How Firms Make Friends: Communities in Private-Collective Innovation
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How Firms Make Friends: Communities in Private-Collective Innovation

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When firms contribute to open source projects, they in fact invest into a public good which may be used by everyone, even by their competitors. This seemingly paradoxical behavior is explained by the ...

When firms contribute to open source projects, they in fact invest into a public good which may be used by everyone, even by their competitors. This seemingly paradoxical behavior is explained by the model of private-collective innovation where private investors participate in collective action. Previous literature explains that companies benefit through the production process providing them with unique incentives such as learning and reputation effects. By contributing to such open source projects firms are able to build a network of external individuals and organizations, who may participate in the creation and development of the software. As will be shown in this doctoral dissertation firm-sponsored communities involve the formation of interorganizational relationships which eventually may lead to a source of sustained competitive advantage. However, managing a largely independent open source community is a balancing act between exertion of control to appropriate value creation, and openness in order to gain and preserve credibility and motivate external contributions. Therefore, this dissertation consisting of an introductory chapter and six separate research papers analyzes characteristics of firm-driven open source communities, finds reasons why and mechanisms by which companies facilitate the creation of such networks, and shows how firms can benefit most from their communities.

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How Firms Make Friends: Communities in Private-Collective Innovation How Firms Make Friends: Communities in Private-Collective Innovation Presentation Transcript

  • How Firms Make Friends: Communities in Private-Collective Innovation Doctoral Thesis by Matthias Stuermer, ETH Zürich, mstuermer@ethz.ch LIIP Tech Talk, July 16th 2009, Zürich
  • Apple iPhone Nokia N810 Openmoko low Degree of openness high July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 2
  • Overview 1. Research on motivation, governance, and competitive dynamics 2. Characteristics of firm-sponsored open source projects 3. Why firms invest into open source software 4. Community building as source of competitive advantage July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 3
  • 1. Research on motivation, governance, and competitive dynamics Motivation within open source communities  Greatest puzzle since the beginning of research in open source communities: Why do top-notch programmers contribute to open source projects?  No single motivational factor  Motivation is diverse: Review of 20 studies shows 10 different types of motivation July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 4
  • 1. Research on motivation, governance, and competitive dynamics Motivations of individuals von Krogh, Spaeth, Haefliger, and Wallin; working paper 2008 July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 5
  • 1. Research on motivation, governance, and competitive dynamics Evolution of motivation  Before 2000: contributions mostly driven by intrinsic and internalized extrinsic motivations  After 2000: commercialization of OSS increased, today many (if not most) relevant OSS projects driven by firms  Example: Linux kernel development  Started by unpaid programmers  Today >73% of code from Red Hat, Novell, IBM, Intel, etc.* * Linux Kernel Development: How Fast it is Going, Who is Doing It, What They are Doing, and Who is Sponsoring It', The Linux Foundation. 2008 July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 6
  • 1. Research on motivation, governance, and competitive dynamics How firms gain influence on OSS projects  Influence of corporations increases when...  firms reveal previously proprietary code  firms employ core developers who previously contributed as unpaid volunteers  firms contract intermediary OSS entrepreneurs  New challenges in firm-driven OSS projects  Possible crowding-out effects of intrinsic motivation  Create incentives to attract external contributions July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 7
  • 1. Research on motivation, governance, and competitive dynamics Governance within open source communities  Definition of governance in OSS projects  The means of achieving the direction, control, and coordination of wholly or partially autonomous individuals and organizations on behalf of an OSS development project to which they jointly contribute.*  Governance mechanisms solve collective action problem  Viral effect of GNU GPL  Non-profit foundations * Markus (2007) July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 8
  • 1. Research on motivation, governance, and competitive dynamics Differences in how to gain control  Community-driven OSS projects  Meritocracy: exercise of control on the basis of knowledge *  Technical contributions and organizational-building behavior lead to authority and control **  Firm-driven OSS projects  Business model: value creation and value appropriation  Firms need control to appropriate returns of investment  Balancing act between openness and control * Weber (1978) ** O'Mahony and Ferraro (2007) July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 9
  • 1. Research on motivation, governance, and competitive dynamics Balancing act between openness and control  Control decreases contributions *  Transparency increases contributions strongly  Accessibility increases contributions slightly **  Balancing is difficult  Too much control: communities may not contribute with all of their energy, interest, and creativity  Too little control: results may not serve the firm's goals. * Shah (2006), Dahlander and Magnusson (2005) ** von Krogh et al. (2009) July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 10
  • 1. Research on motivation, governance, and competitive dynamics Competitive dynamics in OSS  Why do firms give away for free valuable investments in the form of source code?  Because they have to (GNU GPL)  Unique benefits through the innovation process  Is imitation by competitors a threat?  Selective knowledge revealing strategies  Public explicit knowledge, proprietary tacit knowledge  The firm's community is core competitive advantage July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 11
  • 1. Research on motivation, governance, and competitive dynamics Hybrid software stack of Maemo July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 12
  • Overview 1. Research on motivation, governance, and competitive dynamics 2. Characteristics of firm-sponsored open source projects 3. Why firms invest into open source software 4. Community building as source of competitive advantage July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 13
  • 2. Characteristics of firm-sponsored open source projects Community-managed governance model 1. Independence: not dependent on any sponsor etc. 2. Pluralism: diversity of contributors etc. 3. Permeable representation: contributors can decide etc. 4. Decentralized decision-making: commit access etc. 5. Autonomous participation: new people may join etc. O'Mahony (2007) July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 14
  • 2. Characteristics of firm-sponsored open source projects Are Firm-driven OSS projects the opposite? 1. Dependence on a single sponsor 2. Dominance of one company 3. Undisputed control by one sponsor 4. Centralized decision-making by the company's management 5. Restricted participation → Hybrid models are most common July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 15
  • 2. Characteristics of firm-sponsored open source projects Adoption level of the open source model Building of a firm-sponsored community by Level 3 renouncing some of the project's governance Revealing of proprietary source code under an Level 2 open source license → full control by the firm Integration of externally available Level 1 open source software → open innovation July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 16
  • 2. Characteristics of firm-sponsored open source projects Own research on firm-managed OSS projects  Eclipse  Started off strongly controlled by IBM  Today pluralistic non-profit foundation as legal authority  Maemo  Mostly controlled by Nokia  Now community council for more influence  Openmoko  Firm-initiated  Strongly dependent on community July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 17
  • 2. Characteristics of firm-sponsored open source projects Own research on firm-managed OSS projects  Data sets  quantitative archival data: CVS (63m LOC) and messages (>350'000)  expert interviews: ~ 25 interviews >1h, ~ 300 pages of transcripts  online survey: 1233 responses, 28% response rate *  Methods  longitudinal data: contributions of IBM vs. non-IBM employees  grounded theory building: incentives and costs of OSS contributions  structured equation modeling: impact of control and reputation on motivation and contributions * http://public.smi.ethz.ch/files/MaemoOpenmoko/PublicDescriptiveStatistics.html July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 18
  • 2. Characteristics of firm-sponsored open source projects Source code analysis July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 19
  • Overview 1. Research on motivation, governance, and competitive dynamics 2. Characteristics of firm-sponsored open source projects 3. Why firms invest into open source software 4. Community building as source of competitive advantage July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 20
  • 3. Why firms invest into open source software Three Innovation Models 1. Private investment model  Appropriation of financial returns from innovations through IPRs → patents, copyright, licenses, trade secrets  Knowledge spillover reduces innovator's benefits 2. Collective innovation model  Investments in public goods → non-rival, non-excludable  Free riding problem → public funding, governments 3. Private-collective model of innovation  Combination of both previous models  Innovators privately fund creation of public goods July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 21
  • 3. Why firms invest into open source software The private-collective model of innovation  Model explains conditions when innovators receive rewards from private investments in public goods  Rewards from process of innovation surpasses rewards of free-riders → involvement in innovation process  Explicit knowledge is revealed, tacit knowledge remains protected in the brains of people  Example: OSS is a public good → when firms invest in OSS, they conduct private-collective innovation von Hippel and von Krogh (2003) July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 22
  • 3. Why firms invest into open source software Incentives for private-collective innovation 1. No cost of controlling knowledge 2. Learning benefits 3. Reputation gain 4. Fast and widespread diffusion of innovations 5. Lower costs of innovation 6. Lower costs of manufacturing von Hippel and von Krogh (2006) July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 23
  • 3. Why firms invest into open source software Current concept of Push model of open innovation open innovation Exploitation of existing ideas Inducing new external innovations useful for the firm Licensing Free revealing of innovations knowledge to other firms July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 24
  • 3. Why firms invest into open source software Active Eclipse committers per month July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 25
  • 3. Why firms invest into open source software Community contributions Hundreds of applications on maemo.org for Nokia Internet Tablets, e.g. Maemo-Mapper Maemo-Stars July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 26
  • Overview 1. Research on motivation, governance, and competitive dynamics 2. Characteristics of firm-sponsored open source projects 3. Why firms invest into open source software 4. Community building as source of competitive advantage July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 27
  • 4. Community building as source of competitive advantage Sources of competitive advantage  Traditional views  Industry structure view *  Resource-based view **  New view: Relational view ***  Network of relationships with other organizations  Embedded interfirm resources are difficult to imitate  Results in interorganizational competitive advantage * Porter (1980) ** Wernerfelt (1984), Barney (1991) *** Dyer and Singh (1998) July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 28
  • 4. Community building as source of competitive advantage Characteristics and sub-determinants Determinants of relational rents Subprocesses facilitating relational rents Duration of safeguards Relation-specific assets Volume of interfirm transactions Partner-specific absorptive capacity Knowledge-sharing routines Incentives to encourage transparency and discourage free riding Ability to identify and evaluate potential complementarities Complementary resources And capabilities Role of organizational complementarities to access benefits of strategic resource complementarity Ability to employ self-enforcement rather than third-party Effective governance governance enforcement Mechanisms Ability to employ informal versus formal self-enforcement governance mechanisms Dyer and Singh (1998) July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 29
  • 4. Community building as source of competitive advantage Ari Jaaksi, head of OSS operations at Nokia But we believe the world is changing and the competitive advantage comes from how many others can you get from participating in this network. This network becomes more important than trade secrets. July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 30
  • References  Barney, J. (1991), 'Firm Resources And  von Hippel, E. & von Krogh, G. (2003), 'Open Sustained Competitive Advantage', Journal of Source Software and the "Private-Collective" Management 17(1), 99-120. Innovation Model: Issues for Organization Science', Organization Science 14(2), 209-223.  Dahlander, L. & Magnusson, M. G. (2005), 'Relationships between open source software  Kroah-Hartman, G.; Corbet, J. & McPherson, A. companies and communities: Observations (2008), 'Linux Kernel Development: How Fast from Nordic firms', Research Policy 34(4), 481- it is Going, Who is Doing It, What They are 493. Doing, and Who is Sponsoring It', Technical report, The Linux Foundation.  Dyer, J. H. & Singh, H. (1998), 'The Relational View: Cooperative Strategy and Sources of  von Krogh, G.; Spaeth, S.; Haefliger, S. & Interorganizational Competitive Advantage', Wallin, M. (2008), 'Open Source Software: Academy of Management Review 23(4), 660- What we know (and do not know) about 679. motives to contribute', ETH Zurich.  von Hippel, E. & von Krogh, G. (2006), 'Free  von Krogh, G.; Spaeth, S.; Stuermer, M. & revealing and the private-collective model for Hertel, G. (2009a), 'The credible sponsor: innovation incentives', R&D Management Participants’ motivation and firm attributes in 36(3), 295-306. collaborative digital innovation', ETH Zurich. July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 31
  • References  Markus, M. L. (2007), 'The governance of  Shah, S. (2006), 'Motivation, Governance, And free/open source software projects: The Viability Of Hybrid Forms In Open Source monolithic, multidimensional, or Software Development', Management Science configurational?', Journal of Management and 52(7), 1000-1014. Governance 11(2), 151-163.  Spaeth, S.; Stuermer, M. & von Krogh, G.  Porter, M. E. (1980), 'Competitive Strategy', (2009a), 'Enabling Knowledge Creation New York: Free Press. Through Outsiders: Towards a Push Model of Open Innovation', International Journal of  O’Mahony, S. (2007), 'The governance of open Technology Management(Forthcoming source initiatives: what does it mean to be Special Issue on Open Innovation). community managed?', Journal of Management and Governance 11(2), 139-150.  Weber, M. (1978) Economy and society. Berkeley: University of California Press.  O'Mahony, S. & Ferraro, F. (2007), 'The Emergence Of Governance In An Open Source  Wernerfelt, B. (1984), 'A Resource-Based View Community', Academy of Management of the Firm', Strategic Management Journal 5, Journal 50(5). 171-180. July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation 32