that an individual e-lancer, say a CP reader, for instance, can take and practice to ensure a healthy e-lance economy?

Malone: I like that question. My immediate reaction is to point to social observers who talk about social capital, which is an attribute of countries or groups that is different from physical, industrial, or even labor capital.

Social capital has to do with the habitual ways of interacting among people. For example, in certain areas of Italy, there have been times when the Mafia dominated the local economy. So that -- how should I say this? -- "unlawful" and "dishonest" transactions were often the normal form of interaction. Under that form of organization, it's hard for many kinds of economic activity to be successful.

CP: Careful, a lot of our readers refer to themselves as "hired guns."

Malone: (laughing) Let's just say that some social environments are not conducive to many desirable kinds of economic activity. Conversely, if you're in an environment where you're dealing with a group of people who are honest, law abiding, hard working, and able to treat their neighbors well, then it's much easier to have many kinds of economic activity. So there's more social capital in the latter case than in the former. Ironically, one of the most valuable things a large company has is a sort of social capital, a set of norms, a culture, a shared understanding. For the e-lance economy to work, there have to be large groups of people that share a sense of responsibility, cultural norms, modes of behavior, a sense of what's right.

Unfortunately, I think that it's possible for an e-lance economy to evolve in either of these ways. It could evolve into a kind of cutthroat, everybody-out-for-himself mentality, or a more responsible, trust-based kind of culture. And I think that this is something that every individual e-lancer can effect. To the degree we can each be the kind of people that we'd like to interact with, we can help create the kind of world in which we'd like to live and work. In this way, I think, we really can "together" invent the organizations of the future.

Contract Professional/CPUniverse, Dec. 21, 2000.