The open enterprise

In 2003, Don Tapscott and David Ticoll published a book entitled The Naked Corporation: How the Age of Transparency Will Revolutionise Business.

The book argued that as information becomes more readily available, transparency forms an increasingly important component of trust in business relationships. It said that organisations must therefore build transparency into their dealings with customers, investors, business partners, their local communities and the public as a whole.

According to Tapscott, who in his writing career has coined such influential terms as ‘the digital economy’ and ‘wikinomics’, this particular endeavour was “a study in bad timing”. The book’s core argument was as valid then as it is today, Tapscott argues.

“But the idea of being open was an idea in waiting,” he says. “Its time had not come.”

That idea was waiting for certain developments on the web, and for a generation that had grown up with digital technology – ‘digital natives’, in Tapscott’s terminology – to enter the workforce, he says. “And it was waiting for a convulsive shock to the system.”

It would be a crass understatement to observe that much has happened in the intervening years. Most significantly, the collapse of the global economy, triggered by a crisis in the financial services industry, has lent considerable weight to the argument that big businesses must be more transparent – both for their own good, and for the good of society.

A renewed interest in private sector transparency can be seen in recent calls for banks to reveal more information about their lending practices, and for City bonus schemes to be more transparent. More broadly, the financial crisis has shattered the status quo, and now more than ever revolutionary change in business practices looks possible.

Of course, demand for transparency is equally pronounced in the public sector. In the UK, the MPs’ expenses scandal brought government openness to the top of the public agenda and now, with a general election not far off, all political parties are professing their commitment to the cause.

Social transparency

Public demand is not the only thing driving the open agenda, however. The six years since Tapscott and Ticoll’s book have seen an evolution in online media that has allowed for significantly greater participation by the public in discussions about business and government.

Not only is it easier than ever for a disgruntled customer to share their negative experiences with the general public, it is also now perilously simple for a rogue employee to leak embarrassing information about business operations. Under these conditions, previous notions of information control are no longer tenable.

Charlene Li, founder of analyst company the Altimeter Group and co-author of the highly influential book on social media Groundswell, says that the rise of social technologies has already brought about a fundamental cultural shift. “The use of these tools has really created a culture of sharing that didn’t exist just a few years ago,” she says.

“There is no way that anyone can be completely transparent; we aren’t even completely transparent in our closest personal relationships.”
Charlene Li, Altimeter Group

Li is now working on another book, entitled Open Leadership, in which she argues that this culture presents the opportunity to use openness strategically. She draws a distinction between openness and transparency: transparency, she says, is simply about revealing information to outside parties. “There is no way that anyone can be completely transparent; we aren’t even completely transparent in our closest personal relationships.”

Openness, on the other hand, implies the greater inclusion of third parties in the operations of a business, whether it is explaining the motivation behind key decisions, by including customers and partners in the product innovation process, or by conducting customer support in open, public forums, or any other application of social technologies that encourages participation.

Not every business needs to pursue a strategy of openness, she says. “Apple Inc., for example, doesn’t need to ‘crowdsource’ innovation, and its customers like the fact that it is mysterious and closed,” she says. “And they can get away with it as long as they are wildly successful.”

That is not to say that openness is for losers; rather, it is an approach that can help organisations overcome some of their gravest strategic challenges. “They may need to accomplish more in a shorter time, so they may open up their decision-making process; they may need to innovate faster, and therefore open up their information-gathering process,” she says.

Li is by no means an advocate of openness for the sake of openness. “When companies just say to their employees ‘go and be open’, that’s a recipe for disaster,” she says. “I strongly believe companies have to control their openness.”

That said, when it comes to such ‘open’ measures as blogs or corporate social networking, employees tend to exercise more caution than might be expected. “What’s amazing to me is that there aren’t more embarrassing failures,” says Li. “That says to me that people are exercising judgement.”

Indeed, Li argues that this caution prevents many organisations from taking a ripe opportunity to get closer to their customers. “Companies are cautious to the point that they don’t even know how to have a conversation with their own customers,” she says.

Opaque legacy

Social media technology provides both the impetus to be more open and the mechanism through which to do it (see Asda launches transparency strategy). However, according to Tony Hulme, an IBM consultant specialising in information management, organisations are often prevented from pursuing a strategy of openness by their legacy IT systems.

“The way we’ve deployed IT in the past two decades has resulted in siloed information,” he says. “People trying to consolidate the information [to make it available externally] don’t trust half of the information they find.”

Nevertheless, he says, there is significant appetite among CIOs for increasing transparency, with customers especially. IBM’s recent CIO survey, comprising over 2,500 face-to-face interviews, found that 68% of IT leaders at high-growth organisations anticipate that customer interactions ‘will feature world-class integration and transparency’ in the future.

“CIOs understand that when you can share your information with your supply chain and your customers, that is when you get the real benefits from it,” Hulme says.

In the telecommunications industry, for example – a market notorious for its high customer churn – being able to give customers greater insight into pricing may increase trust and loyalty, he says.

Nevertheless, Hulme argues that most organisations are miles away from being confident enough of their operational data to expose it to their customers and business partners.

"The reason to be open is not a moral argument; it’s a business argument. Companies that are open perform better."
Don Tapscott, author and consultant

That said, he acknowledges that being transparent is in itself a solution to the very fears that often prevent organisations from opening up – an argument that has recently been applied to government transparency.

“One of the problems with making government data available to the public is data quality,” he explains. “But one way to resolve that issue is to make it available to the public – once it is available, the public can challenge it and drive the quality up.” This argument could equally be applied to the private sector, he says.

Of course, it would take a brave CIO – public or private – to spearhead a strategy of knowingly publishing incorrect data. But Hulme’s point illustrates the broader theme: exposing your business operations to the people they impact – warts and all – can be a powerful method of improving them.

Investor relations

For publicly listed companies, one of the most important ways in which information is shared with the outside world is in the form of financial reports. Here, one might imagine, is an information-sharing process that is ripe for technology-driven reform: today’s financial reports are infrequent, complex and only summarise performance, allowing investors little opportunity to drill into the details.

But according to Ronan Langford, data director at accounting giant Deloitte, there is very little demand among investors for more frequent or more detailed disclosure by public companies. “We are certainly not seeing a greater demand for information,” he says.

That is due in part, he says, to the fact that the majority of shares are owned by institutional investors that already spend a lot of money on investment analysts and information resources.

Many public companies, therefore, see moves to bring the reporting of accounts into the digital age – such as HM Revenue & Customs’ 2006 decision to mandate the use of the XML schema XBRL for all company tax returns by 2010 – as just another facet of their growing regulatory obligations.

But smarter businesses see more transparent reporting as an opportunity to improve their own operations, says Langford. For one thing, producing financial reports is a considerable burden, and anything that helps to automate the process would make for a more efficient finance function.

“I would say that the driver for transparency [in finance] lies with managers, not investors,” he says. By moving towards transparency, he says, organisations can not only streamline the back-office function, but also improve the analysis of their own operations.

This is one more way in which economic circumstances are driving transparency. That renewed interest in managerial transparency is, says Langford, “a natural effect of moving from a high-growth economy to an economy that is more focused on efficiency”.

Self awareness

There are countless ways in which improving openness or transparency can improve the internal operations of a business. According to Tapscott’s research, for example, improving transparency reduces the cost of transactions. “When you increase transparency within an organisation, you get rid of the office politics and you speed up the metabolism of collaboration,” he says.

“The reason to be open is not a moral argument; it’s a business argument,” Tapscott says. “Companies that are open perform better.”

However, he also argues that to truly achieve transparency requires rather more than simply adopting social media tools or reforming information management processes. “You can’t talk about transparency without thinking about its sister concept: integrity,” he says.

Tapscott defines integrity as honesty, consideration of the interests of others, accountability and openness. “These are the four foundations of trust in business,” he says.

So the most significant hurdle to a policy of transparency might be an organisation’s confidence in its own integrity. The other side of this coin, however, is that public demand for transparency might bring about a long-overdue injection of integrity into business, says Tapscott.

“There used to be a saying in corporate social responsibility circles: ‘you do well by doing good’. But in the past I don’t think that’s been true,” he says. “Companies did well by being really bad, by having monopolies, by externalising their costs onto society in the form of carbon emissions.

“But because of transparency, I think that maxim is going to become true.”

Also from this feature

ASDA launches transparency strategy

The supermarket chain is embracing transparency and openness to earn its customers’ trust and loyalty

Pete Swabey

Pete Swabey

Pete was Editor of Information Age and head of technology research for Vitesse Media plc from 2005 to 2013, before moving on to be Senior Editor and then Editorial Director at The Economist Intelligence...

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