leading light

Master of wikinomics

Internationally-sought authority, consultant, author and speaker, Don Tapscott tells Selina Denman why mass collaboration may change the world

During a recent panel discussion in Helsinki, Don Tapscott and his co-panellists were presented with the million dollar question: what three things does a company need to do in order to succeed today? A well-known author and industry pundit was in line to answer just before Tapscott. Number one, he said, avoid risk; number two, hire the best people, and number three, focus on your customers. “Nothing has changed under the sun,” he concluded. 

Pushing his own notes and studiously-prepared answers aside, Tapscott was forced to disagree. In a blog account of the incident, Tapscott stresses that, in actual fact, “a whole lot of things have changed under the sun, and it’s just getting started.”

Considering Tapscott’s latest book is entitled ‘Wikinomics – How Mass Collaboration Changes Everything’, this view is unsurprising. What is, perhaps, more surprising is that a year after the book made its debut at number 19 on the New York Times bestseller list, some of the fundamental principles of wikinomics are still being ignored.

A basic definition of wikinomics, as per the man who invented the term, goes something like this: “Wikinomics is the new art and science of mass collaboration that demands that business leaders think differently about how to compete and be profitable,” Tapscott explained. “This is more than open-source, social networking, so-called crowdsourcing, smart mobs, crowd wisdom or other ideas that touch upon the subject. Rather, we are talking about deep changes in the structure and modus operandi of the corporation and our economy, based on new competitive principles such as openness, peering, sharing and acting globally,” he continued. In three short points, Tapscott’s co-panelist had managed to disregard much of what wikinomics stands for. For one, companies do well to have good risk management in place, but also have much to gain from being transparent, opening up, sharing intellectual property and displaying some controlled vulnerability, Tapscott insisted, drawing on the much-cited opening example in his book. For those that aren’t familiar with the story, Goldcorp, a Toronto-based gold mining company, was flailing – strikes, lingering debts, high production costs and a contracting gold market suggested that the company’s days were numbered. Without evidence of new gold deposits, Goldcorp’s 50-year old mine in Red Lake, Ontario appeared destined for closure. So the company’s frustrated but forward-thinking CEO, Rob McEwen, decided to do the unthinkable. In an old-economy, highly-conservative industry accustomed to closely guarded secrets, McEwen decided to go ‘open source’. He launched the Goldcorp Challenge in March 2000 – every morsel of information about the 55,000-acre Red Lake property, some 400 megabytes-worth, was posted onto the company’s website and participants from far and wide were invited to identify where undiscovered veins of gold might lie. Prize money totalling $575,000 (EUR 386,000) was available to participants offering the best estimates and proposed methods of retrieval.   Submissions from around the world eventually pinpointed 110 targets on the Red Lake property, 50 per cent of which had not been previously identified. Over 80 per cent of these yielded significant amounts of gold. Since the challenge, eight million ounces of gold have been found and Goldcorp has been transformed into a $9 billion (EUR 6 billion) behemoth. A big risk paid off, in a big way.

A cursory glance at the Goldcorp story reveals obvious cracks in the ‘avoid risk’ mantra espoused so emphatically that day in Helsinki. It also calls the second assertion, that companies will succeed only if they hire the best people, into question. McEwan diverted from this well-trodden path; instead of relying solely on his team of in-house geologists, he looked outside of his company boundaries and channelled into a vast, global, unfettered pool of talent. As a result, he received out-of-the-box, original solutions from graduate students, consultants, mathematicians and even military officers, as well the global geological community.

And this, says Tapscott, is no isolated incident. “Thanks to the Internet, companies are beginning to conceive, design, develop, and distribute products and services in profoundly new ways. The old belief that you have to attract, develop, and retain the best and brightest inside your corporate boundaries has become obsolete. With new technologies slashing the costs of collaboration, companies can increasingly source ideas, innovations, and uniquely qualified minds from a vast global pool of talent.”

A similarly fluid approach has been adopted by Procter and Gamble (P&G), Tapscott noted. “About five years ago, P&G was struggling, and its market value had collapsed. The company was stagnant. The new CEO, A.G. Lafley realised that if P&G was going to grow at seven per cent, it had to create a $5 billion business annually. It had to be an innovation engine.”

At the time, the company already employed 7,000 researchers. “But it occurred to Lafley that there were hundreds of thousands of bright researchers that weren’t on the P&G payroll. So if P&G is looking for a molecule that will take red wine off a shirt, it doesn’t go to its own R&D department, it goes to an ideagora. This is a term we use in the book. It’s an agora, like the Roman agora, but the product is ideas. It’s like an eBay for innovation.

“One of these ideagoras is called an Innocentive. There are 90,000 chemists, and they put out the request for the molecule, and somewhere out there is a retired chemist in Bangalore or a grad student in Paris who can find the molecule, and they get paid for it. P&G comes to market much faster, and they saved millions of dollars and they now have 22 brands that are worth over a billion dollars each.”
An open and porous boundary can also be extended to revolutionise the way a company interacts with its customers. The traditional model of ‘employees on the inside and customers on the outside’ begins to break down when you utilise talent from beyond your own boundaries. Why not then, Tapscott asks, bring your customers onto the inside? “Because of the web, we can go beyond focusing on customers to engaging with them in deep and ongoing ways,” said Tapscott, in answer to the ‘focus on your customer’ prong of his co-panellist’s simplistic response. “Consumers can become Prosumers – co-innovating value. Firms can co-create thrilling experiences with customers. It’s possible to think of the customer as part of your business web.

In the world of wikinomics, there is little space for conformist business models. The rules are being inverted, rearranged, and then rewritten. “A new kind of business is emerging – one that opens its doors to the world; co-innovates with everyone, especially customers; shares resources that were previously closely guarded; harnesses the power of peer collaboration; and behaves not as a multi-national but as something new: a truly global firm. These companies are driving important changes in their industries and rewriting the rules of competition.”

The warning is clear. Those who wish to stick with the traditional, tunnel-vision, ‘avoid risk, hire the best and focus on your customer’ school of thought are welcome to do so. But that’s not the future. “The practice of wikinomics is in its early stages of development, but our research tells us that web-enabled mass collaboration and innovation will grow at an accelerated pace due to the phenomenal success of early flag bearers. A new model of the firm is emerging – the Enterprise 2.0. Firms that embrace this model will succeed and compete well. Those that do not will decline.”

This is no sequel to the dot-com bubble, Tapscott maintained. The Internet’s second coming would appear to be the Internet’s coming of age. “The dot-com explosion was fuelled by the false belief that any activity transferred to the Internet would be lucrative. It didn’t matter whether an idea made any sense or not – think selling pet food online – but whether you were a first mover in a space. Venture capitalists no longer think that way, which is good.”

Tapscott’s authority in these matters is borne out of 14 years at the helm of New Paradigm, the international think-tank that he founded in 1993, and complemented by ten books that he has authored or co-authored on the subject of technology in business. Writing on the emerging phenomenon of wikinomics was a natural transition, he noted, after years of providing “clients with insightful, thought-provoking analysis of emerging technology trends and their impact on business. We pride ourselves on being a ‘strategic early warning system’ for clients, helping them distinguish imperatives from all the hype and noise,” he explained.

And the man once referred to by vice president Al Gore as ‘one of the world’s leading cyber gurus’, insists that wikinomics will shape the future. “Let’s take stock. The knowledge, brains, resources, and computing power of over one billion people online worldwide are self-organising into a massive collective force. They share computing resources in peer-to-peer networks and they collaborate in myriad ways. Millions of people now have blogs. Some 220 million people have registered with Skype—and this network is growing at over six million per month. 100 million share songs via Kazaa, Limewire and BitTorrent. Hundreds of millions chat and use email. Never before has collaboration across time and space been so fast, easy and cheap.
“When things and people become networked on a global scale, the unpredictable happens. For example, one consequence of a universal infrastructure connecting intelligent agents (people and things) is emergence—the creation of attributes, structures and capabilities that are not inherent to any single node. This is an old idea. Price is an emergent phenomenon: in a highly liquid, competitive market (like the stock exchange) no one sets the price. Instead, all buyers and sellers do it collectively.

“What is significant today about emergence is that we are seeing sophisticated artefacts emerging from relatively diffuse, loosely-coupled activities of collaborating agents. Examples are legion: open source software creation, the blogosphere (blogs, augmented with blogrolls and RSS feeds), Google, Amazon collaborative filtering, scientific discovery, Wikis, and social networking sites such as MySpace and Meetup. These have become powerful economic forces, and the basis for successful business models. Google is the best example.”

The result is a new breed of innovation, and a new way for companies to create value and compete. “As firms make the post-recessionary shift from a sole focus on cost control and execution to growth, innovation has come to the fore.
“It is obvious to every executive that the pace of innovation has skyrocketed as the global economy has become an innovation engine. Firms need to constantly innovate new products and services just to keep up with competitors—many from unexpected geographies and industries. Firms also need to innovate business designs, processes, systems, relationships and ways of working and learning—all enabled by information technology.

“Industrial economy knowledge monopolies are breaking down. Venture capitalists now fund a growing part of innovation in developed economies. The knowledge oligarchies of the former Soviet and Chinese states are being dispersed. Government anti-trust legislation has dispersed innovation capacity. Universities, research consortia and other non-corporate sources of innovation abound. Developing countries such as India, Taiwan and Korea now have significant knowledge sectors thanks to state policies, the spread of world class education and corporate efforts. Most important, the Internet has become a new infrastructure for innovation.

“Science and technology now evolve at great speed and delve into ever more complex domains. Even the largest companies can no longer research all the fundamental disciplines that contribute to their products. Nor can they control end-to-end production processes. In most industries, innovation increasingly depends on dense networks of public and private actors and large pools of intellectual property that routinely combine to create end products. In the emerging model, innovation is collaborative, distributed and increasingly open. To be competitive, firms need dynamic networks of partners and contributors. Innovative activities cut across national and organisational boundaries.”

Companies can start by taking advantage of the opportunities presented by web 2.0 tools. According to Tapscott, the age of mass collaboration, which is reflected in the explosive growth of web 2.0 communities, is rooted in the basic principles of usability, participation, self-organisation, emergence, and the network effect.
“Smart companies are now embracing these principles in a bid to empower users and communities, boost innovation, tap new insights and reshape the competitive landscape. To capitalise on Web 2.0, companies should examine their enterprise architectures and look for opportunities for innovation in six technology segments: multimedia interfaces, web services, pervasive computing, ubiquitous broadband networks, geospatiality and integration.

“Thanks to technological advances, commoditisation and integration, each of these segments offers its own set of new possibilities. Furthermore, companies now have access to new tools, resources and governance models of nascent 2.0 applications and communities. New solutions, inspired by Web 2.0, will have a lasting, game-changing impact on many facets of today’s enterprise.”

CIOs should listen up. The world of business is changing, and they, ultimately, will be responsible for heralding their organisations into a new wikinomics-driven era. They will be at the forefront of a battle against the average organisation’s resistance to change. “IT needs an advocate, and the chief advocate should be the CIO. Much of my firm’s consulting is equipping CIOs with the analysis and arguments they need to make their case in the boardroom.

“CIOs are bifurcating. Some are deciding to be the best infrastructure builders – and there’s a role for that, as companies need to retool their technology architectures. Others are taking a different route – deciding to be business innovators, providing leadership for the new business models described in wikinomics. There is a role for both. And of course, some are running the IT function, business as usual. Their companies will go into duress soon, I’m afraid.”