Free Market IT

If you watch the various EMC blogs, you're probably aware we're holding an Innovation Conference. 

From across the reaches of EMC, we brought people with an innovative streak together to collaborate. 

To put it mildly, it was very, very cool.

There was a contest for best innovative proposals.  More good ideas than I could fully comprehend.

But I happened to sit in on a customer presentation who really set the tone for advanced IT thinking.

I Can't Say Too Much

It's rare when a customer considers their IT strategy confidential and proprietary, but in this case it was fully justified. 

But I came away from that session lit up with at least a dozen themes that were worth exploring, and I'd like to share one of them with you here. 

And any customer who takes IT that seriously, and brings that much talent to the table is definitely a customer you want to listen to very carefully.

Let's Talk Economics

The basic problem of economics is allocation of resources -- who gets what?

Not to oversimplify, but there's basically the centralized command-and-control school (think classical Soviet communism from the first part of the 20th century), and various free-market alternatives.

Now, one can debate about the pros and cons of each allocation model -- neither is perfect -- but I think there would be a general consensus that the free market does a better job of allocating resources than centralized command-and-control.

At least, if you look out at various economies, you'll notice that they've all embraced free market rationalization to a certain extent.  The role of central government varies, but -- even in the most restrictive models -- free market plays an important role.

But What About IT?

One of the big problems in IT is resource allocation -- who gets what, and why?

Let's face it, when it comes to resource allocation, I would offer that the majority of IT organizations are eerily similar to classical communism. 

Big, centralized budget.  Centralized command and control.  Clear authorities who decide what gets done, and what doesn't.  Multiple committees and processes that are in charge of resource allocation that aren't entirely transparent.

We can argue whether this is successful or not, but have we considered the potential of a free market model? 

Should we?

Let's look at just a few of the elements of free markets, and see if there are useful analogies in the IT world.

Transparent Pricing

One thing that makes free markets work well is transparent pricing.  The cost of something is well known to all buyers and sellers, each who are free to enter the market (or exit). 

Do we expose pricing of all IT inputs to business users today?  Servers, software, networks, storage, application coders, admins, etc. ? 

Do people bid on resources?

Are there multiple "sellers", or is it a monopoly?

Public Goods

If you stayed awake in your econ class, you probably remember that there were certain goods and services that the free market couldn't provide, e.g. defense, public safety, certain kinds of infrastructure, etc. 

One of the roles of government is to provide these "public goods".

Although, even that is a bit blurry these days: toll roads being sold off, educational vouchers, private defense forces -- the line between public and private goods is changing in the real world.

Strangely, the same thing is happening in IT.  Email is a good example of a "public good" in IT, but how many people are considering outsourcing this in a SaaS model?

A Fair Market

Another role of government is to ensure a free market -- people don't lie/cheat/steal, harmful goods are identified and restricted, etc.

Going back to our IT analogy, maybe it's some of the same sorts of things -- "sellers" can do what they say they can do, stuff that doesn't work or cause problems is removed from the market, standards that help things work together, and so on.

And There's More, I'm Sure ...

Sooner or later, some big IT thinker will map free market concepts to IT organizations and strategy. 

The IT organizations that result will probably resemble more of an industrialized economy, rather than the Politiburo.

Now, let's be fair.  I don't think too many organizations are ready for this yet.  Lots of good reasons why this is a downright dangerous idea.

But you have to admit, it is intriguing, isn't it? 

And why shouldn't the same lessons we learned around allocating economic assets ultimately apply to IT assets?

Stay tuned ...

Comments

[Andy Lazenby]

Chuck,

I agree it's an interesting proposition, and one that might not be so far-fetched.

Decentralisation of IT is already happening in many organisations, albeit often under the radar and providing a limited set of services. As a BI consultant, my main experience is with the production of management information and I frequently see business departments providing this service themselves, sometimes supported by 'IT', sometimes frustrated that 'IT' don't get it and hold them back.

I'm currently involved in helping a client to consider the benefits and issues of creating a Centre of Excellence for Business Intelligence and one idea we've talked about is having a centrally-managed IT sub-function that seconds or loans resources (i.e people) out to business functions. That way, the developers work closely with the business teams whilst still having the support network (training, methodolgies, etc.) of a centralised team. The business departments would have to fund those resources whilst they hold them, preferably above cost price to cover the overheads of training and non-'chargeable' time between projects. Effectively, they'd be creating their own in-house consultancy firm.

It still amazes me that some organisations don't use internal cross-charging for IT staff used on business development projects, meaning it's almost impossible to compare the value they provide compared to what's available in the market. As a supplier to these firms, it makes it more difficult to compete, even in situations where we're confident we could provide a better service at better value than their internal resources (more often than not).

It doesn't seem too far fetched to extend the cross-charge concept to other IT resources such as hardware, software applications, etc. At that point, the provision could be outsourced as easily as insourced and market economics can be the mediator.

There will clearly be scenarios when the services or resources are so strategic (taking us back to your analogy of defense services), or the Intellectual Property so confidential, that outsourcing isn't desirable, but these will surely be the minority?

[Chuck Hollis]

Agreed

I think the idea is that IT becomes a "maker of markets" for IT goods and services, and a "manager of markets" to ensure orderly free trade, and look out for the public good.

That's enough to scare most people right there, isn't it?