The rise of Social Capital and collapse of traditional Market Signalling

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My essay, which was selected into top 15 finalists at Peter Drucker Challenge.

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The rise of Social Capital and collapse of traditional Market Signalling

  1. 1. Open Source Collaboration The Rise of Crowdsourcing, Social Capital & Collapse of the traditional Market signalling∗ † ‡ Ekta Grover July 13, 2012Introduction Traditionally for the work which couldn’t be done in-house, the organizations would warmupto Contactors, Outsouring Solutions, or supplement it’s seasonal business cycle needs byhiring Interns. What we are now seeing is a tectonic shift from that trend. There are three reasons for this change. One, the ”super-skills” are becoming obsoleteat a faster pace than ever seen before. This is because the speed at which Businesses mustreact to opportunities and threats is ”Shrinking timelines” - the time a Business has tomake an optimal informed decision. This means that it is becoming ever more challengingto anticipate and plan to acquire talent, in it’s most traditional sense. Two, as an aftermath of this shrinking timelines, it is becoming prohibitively expensiveto search, hire and retain ”super-skilled, plug-n-play” knowledge workers. This means thata super trained ”spatially flexible and mobile” workforce is emerging that understands theseneeds and is seamlessly integrated across the Global Markets. The challenge then is buildingorganizational structures, or ”Alternative Workplaces”1 that allow for collaboration betweenthis world class talent. Three, because of this shorter organizational planning timelines, the need for continualoptimization over the absolute and relative cost advantage, is becoming paramount. Emerg-ing from this is a new structure of teams that can be arranged and dismantled optimally.Thus, with the evolving Business needs and future direction, the ”Makeshift-Distributed-Hybrid” workflow structures are shaping the way we look at organizational structures andintegration of the teams in the business units. Thus, the global shortage of the super-skilled, plug-n-play workers is giving rise to apredominant phenomenon, in the way the talent is organized in the Global markets, whichin turn is forcing the firms to adapt to the new way of getting things done. This new way ∗ Word count: 2876 † Masters Student, Quantitative Economics, Johann Wolfgang Goethe University, Frankfurt am Main -Germany ‡ contact : ekta1007@gmail.com 1 We are already beginning to see some Alternative Workplace programs such as those at AT&T andIBM that are supplementing traditional offices and are targeted at telecommuters and home-based workers(HBR,2001) 1
  2. 2. of organization of the global talent is - Crowdsourcing and it is forcing the firms to re-lookat Open Source Solutions(OSS) collaboration to get things done. In this essay, I define OSSas a philosophy and a spirit of collective problem solving. This collective problem solving asI will enunciate later, is broadening it’s spectrum from mere Technology intensive firms tothat spanning Governments, participatory Public Policy channels and any firm operating indistributed power framework, thereby giving predominance to flat-Institutions. In this rest of this essay, I will organize my thoughts around why Crowdsourcing is chal-lenging the traditional way of working in-house in the context of firms, and then lay out thereasons why today’s knowledge workers are doing more and more for free. Then, I wouldelaborate using some examples across Businesses and point at the diluting fine lines betweenthis collaboration. This, I will lay in intuitive sense and build on it with empirical evidence.Thus, Open Source collaboration, as I will call the ”Pooling Revolution” over the next fewpages, is bringing to light some of our own motives as knowledge workers and the Businesses,then are adapting to these human motives and needs. Lastly I will conclude with what this will mean for the organizations and the knowledgeworker who must ”keep up with the Jones” in an effort to capitalize on these new foundopportunities.The rise of Crowdsourcing, wisdom of crowds and OpenSource CollaborationMichael Spence in his much noted game theoretical paper on ”Job Market Signaling” laidout a framework by which ”good types” distinguish themselves from the ”bad types” - i.e helaid out the ”actions” that skilled knowledge workers (or, super skilled if you would) musttake for a firm to be able to identify him from a unskilled knowledge worker. These actionsas Spence noted were acquiring a certain degree of education, making the ”signal” credit-worthy. Several decades since, coupled with cheap capital and affordability of world classeducation, a knowledge worker is re-crafting the ways to tell his skill sets apart from the rest. But, before that, let’s see where this trend surfaced from. A decade ago when small music composers could no longer sell their work, they took tothe public, and uploaded their videos on YouTube and similar online hosting solutions. Thistrend was then spilled over to self-taught or trained workers laid off in across the 2000 bubblebust and predominantly in 2008 Global Financial Crisis. Thus, a new market emerged wherethey could sell their skills directly to the individual consumers and the SME’s, by offeringfree services at first to ”signal” their credibility. Near about the same time as the collapse of the traditional market signalling, also sur-faced a burning sense of seeing the impact of one’s work in a reasonable frame of time.From what was initially working in silos on abstract ideas, the knowledge workers started toidentify themselves in a different light than the institutions that they worked for - in partbecause of the insecurity that the two Global Crisis brought with them, and in part becauseof the Globalization which brought with it a feeling of threat by someone else off-shoringtheir work. This meant that to keep away from being replaced, they would have to in theirskills, not necessarily taking the traditional academic de-tour. 2
  3. 3. And hence, was born another defining trend, which was Open Source Collaboration. Inpart to be more visible in the Global workforce, in part to grow skills, strong collaborativenetworks and social capital, and in part to fuel their desire of making impact by experi-menting with their ”evening jobs”. That this allowed for minimal risk bearing also helpedunleash their entrepreneurial talent and facilitated parallel careers. The accountability andthe ”prestige”2 that this social capital brought with itself was just right portion for thePooling (Resources) Revolution that surfaced over the last two decades. All of this, is in fact, is an ideal manifestation of the ”parallel careers” that that Druckerforesaw3 in the 1950’s - back when the volunteering or developing a parallel career was nei-ther required by the firms nor by the market participants. Understanding the Institutional motiveBefore moving into the Open source phenomenon in the Institutional context, let’s under-stand what it actually is and is not. It is a belief system that allows for and encouragescollective problem solving, thus allowing for democratic, resourceful and economically viablechannels to emerge. In some sense, it is opposite of protectionism and ”keep-it-to yourself”model of building expertise to protect one’s market position. This, as I briefly mentionedbefore, is the distributed power framework and is giving predominance to flat-Institutionalstructures. Over the past, not only companies, but also Governments have relied on OSS to solvesome of their most pressing concerns, or to drive Innovation in public policy and reforms- for instance, the currency symbols of Indian and European currency were outsourced toordinary citizen via meritocratic competitions. Or consider, the GovLab, an initiative inUSA which works with senior government executives and thought leaders from across theglobe(hence, the shared open model) - and runs controlled experiments for a better publicpolicy, while also helping reduce the costs of providing services. At the other end of thespectrum is @sweden initiative by the Government of Sweden, which along with an advertis-ing company runs a twitter account controlled by ordinary citizens for seven days, on a rollbasis - a project that aims at better governance, engagement of its citizens by amplifyingtheir voice in a transparent manner. The success of this program was so envious that itled to similar projects elsewhere in Ireland, New Zealand and England. Thus, OSS projectshave spanned across Fiscal and Public Policy4 alike - this as I remarked earlier is the spiritof collective problem solving. Open source has long been compared with a ”public good” - the question that then nat-urally arises is - what economics would make a case for open source collaboration and whatare the benefits that are accruing against the traditional proprietary know-how or solutionsgeared at protecting one’s market positioning. First of all, we should admit that open source was not always a preferred way for huge 2 J Nahapiet, 1998 3 Bruce Rosenstein, Living in More Than One World: How Peter Druckers Wisdom Can Inspire andTransform Your Life 4 The reason driving these trends in context of Governments is the shift in democratic dynamics, andincreased participatory citizenship. While I will explore the motive of the Organizations at great detail laterin this(since changing Organization and Worker dynamics is the focus of the essay) - I just touched uponthe Government motive, in the passing here - to enunciate the omnipresence of the OSS beyond Technology. 3
  4. 4. Technology giants, or Governments to work with. And by technology I mean not only ITcompanies, but also companies whose main stream challenges are bringing technologicalhorsepower to their Business infrastructure. For starters, consider concepts such as ”Open-MRS”, an Open Medical Record system working towards a coordinated, scalable, and flexibleinformation system - written and maintained by medical doctors, besides a massively activedeveloper and student community. This clinical decision system was developed to help trackand maintain the HIV patient records in Kenya and the project has now evolved over a vastnumber of developing countries, by volunteers and partner organizations collaborating aliketo develop the system, take their own business problems to the community and pushing thechanges back to the system. Or, consider this - the OSS standard is also common across the FMCG sector. Commoncase studies include OpenCola, a software drink, the recipe of which is not a guarded Busi-ness secret like other cola products. Brewtopia, a beer company in Australia that startedan open-source brewery campaign called ’Viral Equity’, where the individuals were invitedto create a custom beer. It is perhaps the only company that allows public to design beeronline. Other examples include - ITC, an Indian public conglomerate, which has several OSSprojects across e-governance and e-commerce, spanning crop protection, rural health careand education - all of which leverage IT to set up a meta-market to cater to India’s bottom ofthe pyramid. Wikipedia is another wisdom of crowds5 success story. So is the Worpress(born2003), which is the most popular content management system (CMS) with a market shareof 54.1% and a very active and thriving contributing community of developers. It is, then,evident that the firms are warming up and experimenting parts of their Businesses with theOSS collaboration - but more of it in technology intensive context since it outweighs thesacrifices against the phenomenonal benefits. In a way, all these collaborations have toppled the huge literature on Labor Economics,Industrial organization and Career Concerns. Also, the substantial capital invested in OSShas challenged the concept of proprietary software products. But this has not developedout of benevolence for the world’s problems, or an altruistic behavior. So, let’s explore thechanging dynamics that has favored this shift. On the surface, it would appear counterintuitive that firms would sponsor their best re-sources and make capital investments into OSS and it’s communities. The academicians6have proposed and explained this as the value of ”intangible assets” to a firm. This theyclassify as ”the social capital embedded in the social network of interaction”. Analysis ofstrengths of social networks across virtual boundaries show that individuals in these com-munities know about problems that may have been solved elsewhere and thus help avoidingredundant work leading to faster resolution of their own business problems. The second empirical evidence falls in the class of what is the ”Man on Inside”7 hypothe-sis developed by Dahlander and Wallin, and shows that firms deploy their workers to unlockcommunities, with these ”integrators” increasing the firms knowledge base, the benefits ofwhich amount to the profits of the Business units. Clearly, the firms understand the business value in harnessing such social capital in their 5 Daniel pink’s ”Free Agent Nation” covers this phenomenon beautifully. 6 Dahlander and Frederiksen, 2007 7 Dahlander and Wallin, 2006 : Their work statistically strengthens the evidence on the profit of businesses 4
  5. 5. Business units. A persisting global talent crunch and new technologies that have emergedacross interdisciplinary sciences made it increasingly relevant for the firms to be on the fore-front of these developments. Since Business models, or for that matter talent or technologycannot be grown and scaled in-house in short time intervals; allowing for and seasoning suchconnections made most sense to the Businesses. This then, naturally made a stronger casefor the social capital and it’s associated business value. More importantly, collaboration allowed for a shared risk-reward model which facili-tated the firms to lead changes in their own business units, while mitigating risk systemat-ically. Deploying full time resources allowed for global accountability, that came with theopenness and no longer was the know-how limited to the talent in-house. Pushing the in-house Business problems and solving it along with community collaboration ensured thatthe firms could strategically manage and influence the ecosystem, by impressing upon whichbusiness problems were solved. Delivering it back to the open source collaboration ensuredthe goodwill and mushroomed partnerships, cross-selling and bundling alliances that grewrevenues - and this was good for the stakeholder. This also blossomed the culture of R&D and Innovation and that seemed to be enticing toretain top talent. This is the firm’s part of the short story of the ”Open source democracy”.The History and the relevance with Drucker’s futuris-tic ideasOpen source projects trace back to the 1960s. Back then, there was no ”software packagedwith the computer”, so programmers wrote their own code according to their personal needs.Since not many people knew how to code back then, people shared their code with each otherand often returning it back to the community with revisions. With the birth of the internet in the next decade, this self-organization became simplerand in 1985, the open source movement was officially born, with the creation of the FreeSoftware Foundation. This was in response to an infringement and commercialization offree-software created and freely distributed by ”hackers”8 . Since then the open source com-munities have grown with some of the largest being, Apache Server Foundation, Linux(bothsoftware) and Project Gutenberg, the largest free e-books project online. Today there aremore e-books and more of them protected via Creative Commons license - this is the spiritof the social capital and open source collaboration. As all these developments that are becoming visible, what strikes me the most is how themassive body of work by Peter Drucker captures this ”futurism” beautifully and realisticallyand the blue-prints that have become more relevant than passe of all the time-tested waterswe will be navigating in the next few decades from now. With more than 1548% relativeincrease9 in the internet penetration since 1989, this self-organization has not only becomemore dynamic but also the collective giving motive that has risen since.Giving begets Giving, they would say. ”Leaders in every single institution and in every single sector ... have two responsibili-ties. They are responsible and accountable for the performance of their institutions, and that 8 Hackers is a community of super efficient, trained and passionate programmers 9 There were 1.1 million Internet users in 1989, population of 5.190 billion, which reduces to penetration of0.021%, compared with 360.9 million users in 2011, with a population of 6.89 billion, reduces to a penetrationof 32.7%, source http://www.internetworldstats.com/ and http://www.etforecasts.com/ 5
  6. 6. requires them and their institutions to be concentrated, focused, limited. They are responsiblealso, however, for the community as a whole.” (Peter Drucker10 ) Research11 has shown critical evidence linking to the Entrepreneurial nature when indi-viduals develop software as a personal need and then scale it up in the community as theneeds of those with whom they share it with evolve. On a personal note, I have developed autility software system during my under-graduate study and we scaled it up, partly for thelove it sharing, partly because it felt entrepreneurial and that we were making an impact.I also write e-books, under Creative Commons to spread stories and ideas that matter -and my own collaboration community has evolved into a global network of mentors, andthink-tanks, achieving more than I originally set to solve in my disconnected existence. What this reveals about the knowledge workers back then and now, is the self-organizinghybrid structures that are surfacing and becoming more omnipresent as the ”digital divide”between the developing and the developed world is shrinking. Over the next two decadesthere structures will supersede the traditional rigid firm boundaries and as the Businessesdo the comparative analysis, they will eventually unleash the entrepreneurial spirit and letthe self-organization happen. Moreover, these new structures will reinforce the basic humanneeds12 of Achievement, Affiliation, and Power, and thus facilitate strengthened coupling ofthe Businesses, and it’s people with communities.Future direction for the firms and knowledge workers ” there is a widespread sense of a gap between the rapid development of neworganizational forms in practice and the capacity of existing perspectives to account forthem in theory (Child and McGrath13 ) Naturally then all this evidence amounts to one burning question, what does all thismean for the knowledge workers and the firms, and how should they adapt to this shift.Let’s build a case for them in layers with the worker’s case built on top of the firm’s. It is clear that as OSS becomes a commonplace, the firms will start demanding the work-ers to bring a tangible social capital with them, and also re-learning in a more accountableand disciplined way. This, along with the collapse of the traditional market signalling willmean that these expectations will be new normal - and the worker’s will have to adapt tothis way of collaborating. Over the next two decades, with the huge amount of social media listening tools, thefirms will be able to pre-filter and identify the workers for their super-skills, and these in-tegrators will become assets to the firms. It would be at this tipping point, that this hugecost of investment in oneself, from the employees’ standpoint, would start to make sense forthe lost utility, factored-in for the payoffs. This effect when coupled with a persisting globaltalent crunch, and shorter business cycles - and will favor the ”Man on the Inside Integra-tors” in the community. By strengthening communities and social capital, the knowledgeworkers will thus increasingly become more entrepreneurial - rather than mere consumers, orindependent players in the ecosystem. At its helm, this will morph into a transgenerationalchange. This is an ideal manifestation of ”changes in perception” captured by Drucker’s 10 Drucker in Practice 11 Raymond, 1999a, pp. 32 12 McClelland’s Human Motivation Theory 13 Child and McGrath, 2001, pp. 1135 6
  7. 7. work in Innovation and Entrepreneurship14 Building the case for the firm on top of this new normal, we will see more collaborationswith interdisciplinary partners, and overall it will favor robust growth in an increasinglyfragile economy. By mapping resources to projects, and not to institutions, we will see amanifestation of an individual’s inner motivation, and more accountability as a result of thisopenness. With other institutional partners collaborating on similar technology, a firm willbe able to preserve it’s own strength and positioning because of the systemic nature of thetechnologic horsepower contemporaneously. The OSS giants will get bigger and better andevolve into respectable communities that ”trend with the market”. This will create barriersfor the now-outdated proprietary models who will shrink because of operational silos andloose on cross selling and packaging opportunities that OSS solutions bring with it.All of this will offer promises to let go of the past and usher into a new age for a organiza-tional win-win. Only if business learns how to convert the major social challenges facing developed so-cieties today into novel and profitable business opportunities can we hope to surmount thesechallenges in the future. (Peter Drucker15 ) I am not saying that OSS will become a de-facto anytime in near future, but the firms willinvariably open up to sharing resources and talent allowing for an resources to swift throughtasks, projects and geographically distributed business needs. This will be the defining trendof the next two decades. Of course, none of it will happen without the regulatory reforms,letting go of protectionism in the business, fair play in the markets and strong founded re-spect for the intellectual property. This also necessitate creating a level field, where there isno bullying by big giants, or predatory extraction of social capital from talent communities.There will be weeds that would need to be plucked out, and seedlings that would need to bewatered to protect and groom them - but if we believe in the completeness of the marketsin general, the road ahead looks promising, and is worth taking a de-tour.Bibliography Apgar, Mahlon,(2000) HBR: Alternative Workplace: Changing Where and How PeopleWork http://hbr.org/product/alternative-workplace-changing-where-and-how-peopl/an/3677-PDF-ENG (accessed 9.06.2012) Dahlandera, Linus and Wallinb, Martin W.(Oct. 2006), ”A man on the inside: Unlockingcommunities as complementary assets” Research Policy, Volume 35, Issue 8, pp. 12431259 Eric von Hippel and Georg von Krogh,(2003) ”Open Source Software and the Private-Collective Innovation Model: Issues for Organization Science”, Organization Science Vol.14, No. 2, Mar-Apr,2003 pp. 209 Hesselbein,Frances (2010), ”How Did Peter Drucker See Corporate Responsibility?”http://blogs.hbr.org/what-business-owes-the-world/2010/06/how-did-peter-drucker-see-corp.html(accessed 9.06.2012) 14 Drucker, Innovation and Entrepreneurship, p.99 15 Peter Drucker(1986), ”The Frontiers of Management : Where Tomorrow’s Decisions Are Being ShapedToday”, on Social Needs and Business Opportunities, pp. 323 7
  8. 8. Lee, Victor(2012), ”Social network analysis : How firms can Strategically influence opensource communities” available at http://www.springerlink.com/content/q27036w7282r4375/(accessed 9.06.2012) Lernera, Josh and Tirole Jean (May 2001) ”The open source movement: Key researchquestions”, European Economic Review Volume 45, Issues 46, pp. 819826 Mamlin, Burke W., Biondich,Paul G., et al(2006), ”The OpenMRS System: Collabo-rating Toward an Open Source EMR for Developing Countries” AMIA Annual SymposiumProc. pp. 1146 Rullani, Francesco and Frederiksen, Lars, (2010)”Individual Interaction and InnovationCapabilities: Exploration and Exploitation in Open Source Software Communities” , proc-cedings at the Opening Up Innovation: Strategy, Organization and Technology June 16 - 18,2010 Spence, Michael (1973), ”Job Market Signaling”, The Quarterly Journal of Economics87(3), pp. 355-374 8

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