Opening Up the Value Chain

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Ability Capital:

"Long have passed the days where firms can be expected to sustainably innovate without absorbing ideas, talent, products and other artefacts from the the outside and mashing these up internally before going to an existing or new market either in their own right or via other external channels, and even spining off ventures. Such open innovation is practiced by notable corporates such as Proctor & Gamble and Virgin Atlantic.

The opening-up of the creation/production process has a number of forms including open source, where the end product (such as software) is available for deep inspection/modification and end use via a number of relatively open licencing arrangements. Open innovation and open source are not necessarily incompatible but often open innovation produced stronger IP rights for the firm than does open source.

This opening-up perspective/philosophy can apply to many/most aspects of an organization’s value chain – from the very nature of the business, to research, to product development, to operations, to organizational structure and beyond. Since Ability Capital‘s philosophy is towards the creation of a wealth commons, it is natural that we should be thinking how the opening-up perspective can apply in any of its own undertakings. So let us consider Investment Management 2.0 (IM 2.0) and be even potentially provocative in suggesting various areas that could be openned up.

To keep things concrete, let us consider a few aspects of Porter’s value chain:

Firm Infrastructure

Business model. IM 2.0 is using the Lean Startup Methodology (LSM) (or a variant thereof) as the approach to rapidly move from concept to viable business model. One uses business model canvases (see for example, the lean canvas) but the conversations and engagements are usually limited to a relatively small cohort. Why not open up the canvas, to make it indeed public? A sort of “social/open” business model canvas. Let the community have the chance to comment on hypotheses, testing and other matters. Although one wants to move fast with LSM there may be co-creation benefits available by opening it up. At the very least, one should openly document the process and results of the LSM journey.

System Infrastructure. We can use and co-develop open source applications/libraries for the envisaged components – from funds management to portfolio balancing to big data analytics. IM 2.0 can implement/integrate the reference model of how we see a commons wealth management platform. By extending existing and creating new open source components we also are increasing the software commons. As with all cases of open source/open innovation we may need to combine open and commercial solutions depending on functionality, quality, service and timeliness, but should nonetheless be moving over time to increase the software commons. It should also be noted that there are misconceptions about whether open source is able to be used for mission critical applications. In general, as long as test harnesses, evidence, engagement with regulators and other development processes are in place it should be possible. Linux, itself an open source operating system, is used in such applications. Google’s entire infrastructure runs on open source. And one of the key software systems in NASA’s Mars Exploration Rovers was build using open source components.

Orthogonal to the use of open source, any software component that is used, be it open or closed source, should comply with standard and de facto standard interfaces, such as those defined by the OMG (Object Management Group). If no such interfaces for specialist areas IM 2.0 exist then one should become involved in such standard setting organizations to influence the adoption of open standards.

Human Resources/Organizational Design

How does openness play out when it comes to people and the design of organizations? Teams having shared goals, transparency of remuneration and performance, open accountabilities, greater personal decision rights, and other attributes that characterize sharing, adaptability and responsibility. Some of these principles are indeed rooted in decades of research say in the Open Systems Theory community where the root causes of sustainable high performance teams/organizations have been studied (see for example OrgHealthInnovation).

Research and Development

Let me consider here one of the primary questions in the extended wealth management frame that includes ESG concerns – what is the value as well as validity of the data? One of the characteristics of ESG data (as well as many other datasets) is that it can be fairly opaque in terms of its quality, meaning, and even value. Often data comes from a “black box” such as a proprietary ratings agency; and the voracity of the methodology used may not be obvious. One can even ask the question – are they of any use? Do/can these metrics drive value creation and harm reduction? What is the evidence?

Here we have some large data/science questions, and it should be treated in an open data / open access / open science framework, again with the aim of increasing the data/science commons that underpins IM 2.0. There are good lessons from open science collaborations here, such as the Human Genome Project. Scientists have developed quite deep metadata and ontology schemes so that all scientists know that the data is, what is means, where it is found, and so forth. Data is produced/generated and shared by all who need it. Research that is performed is openly published and both papers and raw result data is openly available. Algorithms and tools used are explicitly described and available for use. A combination of open and competitive collaboration. Put all these things together and we have the successful culmination of one of the largest science project this world has ever undertaken, and its completion faster than was expected. The vision of the project drove the passion and innovation that was needed to complete the project relatively rapidly.

What lessons/guidance do we take for the wealth management commons? Open up as much as possible the data, metadata-ontologies, algorithms, research results, etc. Search for the drivers (metrics) of value creation. Form international consortia, registries and enablers of such an enterprise. Make things open and transparent, enable collaboration, seek truth, and get good science done in the process.

Other aspects of IM 2.0 are also subject to similar visibility – from aspects of portfolio construction/balancing, to (big data) analytics. Even opening up (a version of) the portfolio to enable simulated game play is a way of encouraging familiar use, scrutiny and critique.

Operations + Service

Customers and other stakeholders interact with organizations through usually well-established touchpoints. The rest remains largely a black box. Indeed many customers have no desire to delve into that black box. But what if we make this black box – of operations and service – visible? Not to hide processes, but to publish them … as well as the dashboard metrics! Sure, as with all opening up efforts, there will be some criticism, but then a lot of good can come from outside input, reflection, and improvement. Continual open service design. Tools such as the Eclipse Process Framework (EPF) can be used to publish the process maps and other properties of business processes, and the public can comment on these.

I have given a number of examples where transparency and openning-up (open innovation, open source, open data, open science, etc) could be used to create a wealth management commons, such as Investment Management 2.0. There are lots more aspects that I have not even mentioned. The artefacts should aspire to Creative Commons attribution. To what extent and at what stage IM 2.0 will adopt the open philosophical stance I am not sure. But this philosophy and how it fits into the increasingly sharing economy is certainly worth the consideration." (