I have long held the view that the Open Source license agreement has been one of the most disruptive ideas to have hit the IT industry. The core concept of providing non-discriminatory modification and re-distribution rights within a copyright agreement has been, and continues to be, as great an innovation as any single piece of technology. But over the years that I’ve been researching Open Source I’ve been wondering whether it is actually part of some other, bigger, disruptive trend.
While so much interest has been put on the pricing and commercial dynamics of Open Source, I’ve found myself continually drawn to its other significant business value proposition. That’s the way its been used to normalize distortions in a value chain system.
Modern Western business models have long since moved on from the concept of vertical integration. For the last two decades the driving philosophy has been “core competency.” Organizations which focus on core competency are ultimately bound together in what Michael Porter called a Value Chain System.
But this business control system has a inherent risk. Should an organization monopolize a specific segment of a value chain system they can extract a higher percentage of its total proceeds. If the product, or service, in question is price elastic than those additional proceeds will come from other participants in the value chain system.
What then does a CEO do when facing a squeeze on their profits because a direct, or downstream, supplier is dominating a segment of the value chain system? Besides negotiating a better deal – if they can – they’ve been left with little choice but to get directly into that segment of the value chain system themselves. But by doing so their organization is distracted from focusing on its own core competency.
The risk of such an undertaking can be mitigated if there is a collective response by similarly affected members of the value chain system. After all, it is usually a shared problem. But collective responses have always had an inherent, and often fatal, flaw. Who owns the resulting assets? Either organizations enter into complex joint venture agreements to sort this out or run the risk of shifting the distortion in the value chain system to another organization.
What’s now being recognized is that there’s another option. Seek a collective response to a shared problem and make sure no one owns, or can control, the resulting assets. When the assets in question are intellectual property this becomes quite achievable. The solution, therefore, is the creation of collectively-owned assets as opposed to entity-specific assets.
The strategic decision frameworks and ongoing tactical efforts needed to create collectively-owned assets is something I’m calling Collective Competency (Gartner clients can read the associated research note – “Collective Competency: A New Business Pattern“). It doesn’t replace core competency. But what’s being realized is that core competency must be augmented by collective competency to be a sustainable model.
What’s interesting to note is that mechanisms to create collectively owned assets across the major types of intellectual property classes have emerged. Open Source and Creative Commons licenses are examples of collectively-owned copyright assets. Patent commons such as Eco-Patent Commons create collectively-own patent assets. And industry-specific standards organizations like 1SYNC and ACORD are resulting in transparent, standardized process and semantic definitions that previously would have been seen as organization-specific trade secrets.
In this broader context, Open Source is essentially an IT-industry specific instantiation of Collective Competency. And that, in part, explains why Open Source is becoming dominated by proprietary vendors. It’s because they are the ones that most acutely appreciate the existing or potential value chain system distortions that can impact their businesses.