Milestone Group Quarterly: April 2007

Articles

• Face to Face: Mike Stonebraker, Founder and CTO of StreamBase and Vertica
• Investment Viewpoint: Jean-Louis Gasee, General Partner, Allegis Capital
• By Invitation: Don Tapscott, Co-author of Wikinomics: How Mass Collaboration Changes Everything
• Milestone POV: Synchronizing Time Frequencies Between the Large Enterprise and the Innovative Firm by Philippe Bouissou, Milestone Group Managing Partner

By Invitation:

Don Tapscott, Co-author of Wikinomics: How Mass Collaboration Changes Everything

When it comes to the so-called New Web, Bob Dylan might have said, “There’s something going on here but you don't know what it is.”

It’s clear that social networking is exploding. MySpace is growing at 375 thousand new registrants per day and is on track to reach a billion members. Over one million avatars work and live in a virtual community of people having a “Second Life” -- one recently having acquired a million dollars in property as virtual money is pegged to the US dollar as a floating currency.

This month, Wikipedia – free and owned by no one – will become 12 times larger than Britannica, but with the same quality. TV viewers of this year’s Super Bowl watched a Frito Lay advertisement that was created and chosen by its customers via the Internet. And Time Magazine chose YOU – the online collaborator - as The Person of the Year.

What is going on? Should we care? And what should the business manager do about it?

The easy choice – write it off as another bubble.

The dot-com boom was predicated on a nascent Internet that had, in 1995, relatively limited economic reach. And as with all big innovations throughout history (e.g., the steam engine, electrical power, telephone or television), there was a speculative bubble, and crash. The next stage that evolves over a period of decades– the one we’re entering now – is when technology comes of age and new business models come to fruition.

The smartest managers already know that so-called “user-generated media” and “social networking” are really just the tip of the iceberg. Rather, nothing less than a new mode of production is in the making.

Thanks to the Internet, companies are beginning to conceive, design, develop, and distribute products and services in profoundly new ways. The old notion of attracting, developing, and retaining the best and the brightest within corporate boundaries is becoming null. With costs of collaboration falling precipitously, companies can now source ideas, innovations, and uniquely qualified minds from a vast global pool of talent.

The end result is that the corporation may be going through the biggest change in its short history. After all, if you can make an encyclopedia through mass collaboration, what else is possible? How about an operating system (Linux) or application software (Sugar CRM is just one of 125,000 open source applications projects underway)? How about a mutual fund (www.marketocracy.com), a peer-to-peer lending system (www.zopa.com), designer T-shirts (www.threadless.com) or other physical goods (www.cambrianhouse.com)?

Is a complex physical good like a motorcycle possible? The Chinese motorcycle industry -- now the largest in the world -- is a sprawling network of parts makers with no single company like Harley Davidson pulling the strings. What else? Take the most complicated product you can think of – a new generation jumbo jet. Rather than creating a specification for its supply chain, Boeing co-innovated the 787 Dreamliner with thousands of partners around the world in a mind-boggling peer-oriented ecosystem.

These are examples of a new kind of collaboration --- where peers come together to create value, often outside the walls of traditional companies.

While some fear that these heaving communities and new business models will reduce the proportion of the economy that is available for profitable activity, leading firms are proving otherwise. Networked models of innovation and value creation can bring the prepared manager rich new possibilities to unlock innovative potential, choosing from a wide range of resources that thrive inside and outside the firm.

Consumer goods giant Procter & Gamble is a perfect example. Until recently, P&G was notoriously secretive, and as closed as a company can get. It didn’t look outside its walls for anything and it was failing, punctuated by a stock collapse in 2000.

New CEO A. G. Lafley is leading the company on an ambitious campaign to restore P&G’s greatness, chiefly by sourcing 50% of its new innovations from outside of the company. Today P&G searches for innovations in Web-enabled marketplaces such as InnoCentive, NineSigma, and yet2.com. These e-Bays for innovation produced hundreds of new products on the market, some of which are turning out to be hits. In the process Lafley and his managers are transforming a lumbering consumer products company into a limber innovation machine. Five years after the stock implosion, P&G has doubled its share price and now boasts a portfolio of 22 one-billion-dollar brands.

Around the same time, gold mining company Goldcorp was in a similar bind, as its geologists could not determine whether its ailing mines held any more gold. The company was on the brink of folding. CEO Rob McEwan did something unheard of in his industry. He published all his previously secret geological data on the Web and held a contest to see if anyone could help find gold on the property.

Seventy-seven submissions came from around the world, some using techniques and technologies which McEwan was hearing of for the first time. For $500 thousand in prizes, McEwan found over $3 billion in gold, and the company’s market value has multiplied several times over. By opening the kimono and his corporate walls and viewing the world as his HR department, his shareholders prospered.

The smartest companies see a phenomenon like Linux and they embrace it, as IBM has done. They discover sites like “Second Life” and jump in; as Wells Fargo did. They discover tools like wikis, which enable their own staff to work across organizational silos and like Best Buy, they end up transforming the way they collaborate.

These leaders could care less about eyeballs, clicks, and the stickiness of their Web sites. The focus is shifting to how a firm orchestrates capability and innovates to beat its competition and create sustainable value for shareholders.

Some bubble.

Don Tapscott is the co-author (with Anthony D.Williams) of Wikinomics: How Mass Collabaration Changes Everything and 10 other business books. He is Chief Executive of New Paradigm - a firm that specializes in business model innovation. For further information www.wikinomics.com