Companies Embrace ‘Open Business Model’

The latest business buzzword is “open business model,” a business structure that seeks to embrace change on the fly.
Companies Embrace ‘Open Business Model’
Several bicycle-building corporations joined together to for 'The Coasting Project' to share development costs on a new, wider-market type of bike. (http://www.coasting.com)
8/4/2009
Updated:
10/1/2015
<a><img src="https://www.theepochtimes.com/assets/uploads/2015/09/coast.jpg" alt="Several bicycle-building corporations joined together to for 'The Coasting Project' to share development costs on a new, wider-market type of bike. (http://www.coasting.com)" title="Several bicycle-building corporations joined together to for 'The Coasting Project' to share development costs on a new, wider-market type of bike. (http://www.coasting.com)" width="320" class="size-medium wp-image-1826947"/></a>
Several bicycle-building corporations joined together to for 'The Coasting Project' to share development costs on a new, wider-market type of bike. (http://www.coasting.com)
The latest buzzword in business is “open business model,” a new business structure that seeks to embrace change on the fly.

Open business model is a recently coined term by Francesco D. Sandulli, professor at Complutense University in Madrid and Henry Chesbrough, professor at the University of California, Berkeley.

The open business model, in contrast to a traditional closed office, draws information from outside sources, shares resources with competitors (in ways that does not put it at a competitive disadvantage), and is open to new ideas from almost any source.

“Useful knowledge is now widespread,” Chesbrough said during an interview with Robert Morris, an examiner from Dallas, Texas. “No one company has a monopoly on great ideas, and every company, no matter how effective internally, needs to engage deeply and extensively with external knowledge networks and communities.”

The approach is not only for sharing ideas, but also an ideal networking opportunity that provides new opportunities, jobs, expanded research, licensing potential, and other venues where both parties benefit.

Open Business Models in Action

“Open business models can even lead to cooperation with competitors. This cooperation can be justified by the need to obtain synergies between resources,” the professors explain.

Three competitors in the bicycle manufacturing sector—TREK Bicycle Corporation, Giant Manufacturing Co. Ltd., and Raleigh Bicycle Company—recently formed a team called the Shimano’s Coasting Project, which allowed the three companies to share costs in developing a new type of bicycle that requires less effort to ride.

Although the term “open business model” is new, the concept itself has already been in practice for many years.

International Business Machines Corp. (IBM) implemented the “IBM Innovation Jam” in 2001, which brought together IBM employees worldwide for “far-reaching exploration and problem-solving,” according to the IBM Jam Web site.  

In 2006, IBM opened itself up to the public through its “IBM 2006 Innovation Jam—the largest IBM online brainstorming session ever held—[where] IBM brought together more than 150,000 people from 104 countries and 67 companies. As a result, 10 new IBM businesses were launched with seed investments totaling $100 million.”

IBM’s Jam Web site suggests that this concept is not limited to business, but applicable to any type of undertaking, be it recreational endeavors, sports, and others. It is valuable to any situation that allows for collaborative effort.

In 2005, the Canadian government, the United Nation’s Human Settlements Programme (UN-HABITAT), and IBM jointly held a “Habitat Jam” to find solutions to urban problems. IBM developed an Internet-based program that allowed 100,000 people worldwide to participate in the brainstorming sessions.

“First they came by the hundreds; then by the thousands. They came from around the world to the Habitat Jam—the first of its kind and the largest public engagement on urban sustainability in history,” according to the Global Dialogue Center’s Web site.

Crowdsourcing is another open business model invented in Spain. Under this method, the respective company or entity goes to the consumer or prospective customers to elicit opinions on products before marketing it.

“Startup companies like Threadless.com utilize the crowd to submit designs for T-shirts, and then produce the ones receiving the highest approval from that crowd,” according to a recent Sandulli and Chesbrough study titled “The Two Faces of Open Business Models.”

Many Web sites have sprung up that bring people and businesses together for brainstorming, such as Unience.com, a Spanish Web site for collaboration.

Tearing Down Barriers

Opening up business models to share resources or innovation with others hinges on breaking down internal blocks at many traditional businesses built upon competition and secrecy.

“Companies develop an allergic reaction to anything that didn’t originate inside their own four walls,” Chesbrough suggested in an interview.

Some say that opening up to outside resources could stymie and “undermine the development of internal resources,” according to the professors. It is important to take into account time-proven traditional business models, find common ground, and integrate what’s best in both models, according to research findings.

The traditional hoarding and egotistical syndrome, which demands that the company retain proprietary information or research, even if they are useless to the company, plays a role in derailing the open business model.

“A company that practices open innovation will utilize external ideas and technologies as a common practice in their own business and will allow unused internal ideas and technologies to go to the outside for others to use in their respective businesses,” Chesbrough said during the interview.

Addiction to Changing and Restructuring

But some experts warn that such new business models may not be for every company, and even if they are the right fit, drastic changes should be implemented after careful consideration.

“The corporate world is ‘addicted’ to serial change management programs that consume massive resources but ultimately fail to solve the problems they aim to address,” Fiona MacLeod, change management program leader at BP PLC, said in a recent report by Knowledge @ Wharton.

Most changes, including the open business model, may fail because management latches on to novel ways of doing things without considering what is best for the company, use external consultants who don’t know the internal culture, do not implement a top-down approach, and refuse to train employees in the new approach.

Before implementing costly changes, management needs to understand the objectives of the company, the components within the firm, the existing business model, and why it no longer serves the company’s needs.

Ms. MacLeod suggested that “it’s very easy to get addicted to the change pattern by not getting the change right in the first place, not making the tough calls or bold decisions up-front, maybe going for something halfway, and then allowing things to slip back.”