Wikinomics: How Mass Collaboration Changes Everything

MASS COLLABORATION CHANGES EVERYTHING?

–A Book Report on Wikinomics

Executive Summary

Tapscott, D. & Williams, A.D. (2008) introduced a new concept of Wikinomics in the book WIKINOMICS: HOW MASS COLLABORATION CHANGES EVERYTHING. It was proposed that in the contemporary world, any individual or commercial enterprises cannot realize fast and sustainable innovation on its own. Collaboration with consumers, suppliers and business partners, as well as collaboration within an enterprise or organization is of great importance to its success. Wikinomics envision that in the future all survival enterprises will have to accept rapid globalization and embrace the science and art of mass collaboration. The report is aimed to take a detailed look at the book and discuss why Wikinomics work, how it works and the possibility of it being embraced by all enterprises eventually.

At the end of the article, a conclusion is drawn to summarize the research results of this paper.

Introduction

The boundary of traditional companies is generally thought to be clear and rigid: balance sheet illustrates all properties the ownership of which belongs to a company while the list of members of corporate organizations indicates all employees hired by a company. At the same time, enterprises can manage their boundaries in accordance with expanded production scale and increased organization cost. According to pure theoretical analysis of micro economics, the intersectional point of an enterprise’s production possibility boundary and its organization possibility boundary is the enterprise’s optimal external boundary, where the enterprise’s marginal production revenue equals to its marginal oganization cost. At this point, further expansion of its boundary will lead to situations of losses outweighing gains whereas contraction of its boundary will result in non-maximum profitability. Of course, on the other hand real life situations are much more complex than theoretical analysis – marginal revenue and cost are both theoretical concepts and cannot be accurately measured. Otherwise, operating a calculator at office alone can solve the problem of determining the best size of a company.

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Meanwhile, due to the diversity of organization forms, organizational costs are not necessarily bound to increase along with the expansion of the organization. Organization forms such as virtual organization, strategic alliance, outsourcing, etc. are gradually being invented throughout enterprises’ development process. The birth of each new organization form can mean a new possibility of organization expansion. But none of these new forms have had the kind of revolutionary influences comparable to that of mass collaboration which involves coordination and collaboration with the mass, partners and even competitors outside an enterprise’s boundary in terms of enterprise production and innovation. This trend has transformed the previously hierarchical, closed workplace into a self-organized, distributed, collaborative human capital network.

The new phenomenon is characterized by reporters with the Wired magazine as Crowdsourcing; people in the software industry compared the model to OSB, Open Source of Business; and, Don Tapscott and Anthony Williams, research fellows of New Paradigms think tank, dubbed it “Wikinomics”. Wikinomics, according to the book Wikinomics: How Mass Collaboration Changes Everything by the two research fellows, is a new economic production paradigm based on mass collaboration and open platforms, which is a new economic production model that features all characteristics of “mass input, common creation”, including such new phenomena as content generation with user participation, external R&D activities of an enterprise， large scale collaborative production, integration of production and consumption, and establishment of sharing platform etc,

The authors use a great number of enterprises cases to prove the superiority of the new economic paradigm. However, mass collaboration, at least has not changed everything or even become a business mainstream with more and more entrepreneurs getting doubtful or simply reject.

Gold Mines outside of Enterprises Boundary

In the book of Wikinomics, the authors choose to begin by citing a case in the mining industry which is actually very thought provoking. A small sized gold mining company in Canada, whose future is almost entirely dependent on whether the company can dig sufficient more gold at low cost on mineral deposits of which it has ownership. The geologists working for the company cannot accurately locate the gold in the short period of time. Facing this situation, the CEO, Rob McEven made a decision that was very unconventional in mining industry: he launched a gold company challenge contest, publishing all geological information the company already had to the whole world via its website and offering a prize of $575,000 to the contestant who provided the best estimate and mining method.

The open source prospection resulted in amazing returns – more than 1,000 virtual prospectors from 50 countries participated the challenging match and found 110 target locations on the company’s mineral deposit, 50% of which were not found by the company previously. More than 80% of the new target locations were proved to contain great amount of gold and since the launch of the contest more than 8 million ounces of gold was found. According to McEven’s estimation the contest shortened the time needed for conventional prospecting by two to three years and the value of his company also skyrocketed to $9 billion from merely 100 million.

The gold company is not Wikipedia, but an enterprise that is engaged in a extremely closed, conservative industry. Here the authors implied that enterprises in any industries can benefit from Wikinomics. But why Wikinomics can enhance enterprises’ business performance?

We can consider the gold company as a highly simplified enterprise model. Prospection cost and cost for unearthing the gold are the only input, while the gold is the output and the condition needed for the company to earn a profit is the two categories of cost cannot exceed the value of the gold to be unearthed. The essence of the challenge contest launched by the gold company is that McEven changed the conventional prospection cost which was uncertain and very hard to control and threatened to bring down the company, to a fix amount of money needed for attracting the best bid from outside. The nature of the company’s success is it reduced its cost significantly by taking advantage of external resources. It seems the “gold” that made the company rich was lying in its mineral deposits, but actually it was in the “outside”.

Take the Lessons Further

If we think deeper about the case of the gold company, prospection fees actually can be considered research and development costs of an enterprise. In an enterprise’s cost structure, fees put into research and development (R&D) is similar to venture investment. Whether the R&D activities can succeed or not, the company has to pay for all the costs. If R&D activities prove successful, the enterprise makes economic profit; if those activities prove failures, then the enterprise’s investment will go waste.

Yet in the R&D models described by Wikinomics, risks and costs of R&D activities are jointly shouldered by the enterprise and external specialists. On one hand, participation of outside resources can bring more ideas in and increase the possibility of success of R&D programs; on the other, the gold company’s practice of soliciting the best prospection plan is tantamount to inviting bids that can ensure the success of R&D programs; the company only needs to pay for R&D programs that are successful while the costs of failed R&D programs are spread among all bidders. The rise of benefit, or revenue, and the drop of costs both expand the enterprise’s profitability. Then why bidders outside of the enterprise are willing to shoulder the cost of its failed R&D activities? Firstly, the cost spread onto each individual is already trivial; the R&D cost invested by each individual may be just like lifting one’s fingers; on the other hand, outside bidders that participate in corporate R&D activities may have a mindset that is similar to that of lottery buyers – though the average benefit expectations maybe negative, they are still excited by the possibility of winning a huge amount of prize.

A phenomenon I would like to mention is, actually Wikinomics have had its use in much earlier times, long before the human kind has developed so many dazzling technologies and devices. The listing of criminals as wanted by police authorities, or posting ads that offer some kind of incentive to find a lost relative or something value, are both effective use of Wikinomics. The searching cost is huge to should for a police department and is way beyond what a person or family’s can afford. By doing so, the enormous searching cost will be shouldered by the public and the police authorities or a family trying to locate someone or something will only need to pay a much smaller amount of money as an incentive.

We can now see from a series of cases of enterprises cited by the authors of Wikinomics that the nature of the secret of Wikinomics is that an enterprise can make use of resources outside its boundary to increase benefits or reduce cost. However, to utilize resources outside of its boundary, a enterprise must do what the gold company had done, that is, disclosing some internal knowledge of the company such as R&D platforms and technical standards. If an enterprise follows the logic of Wikinomics, it will inevitably take on the four characteristics that are central to mass collaboration: openness, peering, sharing and acting globally.

Mythology and Reality

Though Wikinomics has displayed a extremely attractive prospect for enterprises and many enterprises indeed have obtained the “gold” outside of their boundaries. Yet in reality, we can see still there is only a very limited proportion of enterprises that have chosen to make a change to their traditional prices of running their businesses within their boundaries. Consumers and producers are considered two categories of people that have little in common; openness is deemed as will eventually cause an enterprise to lose its competitive advantage. And more importantly, those enterprises which do introduce into themselves “mass collaboration and common creation” are considered miracles, rather than normal cases. The book Wikinomics will very likely be read by enterprises managers and owners as a set of mental gymnastics that can spart inspirations, rather than a research report on the trend of changes and reform of enterprises.

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To what extent has the new economic paradigm of mass collaboration influenced the trend of business operation model? The open source operating system Linux was deemed by many commercial analyst to be the terminator of Microsoft, however, till this day, Microsoft still holds firmly its considerable share in the operating systems market. Open source softwares are still considered by many as a business model that cannot last long. An IDC report indicates (Internet Data Center), the market share of Linux servers slumped to less than 10% last year from its 45% market share in 2012 (Hertel et al, 2003). Many enterprises which intended to switch to Linux from Unix have also slowed their pace down and begin considering Windows Servers provided by Microsoft. The major concerns of enterprises about open source softwares like Linux are security and subsequent assurance, which have also been the two issues where Microsoft attacks open source softwares. As for innovations made with users’ participation, Apple Inc.’s attitude may be representative of that of the majority of enterprises. The iPod and digital set top box Apple TV were cracked and expanded after they hit market, creating many new functions. The official attitude of Apple is, whatever users do with those devices is their own business, but Apple will not provide quality warranty anymore. “We will not interfere with these behaviors by users, yet once you cracked your Apple devices, they will not be warranted by us anymore”. Put it in a simple way, Apple’s approach toward these activities is “no blame, no encouragement”- Apple never wants to offend these fanatic consumers, nor it wants to encourage and lead this trend of users participating in innovation.

If the Wikinomics success stories are so attractive, then what makes it hard to be taken as a mainstream choice? “Better to deal with a familiar demon than to stay with a strange angel” is a belief upheld by many entrepreneurs, which shows their hatred against uncertainties, especially situations over which they feel hard to control. Many business owners are adapt at managing relations with stakeholders and do not fear colliding with parties with whom they have conflict of interests, yet they tend to have a hard time dealing with neutral parties due to the fact the their behaviors are hard to encourage or constrain through benefits. A sharp criticism on Linux and Wikipedia is the negative impact they leave on the legitimate rights of private property owners and enterprises to secure profits.

When resources are located inside the boundary of enterprises, calculation of cost and profits are a part of enterprises’ consideration. More importantly, these inside resources bear different rights and obligations from that of outsider resources, for example, enterprises’ employees are restricted by explicit or conventional rules and contracts. The traditional task driven model that is based on instructions and control will make corporate managers feel secure. Wikinomics use the movement style of Tarzan of the Apes as a metaphor of the mindset of this kind of enterprises: only when they hold firmly the next tree branch will they feel safe to loose the tree branch in his hands already. The first step of attracting outside resources to invest and participate in common creation is exactly the same situation as loosing the tree branch in hands while not grasping firmly the next one. Thus this step becomes a great barrier that many enterprises always cannot overcome.

Organizational Reform Toward Wikinomics

In order to realize Wikinomics, it is required not only to have theoretical books, but also practical action. If we realize that Wikinomics indicates the vague and open enterprise boundaries, then internal organizational structure must first make a change before the business open arms to greet resources outside because the traditional hierarchical system is unfit to this new change. For example, Linux community is not like Microsoft’s management as to manage the project team. And British Encyclopedia editorial department cannot run like Wikipedia management team. Therefore, traditional company organizations are unable to take advantage of a large number of resources that cannot be commanded. In fact, even like the Linux and Wikipedia, the world well-known open source community is not as boundless and unrestrained as we imagine. Linux’s highest decision-making authority rests in its original inventor Linus Torvalds who is supported by a ten-person core team. Below them is the huge and categorized Linux application developer community and community part-time administrators. In Wikipedia, Jimmy Wales manages five full-time employees and there are about 5,000 maintainer who manage the 100 million registered users and more than 200 million entries (Eric Raymond, 1999). Both Linux and Wikipedia or other open source communities have a similar internal organizational structure in terms of the company hierarchy system, like a round periphery diffusion from the core layer. The source of power is not primarily from higher authority, but from the knowledge and contribution of members. And the formation of such organizations can provide great opportunities to run in-depth study about wiki organization.

Robert Stevens create the “geek squad”, showing us how to keep the vitality of a small team in a traditional hierarchical organization and to stimulate bottom-up organization ability to innovate. “Geek squad” was originally an independent electronic equipment services company. When it achieved its original success, it is acquired by the consumer electronics retail giant Best Buy. At the beginning, many people worried about “geek squad” would have the infected disease of large enterprises. However, under the support of Best Buy CEO–Anderson, Geek squad established a set of internal corporate culture which is totally different from Best Buy’s. (Durman, P., 2007) Geek squad is actually free in Best-Buy’s organizational boundaries. It first took a network of self-organization and management model before the overall organization. For those reluctant to fully reach beyond traditional boundary, they can try to develop a small team within the organization in order to bridge some “gaps” with Wikinomics.

Outsourcing and Crowd-sourcing

Outsourcing, has long been a hot topic in business realm which is the contracting out of a business process to a third-party. The major motivation for outsourcing/off-shoring is to reduce cost and improve efficiency and to give full play to its core competitiveness. As previously mentioned, the phenomenon of mass collaboration is also dubbed Crowd-sourcing. A major difference between outsourcing and crowd-sourcing is, outsourcing stresses high professionalism while crowd-sourcing is exactly the opposite and values individual users’ active participation. Therefore here we see another restrictive factor of mass collaboration, or crowd-sourcing: some tasks require professionals to complete and little meaningful individual participation from the “crowd” can be realized.

Conclusion

As we look back at analysis throughout the whole passage, we can see many real life constraints on the practical use of Wikinomics. Many enterprise owners and managers are fearful of uncertainties; enterprises’ internal organization structure is not ready for embracement of Wikinomics’ requirements; and many business processes need to be handled by highly trained professionals.

However, the concept of reducing cost and improving efficiency through bringing together the strength of a group of people is right all the time. We may boldly introduce the concept of “Sub-Wikinomics”, a business management model somewhere between outsourcing and crowd-sourcing.

Reference

Hertel, G., Niedner, S., & Herrmann, S. (2003). Motivation of software developers in Open Source projects: an Internet-based survey of contributors to the Linux kernel. Research policy, 32(7), 1159-1177.

Eric Raymond, 1999, “The Cathedral and the Bazaar,” in the Cathedral and the Bazaar: Musings On Linux and Open Source by an Accidental Revolutionary. Sebastopol CA: O’Reilly Publishing, pp. 30.

Peter Schwartz, Peter Leyden, Joel Hyatt, 1999. The Long Boom: A Vision for the Coming Age of Prosperity, Cambridge, MA: Perseus Publishing.

O’Farrell, P. N., & Hitchens, D. M. W. N. (1988). Alternative theories of small-firm growth: a critical review. Environment and Planning, 20(10), 1365-1383.

Durman, P.(2007) “Geek Squad Comes to Britain”.The Times of London.

Fuchs, C. (2008). Don Tapscott & Anthony D. Williams: Wikinomics: How Mass Collaboration Changes Everything. International Journal of Communication, 2, 11.