Wikinomics
How Mass Collaboration Changes Everything
By Don Tapscott & Anthony D. Williams
Book Report by Steve Ruberg
Don Tapscott has written several books (e.g. The Paradigm Shift, The Digital Economy
and more). Williams works for New Paradigms and teaches at the London School of
Economics. The book is probably the most intriguing business book I have ever read,
and I think there are an enormous number of lessons for us to apply to our business.
If you were wondering what S2 is – this is it!!! Wikinomics.
[Note: I use “double quotes” when I extract a statement directly from the book and
‘single quotes’ to reference other sayings or comments. All other text is my distillation of
the concepts in the book.]
The title of the book derives from the concept of a wiki (Hawaiian for ‘quick’), the most
notable example being Wikipedia, in which individuals participate to co-create a product.
At its core, this book highlights how the internet is no longer an “information superhighway” (i.e. a way to deliver massive amounts of content and information), but rather
“a giant computer that everyone can program.” This creates a mechanism for creating
new business models by connecting people simultaneously in new and previously
unimaginable ways to create value and to destroy old business models. The web is now a
dynamic environment creating communities rather than a static tool for managing
transactions.
This book, if you believe all it portends, describes how the business world is changing
due to collaborations enabled by telecommunications technology, computing power and
the internet with one additional and critical piece - the Net Generation that is facile with
technology for collaboration, socializing, file sharing and more. Most 40 year-olds and
older think they know what collaboration is - we get a cross-functional team together in a
meeting room, or maybe we even connect people in remote locations via telecom or webcon, or maybe we even share an eRoom space. However, the book profiles a sizable list
of companies that have used collaborations in enormously creative ways to generate
value or to drive transaction costs to near-zero, thereby threatening established or
traditional businesses. There is a huge emphasis in the book on blending internal experts
with external experts to capitalize on knowledge and talent wherever it exists in the world.
The corollary to this is that the defining competency of individuals and leaders in
companies of the future is the ability to integrate and leverage globally dispersed talent
and capabilities. “There are always more smart people outside your enterprise boundaries
than there is inside.” More and more we have the tools to find and leverage that talent. I
will note that Eli Lilly in mentioned on many occasions throughout the book for its
innovation in this regard, and Alph Bingham and Darren Carroll are quoted.
The principles of wikinomics are openness, peering, sharing and acting globally.
While these may seem obvious and trite, the business examples given in the book are
anything but that. I will share some of them here. First some notes:
Openness means sharing even what has been traditionally proprietary; it requires
standards and “porous” company boundaries;
Peering is the collaboration of peers in a structured way and is self-organizing of
masses of people rather than hierarchical command and control;
Sharing is opening up your intellectual property to others and letting others
generate value that you cannot do yourself;
Acting globally means that you have a global workforce, unified global processes,
a global IT platform etc. My question is: Are you global, or just all over the map?
The authors write, “These four principles …increasingly define how twenty-first-century
corporations compete. This is very different from the hierarchical, closed, secretive, and
insular multi-national that dominated the previous century.” Furthermore, “We must
collaborate or perish – across borders, cultures, disciplines, and firms, and increasingly
with masses of people at one time.”
It is well understood that price is something that emerges from any free marketplace.
That is, no one person/company sets the price of a good or service; it is the collective,
competitive market pressures that drive and ultimately set the price. It is a natural result
of a self-organizing system. Now, companies are realizing that this concept of emergence
can be intentionally (as opposed to being an un-intentional by-product of a system)
applied to broad collaborations in many different ways to produce a self-organizing
system/product that is better than any one group could create. There is a certain “wisdom
of the crowds.”
The authors reference Ronald Coase’s paper written in 1937 entitled “The Nature of the
Firm.” [Note: This is the best business paper I have ever read, which also has broad
implications for our business. If you need a copy let me know.] Coase basically asked the
question ‘why do firms do some work themselves and buy/contract with other companies
to do other work?’ For example, Ford Motor Company of yester-year bought desks,
paper and other office supplies, but owned their own rubber plantations in South America
for the tires on their cars. Why didn’t Ford make its own desks/paper or own forests? He
logically extrapolated to the question ‘why do people join a company instead of
contracting their services on an as needed basis to do a specific job?’ This is the
equivalent of the movie-making industry in which actors, set-designers, costume makers,
sound crews, etc. collaborate to make a movie and the ‘break-up’ to find the next movie.
The answer Coase surmised was transaction costs. In the first example noted above, if it
cost a firm more time and money to do something externally than internally, then it was
better to own it and do it than to buy it. [Note: an insight of Coase was that this also
applied to the flow of information. Tracking long-distance activities, finalizing contracts
etc. took an enormous amount of time since mass and immediate communication was
largely unavailable at that time.] In the second example, Coase noted that the transaction
costs of recruiting and training people and making individual contracts made it more
expeditious to ‘own’ the people rather than ‘rent’ the people on an as needed basis.
Coase’s superior insight at the time was that as transactions costs (the flow of workers,
goods and information) decreased, the nature of the firm would change and we would see
more partnerships, joint ventures, virtual companies, etc. (he did not use these terms but
conveyed these concepts). For this insight he won the Nobel Prize in economics in 1991
as the Internet was emerging.
“The most important lesson to take away for the moment is that emergent phenomena
tend to win in the marketplace. Ten thousand interoperating agents can often marshal
more bandwidth, more raw intelligence, and more requisite variety than the largest
organization. The business challenge is to form – even to foster - symbiotic relationships
with emergent structures, since the fundamental nature of self-organization is that it
cannot be controlled easily, but it can be steered.
“Smart firms are thinking carefully about how to navigate the field of open versus
proprietary technology … This is particularly important in areas like innovation and
knowledge management …”
The authors identify several categories of models involving “weapons of mass
collaboration” organized into separate chapters. In my opinion, some of these categories
overlap or are not entirely distinguishable, but then again each category has as its basis
the same concept - mass collaboration.
Peer Pioneers
There are well-known open source products that have become mainstream in the
marketplace - software like Linux and information like Wikipedia.
Linux was created and is run by Linus Torvalds and a small group of people who manage
the software contributions of thousands of programmers around the world to make an
operating system that rivals Microsoft. IBM contributes about $100 million to Linux
development for free but makes over $1 billion in consulting services related to Linux
implementation. Had I BM continued in its traditional path of creating software, it figures
it would have needed 5-10 times that investment to develop and maintain its own
operating system let alone marketing and selling it against Microsoft.
Wikipedia is an on-line encyclopedia that is the largest encyclopedia in the world, offered
for free and created entirely by volunteers. It is about 6 years old and has more content
with equivalent accuracy to Britannica (based on Nature magazine’s comparative
analysis). All this is done with 5 full-time employees. On average, an obscenity
randomly posted in Wikipedia is removed in less than 2 minutes by another contributor.
The wisdom/power of the crowd swarms toward new or inaccurate entries, vandalism or
defamation, and so-called edit wars, etc. and fixes them faster than any editorial board
could ever do.
The benefits to peering are harnessing external talent, keeping up with users/customers,
boosting demand for complementary offerings, reducing costs, shifting the locus of
competition, taking friction out of collaboration, and developing social capital.
The business question is “… If as an entrepreneur, I open source my product or
technology, how do I make money from an asset that I no longer control?” More and
more companies are finding ways to do this.
Ideagoras
This term is taken from the bustling Greek marketplaces known as ‘agoras’. It is the
concept of using the world as your marketplace for ideas and talent. InnoCentive is the
quintessential example in this section, and Eli Lilly is highly recognized in this regard.
“The world is your R&D Department. … The deep-rooted ‘plan and push’ modality will
give way to a new approach to innovation where companies engage and co-create with
the best available talent, wherever it is in the world.”
“Acquisitions, alliances, joint ventures, and selective outsourcing are simply too rigid,
and not scalable enough, to drive growth and innovation at a level that will make
companies truly competitive.”
Perhaps one of the most striking examples in the book is that of Goldcorp, a stagnant
gold mining company. They were facing less gold in their mines and higher costs to
extract it. Against the advice of most internal folks, the CEO made the bold decision to
open up the company’s most confidential and proprietary asset – its geologic data. This
data had been analyzed incessantly by internal geologists and scientists without yielding
new information about where or how to find additional gold on their property and in their
mines. Within 2 weeks of the release of all the data publicly, Goldcorp received
numerous analyses, models, predictions, and approaches for how to find more gold,
where to drill, and how to extract it efficiently. They reviewed submissions, paid rewards
for those that were most promising and pursued the best ideas. Goldcorp has gone from a
$300MM company to a $3B company (10-fold growth) in about 3-4 years. It also has
more gold to mine than it had ever dreamed and will be profiting from their existing
mines for years to come.
Before launching an “ideagora” companies need to understand and define clear goals and
guidelines for what kind of idea marketplace they want to create and how they will derive
value from that marketplace. “Smart firms will build their R&D organizations around a
core of question askers and outsource most of the problem solving.”
Prosumers
The line between consumers and producers is blurring in some areas. The most notable
example in this category is Lego. A prosumer approach is not to be confused with
customer centricity - where producers pay close attention to customer needs and allow
customers to select from a variety of features to ‘customize’ a product. Prosumerism is
allowing the customer to co-create products with you and to share them with other
customers.
In 1998, Lego released a product with programmable pieces to turn its interlocking
blocks into programmable robots and machines. Shortly after the release of the product,
consumers starting hacking the software and creating their own programs to do much
more than what Lego engineers had designed. Initially, Lego threatened to sue those who
were ‘violating’ their software license, but quickly reversed their position when they
realized that they had an enormous source of creativity to co-develop their toy. Lego
now has a web-site (mindstorms.lego.com) where users can share software for
programming Lego toys. Furthermore, Lego offers free downloadable development
software so that consumers can easily make new creations and share them with other
consumers. “It’s a bit like open source Lego.”
“Lego’s fusion of mass customization and peer production remains rare enough in
today’s consumer products market to make the idea particularly outstanding.”
Strategically, Sony PlayStation and Apple iPod, for example, have decided not to take
this path of opening up their systems for remodeling and co-creation by others. To date,
they are controlling their inventions because they see more value in having a dominant
proprietary approach rather than an open approach where value is gained by sharing the
‘wisdom of the crowd.’ We will see how long this last, especially since Apple failed with
this approach 2 decades ago with the PC.
“Industry must come to a realization that they can hold a great deal more in an open hand
than they can in a closed fist.”
Another example of prosumerism is the reader-compiled on-line news called digg. Stories
are posted by the masses and readers vote on stories that are good or send them to their
friends. The more activity a story gets, the more it gets promoted to the ‘front page’ of
the on-line news. Presently, about 150,000 users contribute to digg. The readers are also
the producers.
New Alexandrians
This comes from the early Greeks who wanted to create the greatest library that contained
all the knowledge of the world – books, histories, literature, science, etc. – the fabled
library at Alexandria. The most notable example of this is Google, which is compiling
huge libraries of digital information. The authors state the human knowledge doubles
every 5 years. [Note: I have read that human knowledge doubles approximately every 3
years, and has been doing so for as far back as anyone can evaluate. Of course, that
means that 90% of everything we know today has been discovered in the last 10 years –
and that statement is true at anytime in the course of history.]
The Earth System Grid (ESG) is building huge database from weather station grids
documenting the Earth’s weather. There is the Human Genome Project as another open
source of rich genetic information. The European Bioinformatics Institute is
revolutionizing the integration of vast amounts of biological data from very different data
sources – genetics, geographic distribution, taxonomy/lineage, etc. GenBank has a
repository of 100 gigabytes of genetic code on 165,000 organisms, which will allow us to
map entire ecosystems, not just individual organisms.
Interesting statement: “These microscopic spirals of DNA amount to something like an
operating system for humans.”
In this section Merck is cited for opening up its Merck Gene Index to the public as a way
to keep genetic information from becoming controlled, closed or proprietary information
for exploitation by private companies. There is a discussion about “open source drug
discovery” with comments from Frank Douglas, formerly of Sanofi-Aventis. [Note: A
former boss of mine.] Industry and university partnerships are advocated as a way to
open up innovation and share risk. “Companies can’t open the kimono all of the time.
Companies need to defend their assets and work hard to create proprietary advantages. …
Keep the science open and the applications proprietary.”
Platforms of Participation
More and more companies are opening up their software by making APIs public and
allowing others to integrate new functionality, capabilities or content that spawn whole
new applications or an integrated delivery solution. eBay, Amazon and Google are good
examples of this. When someone takes two or more applications and links their
functionality to create a new tool, it is called a “mashup”. housingmaps is a mashup of
craigslist (an on-line classified service with homes for sale) and Google Maps. The result
is a mechanism to find houses for sale more easily.
PeopleFinder was a mashup created for victims of Hurricane Katrina that was pulled
together by volunteers in less than 4 days with no cost – only volunteer programmer time.
It far surpassed anything FEMA or the Red Cross could do or did do. On its first day online it registered 50,000 people and helped locate them, and ultimately had an index of
650,000 people. It quickly became the reference point for government services for
finding and helping people.
eBay and Amazon allow others to run their sales business through their applications and
interfaces for payments, processing and distribution. Besides getting a cut of the business,
eBay and Amazon leverage these business partners which also create applications,
thereby extending their own B2B capabilities. It’s like open source for business.
The Global Plant Floor
This chapter deals with amazing companies that are leveraging engineering design and
manufacturing globally to assemble products such as motorcycles and airplanes. The
best examples of this are Lifan, a Chinese motorcycle manufacturer, and Boeing. Lifan
treats suppliers not as suppliers or even partners, but as peers. Their motorcycle is a
collection of assemblages that are designed by suppliers who work in close collaboration
with open specifications so that all the pieces come together quickly and easily in the end.
But each ‘supplier’ is responsible for design and optimization and for openly sharing
what it is doing. Lifan has taken 70% of Honda’s small Asian motorcycle business in
less than 10 years and brought the cost of such a motorcycle down from $700 to $200 in
that same time period.
Boeing is doing the same thing with its new 787 Dreamliner aircraft. It is not outsourcing
as Boeing has done before – it is open collaboration among designers of wheels, wings,
cockpit, engines, etc. The electronics specification document for the Boeing 777 was
2500 pages alone and detailed everything that the ‘suppliers’ had to deliver in
excruciating detail. The same specification for the 787 is 20 pages!! Everyone shares
data and designs to insure the pieces all come together. It is the Linux version of building
an aircraft. The final modular assembly process for the 787 will be a mere 3 days!!!
“Innovation is less about inventing and building things and more about orchestrating or
coordinating good ideas.”
“Always strive to be the best at what your customer values most and partner for
everything else.” For the most part, BMW doesn’t build cars anymore. It focuses on the
driving experience and understands the customer interface - the look and feel of the car.
More and more, it outsources all the actual building of the car.
The Wiki Workplace
“We are shifting from closed hierarchical workplaces with rigid employment
relationships to increasingly self-organized, distributed, and collaborative human capital
networks that draw knowledge and resources from inside and outside the firm.”
Robert Stephens, the founder of the Geek Squad (which is uber-successful), says,
“Instead of trying to set an agenda, I’m now going to try and discover their agenda
[referring to his workforce of young, inquisitive, tech-savvy people] and serve it.”
“Whereas previous generations value loyalty, seniority, security, and authority, the NGen’s norms reflect a desire for creativity, social connectivity, fun, freedom, speed, and
diversity in their workplace.”
[Amazing note: More than 100,000,000 young people from around the world hang out on
MySpace, and the vast majority of people over the age of 30 have virtually no ideas what
it is or is about.]
“The ability to use wikis will be a required job skill in 5 years” – much like using e-mail
is today.
“Clear goals, structure, discipline, and leadership in the organization will remain as
important as ever, and perhaps more so as peer production emerges as a key organizing
principle for the workplace.” There will always be a need for some proximity and direct
human interaction in which we all learn and communicate through subtle body language,
intonation, etc.
“The days of lifelong employment and pensions are already long gone. … Our work may
still largely define who we are, but employers no longer will.”
“In the new world of wikinomics, it turns out that just about anyone can be a leader.”
Bottom line: Open up the boundaries of your firm to global resources, and share
your knowledge so that you can attract and leverage talented people that are treated
as peers.