42 Degrees - Business from a different angle

How can sharing ideas and resources set a business back on its feet? We talk to Don Tapscott, whose new book 'Wikinomics' promotes collaboration and community as models of production

A little less than a decade ago, the prospects for Canadian mining company Goldcorps Inc. were grim. Deposits at its 55,000-acre site in Red Lake Ontario were running out and the 50-year-old mine was heading for closure.

But then Goldcorps chairman Rob McEwen did something unthinkable. Ignoring his industry's age-old obsession with secrecy, he published all his company's confidential geological information on the internet. He put up a prize of $575,000 and invited anyone who fancied their chances to identify the location of new deposits.

One thousand virtual prospectors rose to the challenge and within months more than 80 substantial new deposits were identified. The company was transformed from a $100m hole in the ground into a $21bn, well, goldmine, just nine years later.

It sounds almost too good to be true. By challenging one of the most basic assumptions of business, by cooperating rather than competing, by sharing proprietorial knowledge, Goldcorps was able to harness the power of the internet and transform its fortunes.

That, in a nutshell, is the idea that lies at the heart of a radical new theory of business described in Wikinomics: How Mass Collaboration Changes Everything, by Canadian business strategists Don Tapscott and Anthony D. Williams.

"The story illustrates how profound changes in the nature of technology, demographics and the global economy are giving rise to powerful new models of production based on community, collaboration and self-organisation, rather than on hierarchy and control," explains Tapscott. At the heart of this revolution lies the internet.

The book challenges almost every idea we have about how businesses should organise themselves, how they should compete, how they should develop new products, make them, market them, deal with their supply chain, handle employees, relate to consumers and even arrange finance. The point is that instead of being commercial fortresses, businesses need to become permeable, or as Tapscott puts it, "Corporate boundaries need to become more porous."

It's a grand theory. But most grand theories are either very abstract or relate only to the very largest corporations. The good news is that the underlying principles of Wikinomics are not only equally applicable to small companies, but actively favour small companies.

"Wikinomics apply to all enterprises – even non-business organisations. SMEs now have all the capabilities of large companies but without the liabilities such as bureaucracy and culture," says Tapscott.

Four key principles underpin this new world, he says. "These new businesses co-innovate with everyone, especially customers. They share resources that were previously closely guarded, they harness the power of mass collaboration and they behave not as a multinational, but as something new, a truly global firm."

There is a very simple but powerful logic to his argument. Making products requires collaboration between suppliers, workers, customers and so on. But finding and linking up all the people who need to collaborate costs time and money. So large vertically integrated companies exist because it is (or has been) cheaper to organise labour and capital under one roof rather than to have each step of the production process operating independently. The internet, Tapscott argues, slashes the costs of collaborating. So companies no longer need to exist in their current form.

If that's too abstract, Tapscott spells out how Wikinomics can work with a series of spectacular examples. Take Wikipedia, the online encyclopaedia that has just five full-time employees and is ten times bigger than Encyclopaedia Britannica.

It breaks the prime rule of non-fiction publishing, which is that only 'experts' should be allowed to contribute and their word is final. In fact, anyone can alter and update any entry on Wikipedia. Nonetheless, it now has more than a million entries, it's in 92 languages and it has become the first port of call for anyone online wanting basic information on any subject.

Look at computer operating system Linux, originally developed by Swedish programmer Linus Torvalds. His extraordinary decision to make the system free means that it is now in over 100 million personal video recorders and mobile phones and more than a billion people use it indirectly when they access Google, Yahoo and numerous other websites.

Or take the example of Procter & Gamble, the world's largest consumer goods company, its success is based on constant product innovation. But even with a Research and Development budget of $1.5bn a year and an army of 7,500 researchers, it produced thousands of unused ideas and was unable to sustain its lead. So what did it do?

First, the notoriously secretive company put many of its unused secrets up for licensing using an online ideas exchange. Then, like Goldcorps, it started tapping a reservoir of millions of scientists and researchers by posting R&D briefs on the internet. "By using the internet, the world can be your R&D department," says Tapscott. "That's as true of P&G as a little mom and pop business in Surrey."

Another key Wikinomic idea is to use your consumers to help improve your products. For instance, in 1998 Lego started selling its programmable range of 'Mindstorm' products. It was amazed to find that the toys were popular with adults, too, and that they were tinkering with the programmes. Its first reaction was to threaten them with law suits.

Then it realised that these consumers, or 'prosumers' as Tapscott calls them, were in fact deeply loyal users who were enhancing Lego products. It now uses these prosumers to help develop new products and encourages consumers to customise even more conventional products.

But perhaps the most convincing evidence that Wikinomics can apply to all firms, not just big corporations and hi-tech industries, comes in the messy form of the Chinese motorcycle industry. It has tripled output to 15 million bikes a year – or half of world production – in just a decade. Yet there are no motorcycle giants, just hundreds of small firms that talk to each other endlessly in teahouses and clubs.

"They've achieved this through a self-organised system of design and production, which allows them to modify designs in exactly the same way articles can be modified on Wikipedia," says Tapscott.

The beauty of his insight is that it requires no great investment or long-term planning – just a little knowledge and a readiness to think in new ways mean that any business can compete with any other. As one reviewer put it, "The more you share the more you win." So get sharing.

Wikinomics: How Mass Collaboration Changes Everything, by Don Tapscott and Anthony D. Williams, is published by Atlantic Books, £16.99