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Open-Source Lessons for Managing Your Company

Open-source Lessons for Managing Your Company
Bruce La Fetra


New forms of communications currently are putting the squeeze on the hierarchical management structures used by most businesses today. Several useful lessons for management emerge from the open-source software experience where the limitations of the traditional model for software development and licensing led to the open-source revolution.

Open-source has revolutionized how software is developed and sold, delivering more options, better reliability, and lower costs. Wikipedia offers solid evidence that the open-source model extends successfully to other types of efforts, as well, with some companies even seeing benefits in open-source hardware. The mainstreaming of two-way communications such as blogs, wikis, and social media is enabling the next open-source opportunity: management.

Perhaps calling it "open-source management" goes too far. I'm not suggesting you turn over management of your company to a community of volunteers, but I am suggesting some deep and fundamental changes in how you operate based on the successes we've seen in open-source. Open-source management as a term is provocative, but it also captures the magnitude of the change better than terms such as collaborative management.

The primary goal of open-source management can be distilled down to a single, broad objective: increasing innovation within your organization. Innovation is the life-blood of any competitive endeavor and cannot be limited to product development. Innovation must extend across: marketing, customer service, sales, logistics, finance, and internal processes—pretty much everything your company does.

These changes reach deep into the culture of your company because they involve the gathering, control, and sharing of information. Information is both the fuel for decision-making, as well as the source of power, so this type of change is resisted in most organizations.


Two Forms of Open-Source: Distributed Innovation vs. Co-Creation

Conventional open-source focuses on distributing the act of creation among a community of developers with the goal of increasing innovation and quality while spreading the financial risk across the entire community. Open-source management, by contrast, focuses on co-creating innovation and value as a joint venture between various functional groups and between the company, consumers, and partners. Instead of individual actors, we find a series of small teams, but the methods and goals of increasing innovation and quality are similar to other forms of open-source.

Under open-source management, the company retains the central role, but one that is no longer exclusive or seems controlling. Risk is mitigated by encouraging lots of distributed innovations in place of rolling the dice on the occasional big thing. Your organization as a whole can significantly increase rewards without increasing its overall exposure since the risk from any single innovation is manageable. (It is either small, can be easily reversed, or both).

Is this any different than simply being open and collaborative with customers, suppliers, and partners? I believe it is. What I'm advocating requires deep cultural change for most organizations. That's not a bug, it’s a feature. Changing the way knowledge is controlled and shared is a revolution for most organizations. Organizations that lack a long-term commitment to collaboration are likely to see initial results, but long term failure as openness is repeatedly compromised to grab short-term gains.


Learning from traditional open-source communities

Traditional open-source communities can teach us a lot about managing effectively even if we are not turning our office over to a community of volunteers. Each of the principles below changes the way information is used and encourages greater innovation via co-creation.

Trust is essential. The level of collaboration and openness required is simply not possible without a high level of trust. It is not enough that your customers trust you; you have to trust your customers, as well. Ditto for functional areas within your company.
Don't rely on "experts" for decision-making. Knowledgeable people yes, but credibility should come from one's insights and reputation rather than one's place in the hierarchy. Empowering the people closest to an issue—be they employees, customers, or partners—leads to higher-quality analysis and more and better innovations.
Encourage trial-and-error learning. Centralized control drives aggregation which, in turn, encourages big decisions. Big decisions inherently carry greater risk. Thus, risk mitigation becomes an important design element. In the end, rewards are limited as much as risks. Empowering local decision-making flips this on its head and encourages many small initiatives and innovations.

The results from this type of approach can be dramatic. P&G experienced a sustained increase in the number of innovations compared with its historically proprietary culture. According to Baruch College's Andrea Gabor, not only is P&G producing more innovations now, but the innovations are quantitatively better with a success rate up to three times higher than in the past.


Steady Trickle Outperforms the Occasional Gain

With so much latent opportunity for improvement in most organizations, some big gains near the beginning are common, but the majority of gains will come in the form of a steady trickle. This is where cultural change is the difference between success and failure. Over the long haul, companies able to generate a continuous trickle of incremental innovation generally will outperform those betting on the occasional big innovation.


Collaboration Is Everyone's Job

Collaboration requires a lot of effort, commitment, and communication. Responsibility for the collaborative process should not be assigned to a single group because the commitment is not just for a few, but for the entire organization. The continuous improvement movement was undermined at many companies by the creation of the Quality Department. The CEO thought he was giving the movement status, but instead sent the message that quality was someone else's job. The results can be impressive, but the challenges in making the required changes to corporate culture will derail those who lack long-term commitment. Change is hard for many people, so executives must take an active role in supporting cultural change. Leaders have to align the interests of their employees, customers, and partners and create an environment that craves co-creation, and incentives need to reward continuous innovation so people stop waiting on "the next big thing." The co-creation at the heart of open-source management is an innovation engine whose fuel is the trust and transparency that is the hallmark of all open-source efforts.

Bruce La Fetra is a consultant focusing on business strategy to technology companies. Rubicon's clients include: Adobe, Logitech, Openwave, Nokia, Symantec, VMware, and many others. His writing has appeared in publications such as: The Pricing Advisor (Professional Pricing Society), Soft-Letter, Sandhill.com, and he has also been accepted for a major piece in Pragmatic Marketing's spring edition of The Pragmatic Marketer ("The Changing Face of Product Management," about the impact of collaboration). He earned an MBA from the Amos Tuck School at Dartmouth and spent almost 15 years in the trenches before becoming a consultant 7 years ago. E-mail him at bruce@rubiconconsulting.com