From Outsourcing to Commons Sourcing: the Third Wave of Business Transformation

If the first wave of industrial capitalism was based on vertical integration, i.e. in-sourcing, and the second on outsourcing, then we are now moving to a third mode, i.e. sourcing the commons.

I find this a very valuable perspective, from an original article by Thomas Prowse in the Open Source Business Resource, and entitled: Treasury of the iCommons: Reflections of a Commons Sourcing Lawyer.

It suggests very strongly that the open business models we have been discussing in this blog, are not the exception, but the new norm. Of course, this has been our contention all along, but it is nice to see it echoed in such an articulate way.

He defines commons sourcing in the following way: the iCommons pooling of shared information resources under Open Source Software methodologies for use by companies for commercial purposes.

Then explains why this could be considered a third wave of transformation concerning how commercial entities operate:

Commons sourcing is the emerging third wave of commercial transformation. The first wave of commercial activity in the industrial revolution can be best characterized as in-sourcing since companies of necessity focused on doing everything themselves in vertically integrated business structures in a world of tariff protected nation states.

With the emergence of globalization and trade liberalization, out-sourcing emerged as the second phase of commercial transformation. In this era, companies became very focused on core competencies and looked for opportunities to out-source other business functions. Many of these opportunities were driven by the availability of skilled work forces in developing countries at extremely attractive labour rates. These labour rate variations, which were largely a legacy of the formerly tariff-protected nation states, initially drove strong business cases based on market arbitrage. However, these cases have generally become much less compelling as labour rate gaps narrow and as the total costs of out-sourcing become increasingly apparent to companies.

Prowse offers the following reflections on the commons sourcing model:

1. Think abundance. Commons sourcing is about abundance, not scarcity, and provides a number of collaborative models for value creation.

2. But keep enough scarcity. Apart from some pure play opportunities, most companies need to maintain some commercial differentiators and remain separate from the iCommons pool.

3. Remember Goldilocks. The core challenge under a commons sourcing business model is getting it “just right”. A company that commons sources too much will end up lacking the differentiators that are key to its commercial success. Perhaps less obviously, if a company commons sources too little, it will most likely end up facing uncompetitive cost structures for any inputs which its competition is commons sourcing.

4. Reset the risk paradigm. Commons sourcing activity requires a reset of the risk paradigm to properly weigh the risks involved in the activity against the risks of not being so active.

5. Allow for some optimism. The commons sourcing movement and its communities are based on a strong ethos and value system.

6. Embrace the Gordian knot. Since commons sourcing exists at the intersection of very complex business, technical and legal issues, the commons sourcing lawyer must be ready, willing, and able to fully commit to a technical and business deep dive while addressing legal issues.”

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