Open Source and Strategic Management

Posted 1 Oct 2001 at 02:48 UTC by renster Share This

I'm working on my PhD and yes it's about Open Source and a particular theory of strategic management (the resource-based view). I was hoping a few of you interested souls would read my short draft introduction and hopefully make some comments. Unfortunately, being an introduction, it doesn't get into the heart of the issues raised.

If you want more background on the resource-based view follow my homepage link to my sourceforge project. My previous confirmation of candidature document is there and it has a literature review and reference lists. Also read the relevant parts of this document for a great review of RBV.

I hope to involve open source projects in my research and would like to talk about that later.

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Chapter 1: Introduction

In a relatively short period of time, the resource-based view (RBV) has offered a number of new research directions in the area of strategic management. Any casual observer of the resource-based view literature would note its inclusion in a large proportion of management research over the last decade. Importantly, the resource-based view provides a theoretical framework that allows researchers to link firm resources (the internal) with the competitive action of markets (the external). This theoretical link has proven to be a simple, but valuable keystone for research in a number of fields of management. Unfortunately, and due in no small part to its broad intuitive appeal, the resource-based view appears to have been incorporated mainly as a passing reference in the introductory paragraphs at the publishing end of the research process. By necessity, this has moved critical focus away from its theoretical roots toward more cursory, shallow and mundane observations. This has meant that opportunities for meaningful theoretical development have been lost.

Despite its wide appeal, is the resource-based view robust? One avenue for theoretical development of the resource-based view is to determine if it applies to new phenomena. Robust theory explains a diverse set of facts and is able to consistently predict new phenomena that are subsequently observed (Amicus Curiae Brief, 1986). Consistent with this observation, this thesis applies the resource-based view to a new phenomenon; software development projects that employ an Open Source standard. The Open Source standard poses a fundamental challenge to the resource-based view as it presents a phenomenon where software is developed, often successfully, as a public good with the use of private agents acting as volunteers. It is argued that although a volunteer programmer realises some benefit from the software being produced they gain nothing (ignoring altruism) from the benefit that all other consumers realize (Bessen, 2001). This is counter to the assumptions, held in the theoretical underpinnings of the resource- based view, that require organizational actors to act rationally - making decisions and assessing choices that maximise self-interest. As noted by Katzner (1999), rational behaviour is behaviour that is designed to achieve an objective determined by self-interest. Clearly, in the context of an Open Source standard, where social welfare is placed before self-interest, our understanding of strategic resources and the role they play in contributing to performance must be significantly altered.

The movement in focus away from self-interest is echoed in the development of the Open Source standard as being substantially driven by the early social history of software programmers. In its current form the Open Source standard enforces, through socio-cultural and more recently legal means, the removal of property right claims to software. This is due to the definition of software as a public good in the face of a corporate environment overwhelmingly favouring proprietary ownership of software and enforcement of property rights over software. Again in contrast to the predominant proprietary modality, the social structure encouraged through the Open Source standard facilitates cooperative and altruistic action. This appears to have the related benefit of increasing allocative efficiency as the social structure of the Open Source standard largely removes institutional distortions in the software development marketplace.

In the context of the Open Source standard there are a numerous implications for the main prescription of the resource-based view that firms gain sustainable advantage through the application of firm- specific resources. At a theoretical level, these implications are fundamental and point directly at the nature of 'doing business'. At an empirical level, providing some hints of their deeper theoretical implications, the following three common areas of observation in the resource-based literature come into question.
1. Performance differences due to resource heterogeneity. It is not known if variation in resources across projects will explain performance differences of projects using an open source standard. Increased emphasis on social welfare may reduce opportunities to retain project specific resources. Therefore resource heterogeneity observed in other contexts may not be evident in Open Source software development. Alternately, substantial removal of barriers to resource movement across projects (through social and institutional mechanisms) may cause resource heterogeneity to occur. Projects may use intangible capital as leverage to secure resources.
2. Characteristics of strategic resources. If resources do explain performance differences then the type of resources that are strategically significant(1) have not been identified through research. Successful Open Source projects may exhibit substantially different strategic resource portfolios from less successful projects and from successful projects or firms in other sectors. An important outcome will be to understand the characteristic of strategic resources the mark successful projects.
3. Importance of resources in explaining performance. In following with the previous two areas of observation, do resources in general, significantly predict firm performance differences beyond other extraneous factors? This is a general question about the applicability of the resource-based view across types of Open Source projects.

We have then, an alternate, competing organizational and social logic that challenges the robustness of the resource-based view by bringing into question its main prescriptions. The question begs to be asked. Does the resource-based view explain 'success' in open source projects? Alternatively, does a strategic logic, based on a resource- based view, predict success in the context of the Open Source phenomenon? This thesis maintains that the resource-based view is indeed robust despite the requirement that it be re-examined before application to the Open Source context. It is being argued that the resource-based view presents a means by which firms may achieve success while the Open Source standard presents a new method.

Before testing the robustness of the resource-based view a re- examination of its fundamental roots must be undertaken. This entails a recasting of the three major elements of the resource-based view with reference to the context of the Open Source standard (2). This involves:
1) An examination of the notion of performance as a proxy for efficiency and economic rent,
2) An examination of the notion of resources with inclusion of tangible and intangible concerns, and
3) An examination of the logic that ties resources to performance in the context of competition and cooperation.
Following these examinations, the revised understanding of the resource- based view must be applied to the Open Source context to allow testing and further theoretical development.

To reiterate, we begin by introducing the resource-based view literature and the reasons why the Open Source standard should and must be used as a foil with which to address its theoretical underpinnings. The theoretical linkages between the resource-based view and the Open Source phenomenon are discussed here. This is followed by a more practical discussion of the application of the resource-based view to software development projects adopting the Open Source standard. A methodology, a series of research studies and their analyses are then detailed. To conclude a summary of findings, their implications and further research directions are presented.

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(1) Strategic significance are literally those resources that significantly contribute to performance.

(2) In so doing, it must be noted that large sections of background literature, in particular in the area of economics, will be touched upon but not brought in as major sections of this thesis. This is an unfortunate outcome resulting from the overriding requirement to maintain a concise analytical tempo in addressing the main thesis.


P&H and Kay, posted 1 Oct 2001 at 10:46 UTC by MikeCamel » (Journeyer)

renster - From my studies, I'm much more aware of core competence- (Prahalad & Hamel, ?89) and capability-based (Kay, ?) views of strategy, rather than resource-based. In fact, the main drive of almost all the work that we've done on strategy has been approaching it from these two areas, particularly with reference to competitive models. Could you describe the differences of these approaches wrt resource-based models?

Not much difference..., posted 1 Oct 2001 at 12:40 UTC by renster » (Journeyer)

Prepare for sweeping generalisations and not much more clarity :). I would say there are no fundamental differences just changes in emphasis - different lenses on the same camera. The author's and areas you mention fall within a resource-based perspective (the camera). Prahalad's lens tends to be focussed on the area of knowledge applied to discontinuous change, say in the presence of globalisation (mainly in earlier writings). The underlying assumptions or worded differently - the theory of the firm, is essentially no different, apart from some definitional argument. Indeed, I say resources as a more inclusive term to saying competence or capabilities.

I prefer to use the term "resource-based view" because it links back more closely to earlier work that ties in economic theory. With respect to open source I think the real meat of the argument is in understanding some of the fundamental assumptions on which strategic theories of the firm are based. Open source does challenge assumptions of a resource-based (strategic) view of the firm. Many of these assumptions are based on economic theories as my introduction begins to present. If you like, the area I am concerned with initially is with higher order 'theory' while competencies and capabilities in terms of the management literature is lower order (in that issues of say HRM or prescriptive approaches are introduced). They are not separate, just a different focus. At the lower order more practical concerns about developing the strategic logic of the firm arise. At the higher order there are more fundamental (wishy washy) concerns about why do firms exist.

I would say it has been too easy to apply the term 'resource-based view'. A vague reference to a general world-view. In order to develop a coherent argument i need to move from the higher order concerns (the more fundamental issues) to the lower order (what are strategic assets in the world of open source).

Now that I've written this I don't think I've clarified anything for you :)

Seems to make sense, posted 2 Oct 2001 at 14:32 UTC by MikeCamel » (Journeyer)

I've read your comment, and then reread the original post, and it does seem to make sense. I wonder what other resources could be identified as similar to add weight to your thesis, or for comparison? How, for instance, might you compare work-based (or sponsored) training or social events - they may not add to the economic rent in an obvious way, but, like Open Source (maybe), they help people in different ways (obvious applicability of Maslow's need hierarchy here, I guess). I'm trying to think of more comparable resources, but failing, which suggests to me (assuming that I've understood your aims) that you've got a good starting point here.

I'm going to take a huge liberty here, and rephrase and simplify to try to check that I've understood what you're looking at. Please correct me if I'm wrong, or elaborate if I'm on the right track:
"Strategic resources are usually things from which you can easily see the link between their use/existence and economic rent. For Open Source, the link is less obvious, but seems still to exist. If it does, does this mean that we need to re-evaluate what we call strategic resources?"

Fair, or not?

intelligence and natural selection, posted 2 Oct 2001 at 20:22 UTC by lkcl » (Master)

always willing to make tangential comments that, with little consideration, appear not to have any relevance.

stragetic resource number 1: intelligence. the more intelligence accumulated, the more likely results are to be achieved.

strategic resource number 2: evolution, through the numbers game, and natural selection. after all, evolution produced the spider - a creature that, if ever it had been designed, would have the engineers on the project gasping at their own ability to produce such magificent efficiency.

open source is _supposed_ to help with respect to strategy number 2: increased number of eyes. this assumes that the number of eyes _is_ bigger, and also that max_of(intelligence behind eyes) is higher.

for really large projects (300k loc and above) this starts to get a bit dubious, especially when the number of years of experience required to actually understand what "eyes" are seeing is really quite unacceptably high (3 or more for SMB, CIFS and DCE/RPC).

for tiny projects (< 10,000 loc), well, fine! the numbers game works absolutely fine. 10,000 loc is small enough for people to even consider rolling their own, at home, in a few months. you can hold 10,000 loc in your head. review? _no_ problem.

so, i'd say it's a matter of maxof(intelligences) / LOC or something like that...

re: Seems to make sense , posted 2 Oct 2001 at 22:55 UTC by renster » (Journeyer)

>"Strategic resources are usually things from which you can easily see >the link between their use/existence and economic rent. For Open >Source, the link is less obvious, but seems still to exist. If it >does, does this mean that we need to re-evaluate what we call >strategic resources?"

Yes, exactly, although I would never say that the links are easy to see:) As you'd expect almost all research has been on traditional firms in well researched industries with performance measures based on financials. For example, the more recent knowledge management and intellectual capital research tried to broaden the focus to include resource areas such as social and human capital as well as organizational capital.

So, yes we need to broaden our understanding of what strategic resources are with respect to Open Source. Not so much in terms of the possible range of resources. Even earlier works (e.g Penrose, Nelson & Winter, Wernerfelt, Schumpeter, Chamberlin) pointed to elements of Human and Social Capital as being important. I suspect that with Open Source projects we might not find a huge number of new or unusual strategic resources but instead there will be a different pattern of important resources to what we are used to finding in other sectors or business models. I could be very wrong there though and maybe find an unusual strategic resource. I want to get a decent sized pool of experts to discuss their understanding of what strategic assets are open source software development projects.

More importantly we need to get a better understanding of how (and if) the resource-based view works in the context of Open Source. First we need to understand what performance is. Traditionally, performance has been assessed using reference points that are external to organisations and composed of key financial and economic indicators. Somewhere along the line management researchers became hung up on using these types of performance measures for every type of organisation. Clearly, they don't apply to Open Source (or they might to a limited extent) and we need to understand that there are other intangible 'performance' measures (reputation and learning outcomes??). I discuss this more in my confirmation document that I am totally rewriting at the moment.

We need to understand how Open Source projects looks using our RBV camera. Using the RBV camera I want to really ask, why do some projects succeed and others do not? Is there good cause to believe that resources heterogeniety exists and is a main reason why some projects fail? ...

Sorry..running out of time, have to go to a meeting. I'd like to elaborate some more. I think a lot more discussion is needed to ferret out some of the more fundamental issues here. As a public good being produced in the context of competition *and* cooperation it has some ramifications for RBV but I don't think they are insurmountable. Before we can really compare Open Source to other models management researchers really need to understand Open Source a whole lot more.

open source property rights, posted 3 Oct 2001 at 18:43 UTC by superant » (Journeyer)

You state in your introduction:

"...Open Source standard enforces, through socio-cultural and more recently legal means, the removal of property right claims to software..."

My understanding of the GNU license is that it does not remove property right claims, but changes the acceptable use of property protected with the license. So, the author does not give up ownership of the software, but allows others to use it more fully than most private ownership claims would allow.

Just my two cents, superant

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