Open Businesses Are Good for Business. And Innovation

In our imagination, few companies are perceived to be more closed and jealous about their industrial secrets than oil and gas multinationals. Yet in the 1920s, companies such as Exxon, Union Carbide, Kellogg and Shell created an ecosystem, centered around Boston's MIT, that brought to life the discipline of chemical engineering. Chemical engineering, which someone defined as "a discipline with the dollar sign in its equations," was prompted by the need to make petrochemical processes more efficient. But what led these companies to share information and knowledge? On the one hand, they realized that pooling knowledge enriched all the users of these processes; on the other hand, the competitive advantage of the individual companies laid elsewhere, in particular in controlling access to the raw material.

This model is spreading. There are at least two forces. The first one has three components: thanks to the development of digitalization, there is widespread availability of data and information; much of this information comes from fragmented and scattered sources, like users; the main input for producing new knowledge is knowledge itself. This is why access to widespread sources of knowledge and information has become an opportunity for companies. The second force is that, today, for sociological reasons, the community of competent people in the use of data and information, and in the production of the algorithms at the core of many new products and services, are keen about openness and information sharing. In job interviews, these people often ask to the companies that seek to hire them: "Do you share software?"

➜ The data revolution
This is a revolution. One example is the development of sensors, an increasingly widespread technology. Sensors produce large quantities of information, such as data on how we drive an automobile, data on air pollution or supermarket purchases, and so on. We can then collect data on the performance of drivers to simulate the functioning of the car or to develop tires, brakes or other components; or we can collect data on pollution levels to test policies on traffic or other relevant issues in cities; or data on how to sell products in more effective ways, with benefits for both stores and consumers. Companies owning this data need other complementary data belonging to other companies, or they can benefit from pooling data produced or available to individual users or populations of users, and in some cases they are encouraged to coordinate the collection of data and the creation of depositories of this information. Companies can then become more competitive and efficient because of better uses of these pools of data and information in their own domains, and not because of the generation of the data themselves, and they benefit from lumping several sources together.

➜ The example of Facebook
The Open Compute Project (OCP) (www.opencompute.org) launched by Facebook in 2011 is an exemplar of the ongoing revolution. Facebook invested in the creation of a more efficient data center that also conserved more energy than current data centers. It offered the technology to the community, allowing for widespread use of its project and encouraging contributions to improve it, by sharing data, information and technology. Today OCP, now called an open source hardware project, involves companies such as Intel, Nokia, Google, Apple, Microsoft, Seagate Technology, Dell, Rackspace, Ericsson, Cisco, Juniper Networks, Goldman Sachs, Fidelity, Lenovo and Bank of America. Like the oil and gas producers, data processing centers are not the main expertise of Facebook or these other companies. This is why pooling these assets enriches them while strengthening their competitive advantages in their respective fields of specialization.
The trend is a general one. A study by Ashish Arora, Sharon Belenzon and Andrea Patacconi (www.nber.org/papers/w20902) shows that US companies invest less in basic research, but their patents use more scientific knowledge than in the past. Corporate America has realized that rather than keeping things internally and secret, it is worth sharing the costs and benefits of knowledge production with universities, startups and other open innovation systems.

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