Open Source for the uninitiated
The Economist as usual has an excellent report on Open-source business, especially for those who are unfamiliar with the concept. An excerpt:
But the benefit of open-source approaches is that they can tap into a far larger pool of resources essentially at no cost. Once the early successes are established, it is not clear that the projects can maintain their momentum, says Christian Alhert, the director of Openbusiness.cc, which examines the feasibility of applying open-source practices to commercial ventures.
But there are arguments in favour of open source, too. Ronald Coase, a Nobel prize-winning economist, noted that firms will handle internally what it would otherwise cost more to do externally through the market. The open-source approach seems to turn this insight on its head and it does so thanks to the near-zero cost of shipping around data. A world in which communication is costly favours collaborators working alongside each other; in a world in which it is essentially free, they can be in separate organisations in the four corners of the earth.
Perhaps that is why open source is taking up a permanent place as a facet of modern business. As open source begins to look more corporate, corporations themselves are looking to adopt and adapt more open-source practices.
For example, Toyota has organised its teams in ways that stress the same sort of decentralisation, flexibility and autonomy that exist in the Linux community, according to Philip Evans and Bob Wolf of the Boston Consulting Group in an article in the Harvard Business Review last July. As such, conventional companies would do well to embrace the work-style, the authors note, such as sharing knowledge widely, establishing reputation systems, and creating a community in which people work for peer recognition as much as remuneration. The lesson is that companies stand to gain by giving up a degree of control over their proprietary knowledge—or rather, some of their proprietary knowledge. (my emphasis)
This (lesson) is particularly true anytime you have a market or an industry where network effects are substantial. This is the case in many instances in software and electronic media, but it is equally true if not more so in many areas of capital markets. Unfortunately (and somewhat ironically) this reality clashes with the typical cultural DNA of most investment banks and broker-dealers who’s mindset tends to be firmly rooted in a closed and proprietary model; an evolutionary hangover from the very successful 20th century ‘information arbitrage/clearinghouse’ business model that prevailed in the industry. I don’t want to paint too bleak a picture, there are some small advances being made, but to understand the missed opportunity (to date), one needn’t look much further than the FIX Protocol - a messaging standard developed specifically for the real-time electronic exchange of securities transactions. The result is sort of akin to what you would get if Microsoft and Oracle set up a non-profit to manage Linux… (btw anyone interested in following the goings on in the ‘FIX space’ could do worse than reading Sam Johnson’s blog Connected.)
