This is a condensed version of an article that appeared in Rotman Magazine, published by the University of Toronto's Rotman School of Management.
The term "open" is rich with meaning and positive connotations. Amongst other things, it is associated with candour, freedom, flexibility, expansiveness, engagement, sharing and access. However, it is not an adjective that has traditionally been used to describe organizations. Adjectives like insular, bureaucratic, hierarchical, secretive and closed often apply much better.
Recently, the smartest organizations have been rethinking what it means to be open. In this article I will show that there are three particular dimensions of openness that really matter in the business arena. These three dimensions are related, but very different; let's examine each in turn.
Dimension No. 1: The Transparent Corporation
A decade ago, I conducted a multimillion-dollar research project with my collaborator David Ticoll on the topic of transparency. We argued that transparency was good for business, and ended up writing a decent-but-badly-timed book – The Naked Corporation: How the Age of Transparency Will Revolutionize Business. In it, we argued that the corporation is becoming "naked," and as a result, will have no choice but to rethink values and behaviours – for the better.
For most businesses, it increasingly makes sense to opt for openness.
Firms that embrace transparency and openness perform better. Back in the day, organizations were closed in part because they could be; they kept important information to themselves, especially with regard to flaws, errors or weaknesses and often defaulted to secrecy on a broad range of issues. Companies now operate in a hyper-transparent world: if a corporation is going to be 'naked' – and it really has no choice in the matter – it had better be 'buff'.
But which corporate functions need to be involved in managing transparency? Electronics retailer Best Buy has adopted the principle that its customers should know everything that the company knows, including data about the defect levels of the products it sells. CEO Brian Dunn says this is not just a matter of building trust; rather, "customers have a right to this information."
Dimension #2: Corporate Boundaries and Human Capital
The second dimension of openness with implications for business has to do with corporate architecture and boundaries. It has long been noted that the traditional vertically-integrated corporation is a paradoxical beast. Capitalist titans such as Henry Ford would champion the marketplace's virtues, yet their firms functioned like planned economies. For decades these corporate fortresses triumphed over competitors; but no longer.
The monolithic, vertically-integrated company has begun to falter against more lithe competitors. Smart companies are making their walls increasingly porous, using the Internet to open up and harness knowledge, resources and capabilities outside of their boundaries. They set a context for innovation and then invite their customers, partners and other third parties to co-create their products and services. In most industries, companies can innovate and perform better by creating such networks or 'business webs'.
Digital technologies slash transaction and collaboration costs, and the result has been that vertically- integrated corporations have been 'unbundling' into focused companies that work together. The mantra "focus on what you do best and partner to do the rest" is serving leaders of the global economy well. In the past, a company would outsource functions and ask for weekly or monthly status reports; today, the status reports are 24/7 as companies integrate their networks. Rather than offloading a process, open companies are collaborating.
Dimension #3: Sharing Intellectual Property
Openness contains a third dimension that can enable competitive advantage. Today, the only meaningful assets are knowledge assets and the only meaningful form of capital is intellectual capital.
Conventional wisdom says you should control and protect proprietary resources and innovations – especially intellectual property – through patents, copyright and trademarks. If someone infringes your IP, get the lawyers out to do battle. Many industries still think this way. Take the music industry. Tens of millions of technology-literate young people use the Internet to freely create and share MP3 software tools and music content. Digital music presents a huge opportunity to place artists and consumers at the centre of a vast web of value creation; but rather than embrace this fact and adopt new business models, the industry has adopted a defensive posture, taking a legal response to a business model disruption. Obsession with control, piracy and proprietary standards on the part of large industry players has only served to further alienate and anger music fans.
Today, a new economics of intellectual property is prevailing. The smartest firms are treating intellectual property like a mutual fund, whereby they manage a balanced portfolio of IP assets, some protected and some shared.
Sharing IP is different from transparency. The latter is about being open and communicating pertinent information about your organization to stakeholders. Sharing is about actually giving up rights, typically to inventions, ideas, software, content and other property. It's about placing property in 'the commons' so that others can benefit.
For individuals and small businesses, this is an exciting new era—an era where they can participate in production and add value to large-scale economic systems in ways that were previously impossible. For large companies, new collaborative tools provide new ways to harness external knowledge, resources, and talent for greater competitiveness and growth. For society as a whole, we can harness the explosion of knowledge, collaboration and business innovation to lead richer, fuller lives and spur economic development for all.
Don Tapscott is adjunct professor at the Rotman School of Management. He is the author of 14 books, including Grown Up Digital: How the Net Generation is Changing your World and most recently (with Anthony D. Williams) MacroWikinomics: Rebooting Business and the World. Follow him on Twitter @dtapscott