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Resilient Organizations & Open Networks

In Philip Auserwald’s recent book, The Coming Prosperity, he mentioned that open networks beat closed networks and larger networks beat smaller networks.

As regular readers know, I’ve been talking about similar ideas in the fast/fluid/flexible series on business models. His set of ideas provoked me into asking a series of questions to and with Philip and I thought you might like to see an excerpt from that conversation:

One thing I notice is that a lot of new companies using “open” to enter markets but existing (more established) companies seeing “open” as more of a threat to them. Is it possible to be big and also open?

You’ve offered a really provocative and counter-intuitive idea by talking about the challenge of turning 800-pound gorillas into 800-pound gazelles. How does that happen? And what could it possibly have to do with being “open” or “closed”?

When it comes to organizational change and adaptability, the metaphors that work for me are biological ones as well. In The Coming Prosperity I spend a fair amount of time talking about ants. There are a few reasons for this. The first is, when it comes to evolutionary success through adaptability, ants are awesome. An ant is a millionth the size of a human being, yet globally ants add up to as much biomass as humans. And they thrive everywhere–including many places where we humans couldn’t survive.

So what’s the trick?

The reason that ants have been so amazingly successful, is quite simple: “Ants, like humans, succeed because they talk so well.” That’s not me talking. That’s E.O. Wilson and Bert Hölldobler, probably the worlds two leading myrmecologist (yup… people who study ants). Ants succeed because they are superlative communicators.

In net, they adapt and ultimately succeed because they’re social, yes?

Yes.

To bring this back to “open” versus “closed” think about an ant colony. Where does it begin? Where does it end? The physical anthill is certainly not the colony. Step on the anthill, and within a day–maybe less–the colony will have built it back. The adaptability of the ant colony–just like the adaptability of a resilient organization–is inherently linked to its structure.

It’s neither full “close” nor  fully “open.” Rather, they are defined by the quality of the conversations that are the essence of their actual architecture.

I love the imagery, and the focus on dialogue…. but–having tried to put out a similar message–I’m not sure it’s going to convince the skeptics in the C-suite. You’ve also had quite a bit of experience as an economist studying incentives to innovate, the value of intellectual property protection, and the like. What do you say to people who see “open” as a threat to value capture and business sustainability?

Ha! You’re probably right. You’ve had more experience with those conversations than I have. So maybe my best bet is to bring you along as an interpreter! But, since you’ve asked the question, I’ll attempt an answer.

I’d probably start by going back to the case IBM, the world’s leading patent holder. Are they on the Hill lobbying for greater protections for themselves and other patent holders? No. They’re embracing open innovation at the core of their strategy. They started crowdsourcing ideas internally four years ago their fabulous Innovation Jams. Does all this mean they turning their back on their remarkable legacy of innovation? Do they not care about the future of their business? No on both counts. They understand that the transactions costs involved in innovating within the old (closed) system have come to outweigh the returns from intellectual property protection.

There’s a better way. You’ve called it fast/fluid/flexible. That sounds right to me. They get it–and they’ve been getting it for some time now.

Can this work in practice for anyone but an IBM?

Absolutely. In my book I tell the story of Seema Aziz, a remarkable entrepreneur based in Lahore, Pakistan. Over a quarter a century ago she and her brother set out to do something no one had succeeded in doing until then: producing world-class textiles in Pakistan. They obtained the best Swiss looms and worked tireless to improve the quality of their material. When they went to market, their product was an instant hit. From day one, they had a hard time keeping up with orders. But there was a problem: they were competing in a market full of low cost, low quality competitors. How could they prevent copycats from diluting their brand equity?

Legal remedies would be of no use, of course. (The movement of cases through the court system in Pakistan not infrequently ends up being measured in decades.) For a while Aziz and her brother experimented with marks of various types. But then they hit upon the perfect branding device: no brand. No mark. Nothing… nothing, that is, except for the feel of the material between a woman’s thumb and her forefinger. The unique feel of quality. Their brand was their product. The quality that was intrinsic was the one attribute that couldn’t be copied.

More and more in what you’ve been calling the Social Era, I think companies are going to be approaching value creation and value creation in this way–creating value through through intrinsic quality, not extrinsic legal protections.

The conversation of open vs. closed networks is an important one. We can look around and see examples of how open is used as a different strategy if the closed network owns a space. For example, Facebook is closed, and Plaxo then used Open as Scoble wrote about. And Apple is an example of both closed and open. Open in terms of many developers can play, and thus utilizing the power of many, but most of the design of the core operating system is closed and proprietary.

This conversation with Philip reminds me of the Cathedral and The Bazaar, written by Eric Raymonds. The open / closed argument, to me, is not which one is “good” and which is “bad” but to understand which can be used as a strategy to win in the marketplace given the environmental context, industry players. The Coming Prosperity book is as profoundly insightful as that Cathedral/Bazaar was to me some 10 years ago.

If you want to stay in touch with him and his ideas, check out his website here: (and in longer form here: http://auerswald.org/)

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