Open-as-Strategy Part II: The Three Dimensions of Open Value Creation

As executives and senior government officials that want to unlock the value from next generation technologies, we will need to address the following three questions: How can we employ openness strategically? How can we organize and manage collaborative communities that combine their knowledge? What are the appropriate platforms for our specific collaboration needs?

In more than 10 years of working with senior executives at major corporations such as Pepsi Co, Google, CEMEX, BMW, and governments in Europe, Africa and the Americas, we have identified three dimensions that we need to consider when implementing open-as-strategy. All three are necessary by themselves, but only together they are also sufficient to unlock the value of open-as-strategy.

The First Dimension: Open Strategy Design

For the last 30 years variations of competitive strategy such as Porter’s five forces, portfolio analysis, BCGs learning curves, new market development, and blue oceans determined how we think strategy today. Originally, competitive strategy was built on the 19th Century Prussian military understanding that business could be described through strategic interaction of rational players in environments that stay relatively stable over time – keeping information secret from the competitor/enemy was integral to that.

Competitive strategists basically do the following: analyze their market, forecast the future, and optimize the company accordingly. This might have worked very well for the stable business world of the 60s, but it assumes that we can know all of the relevant variables, including who our competitors are, and that we can forecast their actions. These assumptions unfortunately do not work very well in today’s world. There are technological reasons for this, the open Internet favors network organizations that organize flexibly across space and time, but also an increase in complexity, with non-linear corollaries such as tipping point situations, unintended side-effects, and butterfly effects.

In terms of organization, we have been observing a move from the simple black box production framework, the value chain management of the 1980s, to the co-production or supply chain management of the 1990s and to peer production and shared value creation (user-generated communities). Some of the most successful companies of the 21st Century are creating incredible wealth by organizing collaborative communities and then skimming some profit from that. Google, Facebook or Apple are just the tip of the iceberg. Kickstarter, the Pebble Watch, MySportWorld, Fab, Ushahidi or even Wikipedia are harbingers of a new type of economy organized around the strategic opening aspects of their value chains. This means that our focus in strategic thinking in business changes from competitive strategy (positioning) to communicative strategy (building, persuading, integrating, gardening), because more of the value-added is generated from the non-Prussian strategic aspects of opening the value chain and building communities of collaborators.

The core idea is to cut up the value chain into modular, granular, and redundant processes so that very different contributions can be integrated without endangering the quality of the output. A collaboration platform must be governed by a combination of self-enforcing code, simple but strong core principles, automated quality control, and an inclusive culture (think Canonical’s Launchpad or Wikipedia’s rules of engagement).  The sustainability of a firm’s ecosystem is the strongest indicator for competitiveness in such a world.

The Second Dimension: Open Community Management and Leadership

With the advent of constructivist thinking in schools in the early 1980s, teachers have been slowly moving from taking the role of “the sage on the stage, to the guide by the side.” This is a process that has taken time and has not yet been mainstreamed in most schools in most countries, but in the second decade of the 21st Century senior executives that went to elementary school in the 1980s have been making their mark on the enterprise. The appointment of Marissa Meyers to CEO of Yahoo, the role that the founders still play in Google or Facebook are prominent examples of that transformation in leadership.

Constructivist or Anti-Leadership is moving from clear targeted communication, incentivization design and the effective use of carrots and sticks to a moderating role of community management. The core principles of anti-leadership are fairly easy to outline. When you cannot analyze, forecast, and plan anymore, you need to empower your organization to be able to modulate it to turbulent contexts, by allowing for variation (think of Google’s 20% rule), define meta-principles of selection through mechanisms such as simulation, scorecards, or actual performance (think Google’s testing of any interface changes), and amplify what works, through scaling-up mechanisms. For example, Hackfests or Hackathons, events in which computer programmers and others in the field of software development, like graphic designers, interface designers and project managers, collaborate intensively on software-related projects have been proliferating as management instruments. Facebook’s Pedram Keyani argues in Wired,

“There have been hackathon projects that have changed the direction of the company in terms of what we focus on, and how we think about our strategy, and what we realize is possible. The thesis is, if 100 people have an idea that could be awesome — the next big thing — try all of them. 99 of them are going to be terrible, but there’s going to be that one idea that is going to be awesome.”‪

Other such instruments of community management are ideation jams, contests, open workflow systems, electronic townhalls, etc. Executives need to learn to become community leaders that are able to engage communities successfully over time. Great leadership becomes a question of organizing communities.

The Third Dimension: Platform Selection and Interface Design

The Internet, Cloud Computing, Big Data, Cybersecurity – or if we drill down XML, Wikis, Blogging, and Social Software – once intertwined transform strategy. Open value creation is possible because of these new technologies that allow us to structure idea generation and information aggregation in digital form. The core technologies of open value creation are the wiki (principle-based, user-generated platforms with flexible moderation capacity), the forum (question driven user-generated knowledge platform), blogging (core message with feedback/discourse loop), and work flow management and visualization tools. The overall trend of the social changes deriving from the utilization of web 2.0 technologies is a move from market-based “at arms-lengths”  and hierarchy-based firm relationships as described above to platform-based exchange relationships that can be categorized as,  peer production communities. These can be implicit, algorithm-steered (post-human) anonymous interactions that lead to value creation (the amazon recommendation engine, google search, spotify, etc.). Or, workflow-based granular/modular asynchronous social co-production (Wikipedia, Canonical’s launchpad, Basecamp, etc.). Or mediated social production and world creation (facebook, Xing, Ning, LinkedIn, etc.). Senior executives need to understand the situational logic of these platforms and be able to integrate them into their strategic frameworks. They need to assure that interface design questions “how do contributors interface with our systems?” get the needed attention. Bad design kills great ideas.

Next Generation Systems Integration: Connecting Strategy, Community, and Technology

Only a combination of the three dimensions leads to a successful integration of openness into the process of value creation. Together they allow us to structure value creation processes, by enhancing ideation (idea-generation), deliberation (commenting and discussion), collaboration (generating value), and accountability (parsing data to hold organisations accountable).

What we need is a new way of reimagining the corporation: Systems integration that understands openness as a fundamental tool for value creation combining strategy, community management, and platform design. Next generation technology and services provision needs to have this framework as an arrow in its quiver. It is the biggest challenge facing us since Champy and Hammer originally formulated the idea of reengineering the corporation around processes 20 years ago.

 

Philipp Müller

Philipp Müller

Philipp S. Müller is a director at CSC and teaches/has taught strategy and leadership at Harvard, the University of Salzburg, Sciences Po, and Universidad de los Andes. He is the author of three books and many articles focusing on the interplay of information technology, strategy, and organization.

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Comments
3 Responses to “Open-as-Strategy Part II: The Three Dimensions of Open Value Creation”
  1. Dominik Golle sagt:

    I think you are on a very interesting track here – in the end, it’s not only about how business organizations are going to employ openness strategically but also the archetype of all organizations: society. Bearing in mind the German experiences with the Pirate Party, total openness seems not to be the answer. As everywhere in life, humans need structure – it gives us security and saves us from making mistakes. Still, all structure and no flexibility would lead to a creative standstill in companies as well as in society. So the big organizational challenge of all the societal actors today is to find the right balance between openness and closeness, between structure and flexibility. Some companies have already understood how to employ openness strategically. Especially in cloths or craft design, a fruitful balance has recently been established: designs are crowdsourced, i.e. either photographed on the street or sent in by individuals. Then, the online community rates all the designs available and the ones with the highest rating are reviewed by the actual designers fulfilling somewhat of an editing function. If a design passes this final test, it gets produced and the benefits are shared between editors, infrastructure providers, and designers. This might be a model for a future political system with the remaining (and unanswerable) question, just how much power an political editor should have. Should the editor only be able to choose between the options made available by the wisdom of the crowd? Or should the editor have the power to reject all available options and even propose own solutions?

  2. Frank Danzinger sagt:

    Again, I think that this goes into the right direction. A very important aspect in this discussion, however, was only slightly touched in your article (you named accountability as an important aspect for next gen systems integration). The point I am talking about is “measurability” of these effects. So, it is the question: How can we measure the effects of these developments, other than just highlighting successful cases for which we could also name many similar but unsuccessful cases (e.g. studiVZ). I consider this to be an important factor for two reasons. On the one hand, most people and organizations believe in “it’s only true if I can measure it” and act accordingly. On the other hand, it shows us that the perspective is important (as also the previous comment has highlighted).
    First, I believe that if we (any consultant, org designer, etc. who is interested in this topic) can develop and demonstrate credible measures for these effects, we can co-create much of an organizational change in traditionally-run organizaitons. Thus, I consider this to be one of the most pressing aspects in this discussion.
    Second, the perspective is decisive. We need to be cautious if we mix up the societal and organizational discussion. From an organizational perspective, I there is one very important word the explanation for your first dimension that shows us why organizations have a major problem with this idea: the word is “redundant (processes)”. As you have said, we are trained to optimize. Thus, only modularizing and granularizing organizations is what we know from modularization and business process optimization ideas from the 1990s. The problem is redundancy – why should organizations now start to understand why redundant systems (which have been known as inefficient and only good for backup) should suddenly be the efficient alternative to their business operations? – At this point, the proof of concept – which is again measuring the effects come into play. If we take the idea of redundancy to the societal perspective, we probably need to discuss the issues of openness differently. Redundancy can be profitable for FB, Google and others. However, it means that the same work can be done by hundreds or thousands of individuals with low or no compensation. (e.g., a high number of contributors is good for an organization that runs an idea contest which assigns awards only to the first three designs, but the other contributors have just participated for fun and may have spend long hours without direct compensation). Consequently, organizational and societal considerations can be contradicting in terms of efficiency – again, measuring the direct and indirect effects might provide a better basis for developing new participation schemes that contribute to openness (e.g. compensation schemes like on Amazon’s Mechanical Turk).

    • Thank you – I agree on both points.

      Let me build on your argument: in order to get a grip on the “global” efficiency of redundant system design, we need to develop a better understanding of the role of idle time/cognitive surplus (Shirky 2008/2010) in our organizational and societal processes.

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