Beware of Geeks Bearing Gifts: Strategies for an Increasingly Open Economy

The success of open-source software has far exceeded initial expectations. When Linus Torvalds launched the Linux project back in 1991, few people could have imagined that free software developed by open communities would ever match, let alone surpass, the efforts of industry giants such as IBM and Microsoft. Yet in a wide range of areas this has been precisely the case. Without the contributions of Linux, Apache, Java, Perl, Python, MySQL, Hadoop and countless other initiatives, the internet would be a smaller, less interesting and much more expensive place.

Beware of Geeks Bearing Gifts: Strategies for an Increasingly Open Economy

Having observed these extraordinary achievements, we have long speculated that the ‘open’ meme would eventually spread to non-IT sectors. There are three main reasons why we think this is likely. First, software has become increasingly important in virtually every industry, and thus it seems logical that the dynamics of the software industry would spread to other sectors. Second, as the internet is now the backbone of most modern businesses, much more open forms of community innovation are now possible in just about every industry. Third, cost and innovation pressures are now so great in so many sectors that new approaches must increasingly be considered.

While these forces have existed for some time, it appears to us that open technologies and approaches are now starting to become widespread across the broader economy. In addition to many open software projects, we have recently seen a growing emphasis in universities on open science and open curricula; increasing government commitments to open data; and perhaps most intriguingly, impressive demonstrations of the power of open-source manufacturing designs when combined with 3D printing. There is now open activity at virtually every level of business and IT.

With examples as diverse as the extraordinary success of Linux, Wikipedia and Hadoop, NASA’s presence on GitHub, important initiatives in open banking and healthcare, the open design of cars, and even Manchester City’s adoption of open data for Premier League football player statistics, there is clearly a great deal going on. At the time of writing, the Black Duck Software knowledge base
of open-source projects estimated that there were over 600,000 open software initiatives which have created over 100 billion lines of code through 10 million person-years of human effort. The economic value of this work is impossible to calculate, but is clearly vast.

These developments are particularly exciting for Enterprise IT. As the importance of open software and more open practices rises across the economy, IT’s knowledge and experience in these areas can be leveraged in new and often highly strategic ways. The open meme covers a broad range of issues, from access to and re-use of software code, to interoperability standards and licensing terms and conditions, and transparency of process and governance. Many businesses will need to gain experience in these areas and the forms of cooperative competition they often imply.

Meanwhile, the open meme will continue to reshape the IT industry. While the term ‘OpenStack’ has been officially adopted by Rackspace in its open-source cloud computing project, the spread of cloud computing is clearly driving the development of an increasingly comprehensive open computing environment that spans the full IT stack of hardware, system software, development and management tools, APIs, applications, and increasingly data as well. These changes are creating major challenges and opportunities for Enterprise IT organizations that have grown up with much more proprietary approaches. It is an important area of LEF research.

More people must play the open game

History has shown that open business approaches are not just about saving money by using free software. The most significant effects have often been strategic and this continues today. Competition between open and closed approaches is at the heart of the great smart phone battle between Apple and Google; it is central to concerns that iPhone apps and Facebook are essentially ‘walled gardens’; and openness is often the key to responding to the public’s demand for more accessible, transparent and accountable government.

Sir Tim Berners-Lee has made these issues a high priority in recent years. At the recent LEF Executive Forum, he encouraged our clients to get involved in areas traditionally dominated by the IT vendor and research communities. Issues such as online privacy, identity, interoperability, linked data and machine-to-machine semantics are no longer just IT vendor issues. He also argued that the potential to make government information available via open data platforms has barely been scratched, and holds many opportunities for both value creation and improved societal understanding and cohesion.

Learning from Web 2.0

In 2011, we assessed what can be learned from so-called ‘Web 2.0’ companies such as Amazon and Google, focusing primarily on how these firms operate, from their use of commodity components to their architectural practices and methods of organization. We identified many distinct differences from the ways that corporate computing has been traditionally managed which we think will prove instructive in terms of improving agility and lowering costs. Many of the tools behind these practices are increasingly being open sourced. We will continue to track these practices as they evolve.

In 2011, we also researched the closely related issue of business transparency. Our Position Paper Conceal or Reveal? Transparency Strategies for Business Advantage showed that transparency is an organization-wide issue, with implications for executives, product development, sales, marketing, HR and individual employees. We found that while every firm has a de facto transparency strategy, relatively few had an explicit one. Open system strategies are also often more implicit than explicit. The relationship between openness and transparency will be an increasingly important business concern.

For this report, we focused on how both new and traditional firms are playing the open systems game. We found that virtually all large, successful firms use a mix of open and closed approaches as part of their everyday business. What differentiates firms is not the existence of a process for deciding whether to use open-source technologies or open their own systems, nor their ability to determine whether something is a form of competitive advantage and therefore should not be opened. The differentiator is the ability to anticipate the impact of these choices on their and competitors’ value chains, and a willingness to use open approaches to alter markets in their favour.

Looking ahead, IT strategy will increasingly be about shaping the competitive landscape to the company’s benefit. It is not surprising that today’s Web 2.0 leaders are the farthest along this path – after all, open concepts have been shaping the IT industry for more than 20 years. But as we have said in our previous Web 2.0 work, we believe that the strategies that are being used by open technology leaders today will be increasingly commonplace in the future. This report will provide numerous examples of how open systems are being used for both strategic and tactical purposes.

Be aware that your competitors will choose to use IT in this manner even if you do not. As the title of this report suggests, open technologies are moving beyond the stage of being innocent community contributions, and thus business/IT strategists should increasingly be wary of geeks bearing gifts.

Alternative open technology approaches

Figure 1 – Four approaches to open technology

Figure 1 – Four approaches to open technology

As shown above, we have identified four main types of organization, defined by their tendency to think strategically about value chains and their willingness and ability to use open technology as a means of competing. Each group is described below:

  • Players: These companies use open technology as a means to compete and think clearly about the impact of open technology strategies on their value chains and those of competitors. This group has a high affinity for the more advanced strategic plays and is dominated by companies identifying themselves as Web 2.0.
  • Thinkers: While these companies tend not to use open technology as a means to compete, they do consider its impact on their value chains and those of competitors. This group understands the game but chooses not to engage seriously yet. It consists of a mix of Web 2.0 and traditional firms.
  • Believers: This group, mainly small Web 2.0 companies, uses open technology as a means of competing but does not show a strong affinity for strategic play. Their attitude is to be ‘open by default’ and hence they are as likely to reduce a barrier to entry into their own business as to create an advantage over others. This group noticeably differs from the main population, as
    they are far more willing (for example) to open-source an area of competitive advantage.
  • Chancers: This group ranks low on both axes. Most are traditional firms who are not necessarily unaware of the games being played, often citing
    competitors as using these strategies, but they have no defined open strategy and mostly make ad hoc open technology purchasing, implementation and operational choices.
As a starting point, we suggest you ask yourself which of these groups best describes your organization

As being more open and transparent becomes an important organizational requirement, IT is well placed to earn a seat at the top table. Business and IT increasingly appear to be co-evolving. This means that the lessons that IT has learned through 20 years of open systems development are becoming relevant to an ever-widening range of industry sectors, making open systems a business as well as an IT imperative.

Over the coming year we will continue to assess the potential for more open and transparent strategies, and how firms balance these pressures with their traditional needs for security and confidentiality. It’s one of the more intriguing strategic challenges of our increasingly open and internet-based world, and one where Enterprise IT can play an important leadership role.



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