Opening up code originally solved practical problems facing a computer industry with a fractured hardware and software landscape. Later, the open source development process became an increasingly important component of open source. In this case, the practical problems involved improving cooperation, innovation, and interoperability.
Many of the same principles and practices – or at least echoes of them – can apply to other areas. We perhaps see this most obviously in open data, open hardware, open information, and open education. However, more radically, we can even ask how and why organizations might change and evolve in a world where open source influences how individuals and organizations work together. And we can ask how the idea of managers changes.
[ Want to learn more about leading collaborative teams? Get the free eBook, Organize for Innovation, by Red Hat CEO Jim Whitehurst. ]
Why do organizations exist anyway?
“The Nature of the Firm” is a seminal 1937 article by Ronald Coase, a young British economist who would go on to win the Nobel prize in economics over the course of a long career. Coase asked the questions: Why do people give up some of their freedom to work as they like and become full-time employees? And wouldn’t it be more efficient for firms to depend on loose aggregates of private contractors, hired as needed to perform a specific task?
After all, orthodox economics going back to at least Adam Smith suggested that everyone should already be providing goods and services at the best rate available as part of an efficient market. Why hire someone who you might need to pay even at times when you don’t have an immediate need for their skills and services?
His answer was that it’s to avoid transaction costs associated with using a market-based price mechanism.
You need to find a person who can do something you want done but that you can’t or don’t have time to do on your own. You need to bargain with them. You need to trust that they will keep your trade secrets. You need to educate them about your specific needs. So firms get created and often grow.
Of course, it’s a balancing act. Firms have always used specialist suppliers – think ad agencies for example – which can be thought of as reducing transaction costs themselves relative to contracting with individuals off the street. As The Economist noted on the occasion of Coase’s 100th birthday in 2010, however: “Mr. Coase also pointed out that these little planned societies impose transaction costs of their own, which tend to rise as they grow bigger. The proper balance between hierarchies and markets is constantly recalibrated by the forces of competition: entrepreneurs may choose to lower transaction costs by forming firms but giant firms eventually become sluggish and uncompetitive.”
These ideas were built on by many economists over the years, including Oliver E. Williamson, who once observed that it is much easier to say that organization matters than it is to show why or how; he would also win a Nobel Prize for “his analysis of economic governance, especially the boundaries of the firm,” which he shared with Elinor Ostrom.
More recently, New York University Professor of Law Yochai Benkler explicitly argued in a 2002 paper (Coase’s Penguin, or Linux and The Nature of the Firm) that “we are beginning to see the emergence of a new, third mode of production, in the digitally networked environment, a mode I call commons-based peer production.” This third mode, the successor to firms in companies and individuals in markets, arose from open source software, he said.
It’s at least interesting to ask how online markets, connected communities, and the “gig economy” (think Uber) change historical equations. There’s little doubt that contracting out for certain types of work has indeed become easier for companies – for better or worse. On the other hand, while public clouds have become a generally beneficial option for certain types of computing workloads, there are also plenty of outsourcing horror stories in IT. We should perhaps leave this question at “it depends.”
However, it’s also worth considering what open source practices and principles mean within a given firm. Red Hat CEO Jim Whitehurst refers to this as “the open organization” in his book of the same name.
Open organizations
General Motors might seem an odd starting point for this discussion, but for all its various problems over the years, it provides an interesting study point about the principles of decentralization, which is a component of openness.
Writing in 2018, Steve Blank noted that “borrowing from organizational experiments pioneered at DuPont (run by his board chair), Sloan organized the company by division rather than function and transferred responsibility down from corporate into each of the operating divisions (Chevrolet, Pontiac, Oldsmobile, Buick, and Cadillac)… Today, we take for granted divisionalization as a form of corporate organization, but in 1920, other than DuPont, almost every large corporation was organized by function.”
GM was still the epitome of a hierarchical organization, of course, in the vein of the companies that William Whyte wrote about in 1956 in his influential “The Organization Man.” A central tenet of the book is that average Americans subscribed to a collectivist ethic rather than to the prevailing notion of rugged individualism. The Fortune magazine writer argued that people became convinced that organizations and groups could make better decisions than individuals, and thus serving an organization was a better logical choice than focusing on individual creativity.
GM was a hierarchical organization distributed through accounting structures rather than direct command and control.
Today, we see some signs of broader change.
More democratic forms of organizational governance exist. One popular discussion topic is holacracy, which introduces the idea of roles (rather than job descriptions), as part of a system of self-organizing, although not self-directed, circles. The term was coined by Arthur Koestler in his 1967 book “The Ghost in the Machine”; it’s now a registered trademark of HolacracyOne although the model itself is under a Creative Commons license. The best-known practitioner is probably Zappos, the online shoe retailer now owned by Amazon.
However, the prevailing wisdom – which reflects practices familiar to open source development practitioners – is not so much about democracy as it is about decentralization and empowerment based on skills and expertise.
In The Open Organization, Red Hat’s Whitehurst argues that “Many people assume that if an organization is not top-down, it must be some flavor of democracy – a place where everyone gets a vote. In both hierarchies and democracies, decision-making is clear and precise. It’s prescribed and can be easily codified. In most participative organizations, however, leaders and decision-making don’t necessarily follow such clear rules, just as it was in ancient Athens, where literally every citizen had the same opportunities to lead or follow others. Some people have more influence than others.”
The updated role of managers
One interesting aspect of such an environment is that it doesn’t necessarily mean, as one might assume, eliminating managers. Whitehurst writes, “Nothing could be further from the truth. Our managers play a vital role in building, supporting, and moderating the meritocracy. Finding that balance between supporting it and at the same time leaving things alone is critical.”
In “Team of Teams”, Stanley McChrystal, who commanded the U.S. Joint Special Operations Command in the mid-2000s, describes the basic problem. He recounts how the scientific management system that Frederick Taylor unveiled at the 1900 Paris Exposition Universelle “was so beautiful it inspired people to devote their lives to his vision.” It was impressive for its efficiency at executing known, repeatable processes at scale. His steel model could churn out metal chips at a rate of fifty feet per hour rather than the norm of nine.
However, McChrystal goes on to write, today’s world is more interdependent. It moves faster.
This creates a state of complexity, which is fundamentally different from challenges that are “merely” complicated in a technical sense. Complexity in this sense means less predictable. It means emergent behaviors that increasingly need to be reacted to rather than planned for in great detail.
McChrystal argues for pivoting away from seeing efficiency as the managerial Holy Grail to focus on adaptability. He distinguishes commands rooted in reductionist perfection from teams which have a connectivity of trust and purpose that gives them an ability to solve problems that could never be foreseen by a single manager – even if they’re less efficient in some theoretical sense.
All of which echoes the open source development model in so many ways.
This article is adapted from How Open Source Ate Software by Gordon Haff (Apress 2018)
