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Last Modified on December 26th, 2013. Please keep us updated if you adopt this model and make improvements.
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Open Value Network: A framework for many-to-many innovation
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Based on the work by Verna Alee, Michel Bauwens, Tiberius Brastaviceanu, and Kurt Laitner the model of Open-value network is developed at the Sensorica Network. Focused on sensors and sense-making solutions, Sensorica is an open, transparent, horizontal and decentralized value network with nearly 80 active members, which consists of both individuals and corporations. However, since Sensorica is a young network, this essay will only provide a theoretical framework of the Open Value Network model.
Porter and Kramer (2011) argue that the corporations are really efficient at capitalizing on value, which is defined as “benefit relative to cost.” They further reason that firms can generate profits by targeting social and environmental needs. Therefore, the for-profit sector can act as the vehicle for sustainability because it is scalable. At the same time, the authors criticize the social organizations and governmental entities for targeting benefits regardless of the costs. Therefore, the authors imply that the for-benefit sector cannot be sustainable because it does not target profits and hence the solutions for sustainability would come from the corporations. While I agree with the author’s criticism of the for-benefit organizations, the two authors had not considered open source models. Thus, this paper commences by analyzing a few open source models and their impact from the triple bottom line perspective.
Open source is a relatively recent trend that has shown to provide solutions for social and environmental sustainability; nonetheless, it has been criticized for its financial sustainability. This paper commences by providing a brief history of how society has evolved with information. Next, the paper discusses a few different models that have emerged as a result of the Internet including open source. Next, we discuss why open source models are socially and environmentally sustainable but nonetheless cannot be financially scalable. In order to justify, we identify key gaps in the open source models. Thereafter, we present a new business model called Open Value Network that can address the gaps of the open source models. Finally, we conclude that Open Value Networks could provide a viable alternative to corporations for sustainability since it targets the social and environmental market needs to generate profits.
“We become what we behold. We shape our tools, and thereafter our tools shape us.”
~ McLuhan, 2011
Presented by René Barsalo (2013), “Infomutation” states that human species is evolving with information. The author argues that the first 33,000 generations of human species relied on grunting and face-to-face interaction until the development of speech 3,300 generations ago (see Fig. 1.) However, the lack of complex communication mechanisms in this era limited the capacity of humans to harvest energy effectively. Thus the human population grew to approximately ~10 Million and lived mostly in egalitarian tribes of 50 – 150 people.
Figure 1: Infomutation - 3300 Generations
In the next era, the advent of writing about 300 generations ago permitted ideas to spread across geo-spatial and generational boundaries that lead to the practices of agriculture. Thereafter, humans were able to harvest energy from wood, organic materials, and farm animals that increased the population to 300 M by 1 AD. Sutcliffe et al. (2011) suggested that a human being could maintain between 100 and 250 trust-based relationships and therefore, a human society required rules, law and order to maintain societal structure beyond the “Dunbar’s number” of 150 habitants. Hence, we argue that the lack of appropriate communication and organizational tools led to the monarchical and class based trust-structures prominent in this era.
The pre-industrial age started with the advent of gears that led to the invention of printing press around 30 generations ago. Printing press was effective in the transfer of knowledge and the capacity to store information yet the low literacy rate limited the flow of information (see Fig. 2.) Following the development of combustion and steam engine, the colonialism expanded religious and educational institutions that helped develop a shared language. Thereafter, the advent of electricity and transistor further increased the dissemination of information through tools such as radio. All in all, due to the availability of fossil fuel and effective communication tool, the human population grew to 1B in 1800 AD and 2.5 B in 1950 AD (see Fig. 3) during the industrial age.
Figure 2: Infomutation - 30 generations
Figure 3:Human population growth
Yet despite the advancements, Bauwens et al. (2012) argue that the communication tools of the industrial age provided one-to-many relationships in which the information was produced by a few and consumed by many. Hence, only the privileged could produce and disseminate information and thus, the hierarchical institutions maintained trust and power by controlling the flow of information.
Following the industrial era, the globalization era from late-1960s to early-2000s increased the flow of information across regions with the invention of television and web 1.0 – website and emails, cars and airplanes. Moreover, because of the increase in competition, globalization led to the birth of value-added products and services to create a better experience for the consumers. As a result, this era marked the transition from standardization to branding and customization.
- Need to write about role of Branding and advertising
- Need to write about the trends towards Customization
In the economies of scope, lowering the cost of product development and innovation drives the cost-efficiencies as oppose to the economies of scale in which the focus is on lowering the cost of manufacturing and production.  This change towards the focus on innovation is leading to an economy based on the extensive-knowledge based activity called the knowledge economy.
However, the production of new knowledge is challenging and requires high levels of interaction. As a result, a number of regional innovation hubs and clusters have emerged since the late 1980s; for example, the Silicon Valley. Yet, despite the advancements in communication and collaboration, globalization created massive resources depletion (see Fig. 4) and brought the highest levels of social inequality; for example, a study shows that 737 top players have potential to control 80% of the transnational corporations value.
Figure 4: Resource Depletion
The spread of the Internet and mobile technology in the 2000s is once again changing the economic paradigm. Bauwens et al. (2012) argue that the Internet technologies provide the capacity to establish many-to-many relationships in which information is produced by many and consumed by many; for example, Wikipedia is an effort of tens of millions of content producers and consumers. This change of information capacity combined with concerns for environmental destruction and social inequality is leading towards a new sharing or collaborative economy.
Internet allows people to collaborate directly with each other at a large scale to produce value by lowering the cost of collaboration (Bauwens et al., 2012.) This new way of producing value could be construed as the “Collaborative economy.” For example: Relayrides platform allows individuals to rent their personal cars directly with other individuals for a fee. Moreover, the low cost of collaboration provides an opportunity to address social and environmental needs; for example, the car-sharing model enabled by lyft.me and other similar companies reduces the need for cars to the effect of 9 - 13 cars for each car shared.
While sharing online is beneficial, the online collaboration model is not a sufficient condition for sustainability. For example: crowdsourcing allows corporations to harness the power of the crowd, or online collaboration, to find solutions to their needs. In this instance, the corporations exploit the crowd to generate private value, which may not be for environmental or social benefits. This model is an equivalent to outsourcing R&D and other forms of intellectual capital that could cause social damage and income inequality similar to the outsourcing of IT, manufacturing and other business services.
Boiller (2013) argues that we live in “power-curve society” that follows the power-law in income distribution rather than normal distribution. For example, the past decade has seen significant productivity and mean income growth in the US (see Figure 5), yet, 65% of the income growth has been attributed to 1% of the population. Consistent with this trend is the income distribution in IT sector; the mean revenue that a developer generates from an application is $3,000 per year and yet the median revenue is $600 per year. Therefore, I argue that the private control of the online collaboration model and crowdsourcing will follow the power-law income distribution that would cause severe income inequality.
Figure 5: Productivity and Income distribution 10
Although online collaboration may not always be sustainable, the open source model or open-collaboration, in which the knowledge, designs, schemas and other intangible information is created by the masses to be shared in the public domain, provides a great opportunity to tackle environmental and social problems. For example: Wikipedia provides free access to knowledge to billions of people. At the moment, there are 10.6 M articles on Wikipedia. Moreover, with about nine to ten million edits per page, in order to accomplish this massive effort, Wikipedia operates on the long-tail principle, or the 80-20 rule, in which 80% of the contributions (edits) are performed by 20% of the visitors, and 20% of the edits are performed by 80% of the visitors.
In addition to knowledge, these open source collaborations also provide access to innovation for the environmental and social good. For example, many of the Nominet Trust’s top 100 technologies for social good are open source such as Raspberry Pi, a “credit-card” sized low-cost computing capability used for educational purposes. In the next section, we will describe the trends in the open source and open source hardware movements and how these trends relate to the social and environmental sustainability.
The environmental and social sustainability aspects of open source emerge from open-access and non-ownership nature of the open source content. In fact, the most liberal open source based Creative Commons CC BY License allows anyone to fork, remix, tweak, and commercialize the work, as long as the credit is given to the original creation. By allowing anyone in the public to modify and produce the design, the product can be customized to address the social and environmental needs at an affordable price. For example: Open source ecology has a vision to create a “global village construction set to allow anyone to easily fabricate 50 most common industrial machines [such as tractor and wind turbine] at low cost to build a small, sustainable civilization with modern comforts.”
In spite of the environmental and social benefits, the free-use of intellectual outputs makes it difficult to capture the potential financial gains. A study in 2008 claimed that the actual expenditure on open source software is estimated at $1 Trillion per year; however, the losses experienced by the proprietary software are only $60B. This indicates that open source software communities could capture upwards of $940B per year. Moreover, the study claimed that if open source was a corporation, the total amount of work-hours put into the open source software initiatives would make this firm the largest software employer in the world. Nevertheless, there exist numerous financial success stories built on the open source model.
In their book, Bauwens et al. (2008) provide numerous open source business models. For example, Red Hat provides installation, consulting services, liability and warranty services, customization, customer support, and other value added services on top of Linux, which is an open source operating system (software). In providing these services, Red Hat generated $1.13B in revenues in 2012.  In fact, Red Hat was launched by one of the initiators of the Linux project and the firm has employed many of the contributors to the open source Linux project. In addition to employment, Red Hat often distributes a portion of the earnings to the Linux community in order to influence the innovators to develop to the needs of the customers of Red Hat.
In addition to the software, Bauwens et al. (2008) elaborated on the business models in the open source hardware industry, which is expected to generate $1B by 2015. For example, the Arduino community started by a few individuals motivated to innovate electronics and circuit boards. Instead of developing these products in a closed environment, the Arduino co-founders published their designs and knowledge for participation under open source licenses. As a result, the crowd started contributing ideas and other intellectual capital that lead to the design of Arduino circuit board. At that time, the Arduino community’s core members decided to manufacture this circuit board.
Sparkfun became the manufacturing partner of the Arduino community. In 2012, Sparkfun generated $25.1 M by producing and distributing Arduino circuit boards across North America. Even though the open source hardware can be commercialized without permission, Sparkfun continues to distribute a significant portion of the revenues to the core members of the Arduino community. This wealth-sharing model exists because of the interdependencies between Sparkfun and the Arduino community.
Arduino relies on Sparkfun, amongst other manufacturers, to produce and distribute its products. On the other hand, Sparkfun relies on the expertise of the innovators at Arduino to customize, innovate and troubleshoot on behalf of Sparkfun. This provides a strong two-way partnership that creates a flow of financial transactions between the two entities. In addition to intellectual capital, Sparkfun uses the well-established Arduino brand to market the circuit board that grants the some return of capital for the use of brand name. Nonetheless, in contrast to the open source software, we argue that this influence-based relationship is not a sufficient condition for scalability because of the costs associated with the R&D and production of the tangible goods.
Manufacturing is a resource and capital-intensive process and therefore, it is difficult to amount a high number of producers. On the other hand, the knowledge and design of the innovation can be created in the virtual space by the masses. Therefore, this bias in numbers creates a favourable market for the producers, which would tip the negotiations in the favour of manufacturers. Therefore, we argue that over the long run, this model is not socially sustainable since it will shift the balance of power towards the manufacturers. Therefore, it is possible that the community will be treated as an outsourced partner for R&D rather than the wealth-sharing model. This imbalance of power between innovators and manufacturers caused by the outsourcing of the R&D can be observed in the pharmaceutical industry.
The drug development and manufacturing process is challenging and requires high-capital expenditure primarily due to two reasons: the stringent governmental regulations and the high failure rate of the R&D. To lower this cost, companies such as Fiocruz in Brazil, and Pfizer and NEOMED in Quebec are creating collaborative hubs to create partnerships with academia and disbanding their R&D centers in those regions. The academics are encouraged to perform R&D and patent their research. Once patented, the pharmaceutical industries purchase the patents with the most potential for a fraction of the future revenues. This monopoly of purchasing patents at low-cost is rationalize by the risks undertaken by the manufacturers in developing and producing the drugs.
In elaborating on this tension between innovators and manufacturers, Bauwens et al. (2008) argue that this imbalance of power between the innovators and manufacturers exists because of two reasons: the innovators do not have the capital and tools to develop their research, and the second, the innovators do not have the capital and tools to produce their product. Yet, these challenges bring in new opportunities to address these concerns. The first challenge is undertaken by crowdfunding and fab labs, whereas, the second challenge is giving rise to the commons-based peer production model.
Crowdsourcing is the process of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, and especially from an online community, rather than from traditional employees or suppliers. This process is often used to subdivide tedious work or to fund-raise startup companies and charities, and can also occur offline. It combines the efforts of numerous self-identified volunteers or part-time workers, where each contributor of their own initiative adds a small portion to the greater result. The term "crowdsourcing" is a portmanteau of "crowd" and "outsourcing"; it is distinguished from outsourcing in that the work comes from an undefined public rather than being commissioned from a specific, named group.
Nowadays the term crowdsourcing is mostly used for sourcing skills from the crowd. Different successful platforms have been proposed. They usually play the role of an intermediary between companies in search of solutions and individuals from across the planet, facilitating matchmaking and transactions. The platforms charge a fee of the transaction
In addition to communication, coordination and collaboration, individuals across the world are using the Internet for donations and investment purposes. Platforms such as Indiegogo allow anyone to request money from the crowd for various purposes from producing music, film and other media content. This crowdfunding market is growing and with the approval JOBS act, this market is predicted to grow to $300 B over a short period. For example, in 2012, Kickstarter was the industry leader had 63,000 projects and $250 M in pledges. Besides artists and corporations, open source communities are also leveraging these platforms to raise capital.
QU-BD, a project to create an open source production ready 3D printer, received ~ $415,000 in support from the community. Lighpack, a project to create ambient backlight for displays, received a support for ~$500,000. Noflow, an open source project to build and manage complexity of software efficiently, received a funding of ~120,000. The aforementioned projects have requested funding for both R&D and production.
Fab labs or fabrications labs refer to co-sharing work spaces that provide open-access tools to the community. Fab labs can be for-profit such Fab-fund, which received $475M in private funding and operates on the model of servicizing, non-for-profit, which are funded by the government, and for-commons, which are funded by the community either by membership fees or crowdfunding (Bauwens et al., 2012.) These fab labs provide open source community members access to space and tools such as: laser cutters and 3D printers, required to conduct R&D at an affordable price.
Coworking is a style of work that involves a shared working environment, often an office, and independent activity. Unlike in a typical office environment, those coworking are usually not employed by the same organization. Typically it is attractive to work-at-home professionals, independent contractors, or people who travel frequently who end up working in relative isolation. Coworking is also the social gathering of a group of people who are still working independently, but who share values, and who are interested in the synergy that can happen from working with like-minded talented people in the same space.
Coworking offers a solution to the problem of isolation that many freelancers experience while working at home, while at the same time letting them escape the distractions of home. Coworking is not only about the physical space, but about establishing the coworking community first. Its benefits can already be experienced outside of its spaces, and it is recommended to start with building a coworking community first before considering opening a Coworking space. However, some coworking spaces don't build a community: they just get a part of an existing one by combining their opening with an event which attracts their target group.
The advent of 3D printers permits new business models for production. Coined by Benkler et al. (2006), “commons-based peer production” is a way of production that capitalized on the power of new age tools such as: 3D printers and CNC machine, to reduce dependency on the traditional large-scale manufacturers. Peer production is “a model of social production, emerging alongside contract and market-based, managerial-firm based and state-based production.”  The peer production has two characteristics: decentralization of manufacturing facilities – small, widespread and local production facilities, and lack of control – manufacturing is locally owned than centrally owned. Commons-based peer production refers to “glocalization” – global commons knowledge such as open source and local production such as peer production. For example, Wikispeed uses this model of Commons-based peer production to manufacture cars.
Wikispeed is an open source project that innovates, manufactures and distributes cars. Using the Internet as a tool, Wikispeed coordinated with various garages across the world to innovate a highly fuel efficient car that gives 100 miles per gallon (or 100 km/1.5 L.). The community has modularized the design of the car and published it to enable large-scale collaboration. By using this method, the first wikicar prototype was created in 2012 within three-months, an effort that takes a typical car manufacturer ~5 -7 years and costs $100 Million.
Because Wikispeed is born-global, it has managed to fulfill governmental regulations in many regions, such as US and New Zealand simultaneously. In fact, both Wikispeed community in US and New Zealand have sold and manufactured cars at their local fabrication labs. These fabrication labs include tools such as 3D-printers to replace the traditional large-scale and capital-intensive equipment required to produce a car. In fact, Joe Justice, the founder of Wikispeed, claims, “a high-school graduate with a $300 CNC machine can produce the car.”
Wikispeed has opted for economies of scope, which is focused on mass customization over mass standardization and production. A major advantage of the model of peer-production is the capacity for customization since the local producers can adopt the design to fit the need of its market and customers; for example: adaption of material and parts to local available. Moreover, localization also means that the entity can quickly respond to the changing requirements and environment. Lastly, the availability of low-cost tools and open-designs attracts individuals and small communities to help make the technology available at a large-scale.
This approach to mass-customization can be sustainable from social and environmental perspective. For example, Farmhack is a community that focuses on finding organic and local solutions to provide efficiencies to food production; for instance, “solar powered auto-driven chicken tractor,” which can help improve the efficiency of breeding free-ranged chickens while reusing chicken waste as soil-supplements and leveraging renewable energy.
Besides the innovation and customization benefits, open source encourages modularization since mass-collaboration would be challenging without modularization of the product and process of R&D. This modularization also provides environmental benefits since incremental upgrades could reduce waste. For example, Phonblok is a concept design for an open source modular phone that could greatly reduce the electronic waste that is generated by constant change of phones. The carbon footprint of manufacturing of a cell phone is approximately 60 kg of CO2 emissions. While it will be radical to suggest that Phonebloks could aim at reducing CO2 emission completely, it can however help in reducing footprint in case of manufacturing of mobile phones. Phonblok offers the option of using biodegradable blocks and also the option of reusing old blocks. Thus, a realistic target of being able to reduce 30 per cent of CO2 emissions in manufacturing of phones can be reduced by means of using phonebloks.
Nevertheless, despite the emergence of open source, there are challenges to the model of open source innovation and commons-based peer production that could limit the scalability of open source innovation. These challenges are described in the next section.
Open source communities face daunting challenges because of their unique nature. In this section, I have identified a few critical factors that could limit the financial sustainability of these open source communities. These challenges are as follows: managing crowd investments, distributing revenue to the community, organizational behavioural issues such as turnover and trust, lack of legal structure, lack of brand protection, lack of reputation system, and limited capacity to formulate and execute business strategy.
Open-source could provide social and environmental benefits at a large-scale but nevertheless the growth and economical viability of the model remains a challenge. Whereas the crowdfunding promises great source of funding (for example, Wikipedia raised $35M in donation in 2012), it remains challenging for fund receivers to track and redistribute income to the investors in the “crowd.” Moreover, the government regulations also limit the investments that the crowd can perform; for example, Canada does not allow investment based funding through crowd. Therefore, most of the crowdfunding capital is raised as donation instead of investments.
In addition to the investment issues, the extent to which the revenue is redistributed to the community is limited for other types of contributions as well. In fact, any revenue generated for the community is redistributed to only a core group of individuals. In return, this implies that a large number of people (if not most) that contribute their time, intellectual capital and other types of labour are working on the open source projects on a pro-bono and for-benefit purposes as oppose to for-profit purposes. While this can be seen in a positive light since the contributors receive a better and customized product. Nevertheless, this model is not scalable since it does not create a financially sustainable value for all (or most) of its participants.
In addition to the issue of fair distribution of wealth, open source communities do not have the proper organization structure to foster long-term retention of members. The result is a high turnover and lack of loyalty that could limit the growth of the open source model. Besides turnover, trust is another consideration in the discussion of the organizational structure
Trust is the fundamental element of any society and economy. Research in the literature suggests that people are likely to collaborate and share knowledge if they trust each other. In fact, research suggests that trust can act as a substitute for control. Therefore, without the control mechanisms of a traditional corporation, the open source communities need mechanism for accountability and fairness in order to create trust at a large-scale and thus increase the number of collaborators in-order to scale the model.
In addition to the trust of the community members, open source communities face a challenge of trust from non-members as well. Whereas the open source communities have started to produce tangible goods, these communities do not have the legal mechanisms required to assume the liability of the product that can build the trust of non-members. Therefore, the open source communities are dependent on the traditional corporate structure to assume the legal liability of the product.
This challenge is further exacerbated by the fact that open source communities are not legal entities and therefore, they often have to rely on an individual or a group of individuals to assume a personal legal responsibility for the asset of the communities including intangibles such as brand name and logos. Therefore, this responsibility creates a need for control and protection mechanism in order to protect the individual.
Next, the open source communities have open-access. Therefore, anyone can join with a mal-intent to launch attacks on the communities. These attacks could range from knowledge disruptions to providing a bad reputation for a brand name. In fact, an honest error in a product by an individual could also significantly damage the brand name. Therefore, the open source communities have to find a mechanism to protect the brand image since it is a source of differentiation.
In addition to brand name, the mal-intent can harm an individual and reduce sense of justice and trust in the communities. Therefore, it is important for open source communities to track the performance and behavior of an individual in order to create a foster and maintain long-term trust based relationships. In fact, Botsman (2010) argues that the reputation of an individual would be as valuable as the currency in the future. Traditional firms such Airbnb, Taskrabbit and e-bay all use a form of reputation system in order to maintain the integrity of the network.
Lastly, in order to become financially scalable, open source communities have to compete with the traditional organizations. Therefore, open source communities will have to formulate and execute business strategies in order to out-compete the traditional organizations. Because the open source communities do not have control mechanisms, these communities would require a new framework for governance structure in order to stay competitive.
In applying the arguments of Porter and Kramer (2011), I conclude that open source has not yet proven to be financially scalable. Therefore, it is unlikely that the model would provide the societal and environmental benefits at large-scale under Capitalism. Porter and Kramer (2011) state, “Capitalism is an unparalleled vehicle for meeting human needs, improving efficiency, creating jobs, and building wealth.” I concur with this statement and therefore in the next section, I propose a model of Open-Value Network that addresses the challenges experienced by the open source communities. If the model could address the challenges above, I argue that the open source communities will be able to out-compete the corporations in all three domains of sustainability.
Sustainability requires high-levels of collaboration and flexibility to quickly respond to complex and changing market demands. The goal of the Open Value Network (OVN) model is to create an ethical structure that is conducive to collaboration in order to create, capture, exchange and distribute value with other members to satisfy market demands, including social and environmental, at a large-scale.
The Open value network is a business model that builds upon the flexibility of open source – open access, collaboration and knowledge sharing, while addressing the challenges of the open source paradigm – lack of mechanisms to manage and distribute financial rewards to the contributors, organizational behavioural issues such as turnover and trust, lack of mechanisms to capture rewards due to the lack of legal structure, lack of brand protection, lack of reputation system and limited capacity to formulate and execute business strategy.
In contrast to an open source network, an OVN acts as a network of open-enterprises that can perform all the functions of a traditional business; for example, R&D, coordination, production, distribution, marketing, sales, distribution of profits, legal liability, and so forth. At the same time, an OVN operates on the principle of “Long-tail” observed in Wikipedia and open source communities. This dual nature of an OVN can be attributed to the OVN framework that leverages many-to-many relationship-based information technology to maintain effective and viable co-creation processes while allowing for self-governance, non-control and non-ownership mechanisms, and open-access. Undoubtedly, such a duality makes the OVN framework quite complex. Nevertheless, with the advancements of Information technology, it is now possible to implement these structures. In the next section, I will describe the fundamentals of the network.
This section defines three fundamental characteristics of an OVN network: open-membership, transparency and open-access, and contributions and their governance.
Open-membership is a major difference between a traditional enterprise and the OVN. In traditional organization, the contributors are employees who need permission to produce use-value, whereas, in an OVN, the employer-employee control relationships do not exist. Instead, an OVN is open, that is, anyone can join and/or leave the network and/or form, join and/or foreclose an open-enterprise at any point. Members can be individuals, or organizations (non-for-profits, governments, open-enterprises or other open-value networks); that is both the OVN and any open-enterprise thereof could consist of individuals, organizations, non-for-profit, government entity and OVNs. This open-membership permits OVN to engage with crowd and operate on a long-tail curve.
Transparency is applied in the open source communities to provide access to information, knowledge, and processes. In addition to transparency, in an OVN, open access to participation is also critical to allow an equal opportunity for value creation. Nonetheless, certain contributions could be restricted due to the nature of the contribution. For example, dangerous chemicals may be restricted to chemists. Access to such contributions would be available provided that a certain level of expertise is attained (explained further under project custodian.)
A contribution of a member can be any product, service, time spent on tasks or projects, physical space offered for activities, prototype, ideas, data, information, financial investment, social connection, manufacturing, distribution channels, sales, assuming liability of a product, providing insurance, certification, evaluation, and any other tangible and non-tangible input that a community member provides to satisfy a desire, want or need. In other words, any effort that is a part of the use value is a contribution. By allowing “contribution” to be defined in such a wide spectrum, an OVN does not differentiate between financial and non-financial contributions and therefore, all contributions are evaluated and rewarded as per the defined governance of the project and network.
There are three types of contributions: project-contribution, network-contribution, and commons-contribution. Project-contributions are those contributions that are applicable to the scope of the project; the governance of these contributions is defined at the project level. For instance, perishable or consumable materials could only be a part of the project. Network-contributions are those contributions that are applicable to the scope of the network; the governance of these contributions is defined at the network level. For instance: a physical tool can be shared across projects. Commons-contributions are those contributions that are applicable across networks; the governance of these contributions is defined at the global governance level. For instance: use of standards, legal framework and knowledge.
See more on Physical resource governance.
The OVN framework defines the structure at four different levels: project-level, open-enterprise level (or inter-project level), network level (or inter-enterprise level), and global level (or inter-network level). This hierarchical structure is design to create synergies among many open-value networks in a network of network environment (or a network of open-enterprise environment). These synergies can be leveraged to collaborate across open-value networks in order to rapidly address the social and environmental demands of the marketplace. In the next section, we will explain the aforementioned hierarchal structures: the project level structure, the open-enterprise level, the network level structure and the global level structure.
An OVN consists of many open-enterprises that may engage with many projects organized in a non-hierarchical fashion with each project acting as an emergent, self-governing and open structure. Due to the emergent nature, the structure of each project will be different. Nonetheless, there are certain guidelines that each project will need to adopt to enable collaboration at large-scale given under the Collaboration model.
The collaboration model is the cornerstone of the OVN framework designed to support collaboration within projects. Similar to a traditional enterprise, an open-enterprise can undertake numerous projects. However, unlike a firm, both the open-enterprise and any projects thereof could be forked to achieve maximum flexibility (explained further under forking.) This collaboration model consists of two major components: value capture and distribution processes; and value creation and exchange processes.
Value capture and distribution processes
An OVN provides mechanisms to capture value by providing structure and infrastructure required to track each contribution within a project. Finally, once the project reaches maturity, any revenue generated from the project is redistributed based on the respective contributions. These mechanisms are achieved by implementing the following processes:
While the processes to maximize coordination within a larger membership have been realized within the open source communities, the OVN structure provides additional guidelines on processes to ensure that there are synergies among the value creation and exchange processes, and value capture and distribution processes.
1) Project tasks: A project task refers to an action that a member must perform to advance the development of a project. Each task is SMART: Specific, Measurable, Attainable, Realistic and Timely. On the other hand, roles refer to a certain list of tasks that a person is required to perform and the decisions thereof.
Each project will have a combination of tasks and roles. For example, producing a component of a product is a task; distribution, selling and repairing are all tasks that could be logged as contributions.
On the other hand, roles consist of a list of tasks that a member assumes the responsibility of. For example, assuming the liability of a product is a role. Additional examples of roles include coordinators, strategists and/or community developer. Roles can be logged as contributions.
Tasks and roles within projects are published for members to accept. Any member could be a part of the project by accepting a role of a task even if the role and/or task is currently under-taken by another member by “Forking” the project (explained further under forking.) Moreover, each task could undergo verification, which can further inform reputation mechanisms (explained further under reputation.)
2) Verification: Once a contribution is logged, another member could evaluate the validity and quality of the contribution. Moreover, this verification could take place immediately or after a certain period of time during the course of the project. Verification could be a role within a project.
3) Project custodian: Project custodian is a special role chosen through the decision making process of the project. For example, a project custodian could be responsible to ensure the proper use of an asset, such as fragile, complex or expensive equipment. At any point during the project, members can vote to select a different member as a project custodian. Similar to other roles, project custodianship is a contribution.
4) Decision-making: Whereas members within the context of a task or a role undertake the task-based decisions, certain decisions such as the selection of a project custodian or a communication platform would require decision making across the project. Such decisions can be based on voting, meritocracy, consensus or executive decision (see more on the governance equation). On the other hand, on a disagreement, it would be possible to fork the project (explained further under forking) since the knowledge is open sourced.
5) Conflict management: If there is a conflict among members during the course of the project, members can modify the value equation and the governance equation based on the parameters as per the prior agreement. However, if the conflicts are not resolved, the members can fork the project (explained further under forking.)
6) Forking: During the course of the project, any member(s) can choose to fork a project for any reason. That is, take a different direction on the development of the project than the rest of the contributors to the project. In such an instance, the new project can choose different agreements on the value equation and the governance equation of the project from the time of the forking. However, all the contributions prior to the forking will utilize the agreements at the time of forking.
7) Predictability: If the project is based on a market study or a customer demand, which are both contributions, then a mechanism could be implemented to predict the value received based on the expected input required to finish the task. This mechanism would improve efficiency of the project by attracting the appropriate level of contributions by guiding the development of value equation. For example, a market study could entice financial contribution, which would be evaluated as per the value equation.
8) Reputation: Reputation refers to the detailed track record of a member; for example, tasks delivered and not delivered. During the course of the membership, any member can evaluate another member, which would be visible to all the members. The reputation system could be designed by skill set to create a comprehensive knowledge, skill and attribute profile. Evaluation for reputation could be a role within a project. If coupled to the calculation of fluid equity, the reputation system becomes a very powerful mechanisms for self-regulation.
There are two types of open-enterprises within an OVN: brand-based and liability-based.
Brand-based: Any member(s) within the OVN can create a new brand and market any of the products through this brand trademarks. This brand trademark could have any legal structure from a private ownership to a cooperative-ownership. Whereas the brand trademarks could be privately owned, a brand charter would dictate the use of the brand trademarks. The brand trademarks could be open for use so long as the members abide by the terms and conditions dictated in the brand charter; for example, product quality and standards. The management of the brand use is further discussed under the legal framework. Nevertheless, access to the use of brand trademarks is a contribution to a specific project and would be evaluated as per the governance of the project.
Liability-based: Any member(s) within the OVN can create a legal entity to assume the liability of the product including the appropriate use of brand trademarks. This liability could have any legal structure from a private ownership to a cooperative-ownership. Whereas the legal entity could be privately owned, a liability charter would dictate the use of the legal entity name for contractual obligation and liability purposes. This liability entity could be open for use so long as the members abide by the terms and conditions dictated in the liability charter; for example, product verification. The management of the liability entity use is further discussed under the legal framework. Nevertheless, access to the use of liability entity is a contribution to a specific project and would be evaluated as per the value equation of the project.
Network-level structure defines the structure across all projects of the open-enterprise. The guidelines in the network-level structure supersede the guidelines in the project structure. However, in order to minimize control and maximize collaboration, the guidelines within the network-level structure are pertinent only to the network commons. For example, the misuse of the network will have negative consequences for all the members. In addition, since any project can fork, the network governance needs mechanism to resolve any conflicts. Hence, it is pertinent to establish a structure for the network commons. The OVN framework identifies the commons of the network and then provides guidelines for the governance for the network.
OVN framework identifies five commons with the network: Network Brand, Infrastructure, Contribution-commons, Reputation and Solidarity mechanisms. In addition, any network-contributions are also a part of the network commons.
1) Network Brand: provides value to all the projects by providing trust relationship among the collaborators and potential collaborators of the network. Therefore, it is pertinent to protect the network brand in order to maintain an advantage in the marketplace since the brand value could decrease if misused by a member.
2) Infrastructure: Infrastructure provides the tools to produce, store, transfer, exchange and modify information within and outside of network. Therefore, changes in the infrastructure could impact all projects. In addition, tangible tools could also be part of the network that would be governed as per the network governance.
3) Reputation: Reputation of a member in a given project is carried forward to other projects. Thus, reputation is a part of the network commons in order to main trust among members.
4) Solidarity mechanisms: Solidarity mechanisms are part of the open-value network to ensure two unique aspects: compassion and distribution of risk. Compassion is an important part of human-collaboration and therefore, the network provides insurance mechanism for its members based on the members’ reputation. In addition to compassion, solidarity mechanisms are used to partially reward for unavoidable failures in order to create higher levels of trust and knowledge base within the network; these failures include: process inadequacy, task challenge, process complexity, uncertainty, hypothesis testing, and exploratory testing. The network governance determines the decisions on the implementation of solidarity mechanisms.
Similar to the project governance, the network governance requires decision-making processes and mechanisms to change the decision-making processes. In addition to decision-making, the network requires roles or network custodians to ensure continuity and compliances. Moreover, network requires mechanism to respond to non-compliances to the decisions. Lastly, network needs to be able to recuperate costs in order to self-sustain.
1) Liquid democracy for voting: Whereas the democracy relies on choosing a representative for a fixed term, liquid democracy allows a member to delegate a trusted peer to vote on the member’s behalf on certain or all decisions. The trust delegate could apply the same principle. This creates a trust-based decision network that can be applied to take network level decisions efficiently and to maintain high level of satisfaction since getting involved in all decisions can lead to stress and dissatisfaction. Moreover, to avoid biases, an individual member can directly cast their vote on a decision if the member does not agree with the decision outcome within a fixed period of the outcome. Lastly, the number of votes delegate to a member is hidden from the delegate to avoid any possibilities of corruption, power and favoritism.
2) Conflicts during the forking of the project: Value equation developed at the time of the forking of the project has to account for the previous contributions at the time of the forking. Failure to reach an agreement at the time of the forking could result in a conflict that could be arbitrated using the liquid democracy mechanism for a faster turn-around.
3) Accountability and Non-compliance: It is possible that a member may not comply with the OVN framework. For example, a member may choose a task but not deliver that causes grievances or worse, a member sells a product and keeps the rewards rather than redistributing it. In such instances, the member may get bad reputation, which will be visible to the members across networks.
4) Low-reputation and retribution: A member with low reputation will be less likely to find collaborators in any OVN since the reputation is shared across networks (explained further under global structure.) Therefore, a member with low reputation will be unable to benefit from the advantages of the OVN model (explained further under the OVN advantages.) Nevertheless, it is important to create mechanisms to encourage members to regain the lost reputation rather than banishing the members with low reputation since it could increase hostility against the networks, which could lead to intentional attacks. Yet, any decisions on banishment could be taken based on liquid democracy.
5) Network costs: All efforts related to the network are considered as projects; for example, the development of the network IT infrastructure is a project. Therefore, the contributions to the network level projects are equally divided among all the projects as contributions to the projects.
6) Network custodians. The network custodians are chosen using liquid democracy process and can be responsible for network-commons: brand, infrastructure, and network-contributions. Similarly, network custodians can take the role strategists for the brand and infrastructure; these roles would be selected through liquid democracy but can the responsibility on any and/or all of the decisions could be revoked at any time.
Global level structure defines the structure across all open-enterprises or networks within an OVN. The guidelines in the global level structure supersede the guidelines in the network structure. However, in order to minimize control and maximize collaboration, the guidelines within the global level structure are pertinent only to the global commons. For example: the flow of information across networks. Hence, it is crucial to establish global governance and a legal structure for the global commons.
Global governance of OVN will provide decision-making guidelines for the change in legal constitution of the OVN including the selection of the custodian of the global OVN constitution. This selection could be done through liquid democracy process, as previously described, with participants across OVN.
Legal framework of OVN would consist of global structure, network structure, and enterprise structures. The purpose of the legal structure at the network level is to create a platform for open-innovation. For example, Airbnb provides a platform where the crowd can rent their homes to strangers. Similarly, the OVN provides an ethical and legal framework to create a platform for open source based innovation. Hence, an OVN acts as a platform that consists of many open-enterprises, supported through legal structure at the enterprise level for both brand-based and liability-based entities. In other words, the OVN network provides a platform for the Peer-to-Peer (p2p) liability structure to create a many-to-many relationship between brand owners and liability owners (see Figure 6.)
In addition to collaboration within an OVN, the legal structure also provides support for many platforms or open-value networks to co-exist. This is accomplished by sharing reputation, value and knowledge across networks while safeguarding the infrastructure and brand of the network.
Figure 6: Open-Value Network: a network of open-enterprises
Permanent global legal structures:
1) Global OVN Constitution custodian: will serve as the umbrella organization for the legal framework and will hold the Global OVN constitution. This constitution will provide guidelines on the roles and responsibilities of the other legal entities and voting mechanisms on how to change the constitution and any of the custodians including global custodian, as per the governance defined in the constitution. Further the constitution defines that each custodian must have its own decision-making mechanism and policies on how to change its decision-making mechanism.
2) Personnel Information custodian: will be responsible for the information infrastructure including holder of private information to keep records of the reputation across OVNs. This custodian will have an agreement to share information required for reputation purposes within and outside of the Open-Value Network with the holder of the constitutions as per the rules of the constitution.
3) Standards custodian: will hold the global standards in order to ensure the flow of information, contribution, value and reputation across the OVN.
Network level legal structures:
1) Network custodian: would be responsible to hold the constitution of the network. This constitution will provide guidelines on the roles and responsibilities of the other legal entities within the network and voting mechanisms on how to change the network constitution and any of the custodians within the network including the network custodian, as per the governance defined in the network constitution. In addition to the network constitution, the network custodian will have an agreement with holder of the global constitutions as per the rules of the global constitution.
In addition to the constitution, the network custodian may hold the brand of the network as well as the responsibility of the any physical and virtual infrastructure, although, these function could be assigned to a separate custodian. For example, one network brand custodian for the network brand, one virtual infrastructure custodian for the virtual infrastructure, and several physical infrastructure custodians for each or some of the local physical hub.
2) Contract holder custodian: will be responsible to hold the contract among all enterprise level legal entities (elaborated under enterprise-level legal structures). This custodian will have an agreement with the network custodian as per the rules of the constitution. A network may choose to merge this role with the network custodian.
3) Financial custodian: will be responsible to conduct all financial transaction across the OVN. This custodian will have an agreement with holder of the network custodian as per the rules of the network constitution. A network may choose to merge this role with the network custodian.
Enterprise level legal structures:
1) Brand custodian: Any member(s) that wishes to form a brand could initiate an open-enterprise within the network with its unique brand name and provides a charter for the brand use. This custodian will have an agreement with the contract holder of the network as per the rules of the network constitution. For example, the open-enterprise can use the services of the network as long as it allows for peer-based audits to ensure transparency and ethical behavior as defined in the network constitution.
2) Liability custodian: Any member that wishes to assume the liability of a product can form a legal entity. This custodian will have an agreement with the contract holder of the network as per the rules of the network constitution. Thereafter, any member that abides by the terms and conditions of the liability custodian would be able to transact directly with the market while forwarding the liability to the custodian.
An OVN is built on trust-based relationships and common values of the participating members. The primary advantage of this type of network is that the objective of the governance is to minimize the friction and points of conflict among members by providing the structure and culture for trust building and open-collaboration instead of maximizing profits. Nevertheless, to achieve the objective of sustainability, an OVN must develop competitive advantage to be effective in the marketplace. Thus, an OVN gains the competitive advantage in the marketplace in the following ways:
1) Achieve continuous innovation by acquiring a critical mass of collaborators
2) Increase speed-to-market through rapid prototyping and digital fabrication
3) Apply a high-level of customization by using commons-based peer production model
4) Create brand-value for the Open Value network
5) Align the brand-based open-enterprises within the OVN to the OVN brand to mutually increase the brand value
6) Provide services for peer audit to ensure that the brand-based open-enterprises comply with the brand strategy of the OVN (ex: open, transparent, no carbon-emission, etc.) and to ensure that the liability-based open-enterprises comply with the terms and conditions of the appropriate brand-based open-enterprises
7) Use brand power to grow network membership (larger membership would lead to higher contributions including financial)
8) Share reputation information with other Open-Value Networks to reduce mal-intent across networks (OVNs would need to create standard to share reputation data, see infrastructure for OVN)
9) Share knowledge and the contributions that created the knowledge with other Open-Value Networks to reduce competition across networks (OVNs would need to create standards to share knowledge and value data, see infrastructure for OVN)
10) Ensure that the network provides the appropriate physical and virtual infrastructure needed to support its members.
11) Establish an effective and efficient supply chain to serve all its products that is coherent with its processes, core principles and its brand.
12) Establish an effective and efficient distribution channel and service system.
13) Provide tangible and intangible benefits for network affiliates.
- Branding – choosing the right product for the right brand
- Ethics and values
- p2p marketing
- Use of appropriate brand
- Use of appropriate liability mechanisms
- Space design
- Tools and services
- Guidelines for level of intervention
1) Connecting (ability to connect members)
2) Information searching / sharing (ability to find and share information)
3) communication/coordination (ability to communicate and coordinate with members)
4) Co-creation (ability to create stuff -- tools, space, resources, etc)
5) Accounting (ability to account for individual contribution)
6) Evaluation (ability to evaluate work and provide feedback) - includes reputation
7) Internal governance (Ability to change the processes, resolve conflicts and take decisions) - including roles and responsibilities; and process and network health-check mechanisms
8) Exchange (Ability to exchange the value created)
9) External Governance - market rules and regulation, quality control, liability and legal framework, market health-check mechanisms or metrics, etc
10) Interoperability - ability to do all of the above with a person outside of your present entity (exchange with another member of country, trade, etc)
Derived from the software industry and lean manufacturing, XM encompases management, technical and operational practices to enable shorter and cheaper innovation cycle, modular capability for on-demand customization and low cost distributed production facilities. In particular, XM provides the following capabilities:
Minimize cost of making changes: XM institutes modularization of components by pre-establishing requirements amongst components along with their testing and validation criteria. Therefore, any modifications to a module has a minimum impact on the overall architecture. Further, this process enables concurrent innovation and modification to accelerate innovation.
Experiment and fail fast: XM is an iterative process comprising of many short-release cycles with well-established pass/fail criteria for each cycle; often the tests can be simulated. This process encourages rapid prototyping and creativity since failures can be quickly detected and reverted.
Dynamic teams: A key principle of XM is pairing the work that encourages collaboration, creativity and knowledge transfer while reducing training and documentation costs.
Measurable KPIs: XM breaks down the task to “bite-size” pieces that are measurable and predictive. Thus, XM can produce accurate financial, resources and timeline estimates.
Distributive production: By simplifying the task, XM reduces the dependency on high-cost machinery while standardizing the prototyping process for production. This can transit the manufacturing from factories to distributed production model using modern tools such as 3D-printing.
XM comprises of a set of management and technical practices that enable to aforementioned advantages:
1. Customer-first - Encourage the customer, requirement and test driven culture.
2. Product Owner - Responsible to hold the production vision, define and prioritize the customer requirements, and ensures the product quality and regulations. In an OVN, this would be a role governed by the project governance.
3. Process Manager (Scrum leader) - Responsible to perform a daily follow-up to increase efficiency and transparency within the team. In an OVN, this would be a role governed by the project governance.
4. Visualization - Visualize the modules, relationship amongst modules, work done and remaining to provide clarity in the process.
5. Distributed Collaborative teams - Assign a team and a process manager for each module.
6. Paired innovation - Assign a pair of workers to accomplish each task to increase morale, induce creativity and increase knowledge transfer.
7. KPIs - Track progress for each task to estimate the time-lines of the product while addressing any delays.
8. Agile accounting - Cost-accounting for each release over financial planning of the entire life-cycle of the product.
1. Customer-driven requirements - Customers are at the heart of this process. The product owner elicits requirements from the customer for innovation. Ex: Target mileage
2. Modularization - The customer requirements are truncated into smaller requirements. Ex: Chassis, Engine, suspension, body and interior
3. Prioritize - Determine the Minimum Viable Product (MVP) required to satisfy the customer and regulatory requirements. Ex: no cup-holders
4. Test driven design - Design tests and validations to satisfy the MVP prior to commencing the phase. Ex: Impact tests that a chassis must pass a 4-star rating.
5. Contract first development - Create agreements of compatibility amongst each module. Ex: how would the engine integrate with the chassis.
6. Iterate and estimate - Iterate the process for each module until the tasks can be completed within a pre-fixed product release cycle. Ex: Wikispeed released modifications every week such as: improve chassis to achieve 5-star rating from 4-star rating in one week.
7. Simulation - Design and simulate the tests prior to prototyping. Ex: simulate crash test to save on wasted material.
8. Low-cost tools - Use the lowest cost tools possible to create each module of the prototype. Ex: Use cheap CNC machine to prototype parts instead of large-scale costly machines
9. Testing and integration - Test each module separately and combined to ensure accuracy.
- Direct one-to-one conversation
- Mediator (role)
- Small-group mediation
- Large-group mediation
An open-value network is a network of open-enterprises that can provide all functions of a corporation in an open-collaboration fashion. Recently, we have seen a rise in open-collaboration in the functions of marketing, communication, value creation, and so forth. Yet, there has never been an open collaboration model that can provide all the functions of a corporation. The structure of open-value network framework provided in this paper outlines a model that could create a true open-collaboration enterprise that would follow the principles of open source.
Open-source models present a tremendous opportunity to tackle social and environmental challenges. Nonetheless, open source models daunting financial and legal challenges since there are gaps in the business model. The open-enterprise framework provided in this paper could help resolve these challenges by providing the required open-legal and governance structures.
From sustainability perspective, an OVN provides mechanisms of non-control and open-access while providing all the function of a corporation. Therefore, I conclude that open-enterprises can truly target social and environmental market needs in efficient way while creating and redistributing the value generated in an ethical fashion. Hence, the OVN model meets the Porter and Kramer’s (2011) criteria for scalable sustainability.
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 open (in terms of access to participation), transparent (in terms of access to information), horizontal (in terms of governance) and decentralized (in terms of allocation of resources)
 In January 2014