Coevolving Innovations

… in Business Organizations and Information Technologies

The October 2018 acquisition of Red Hat by IBM gives me hope.  Both IBM and Red Hat have been champions in promoting open sourcing behaviours.

Open sourcing is an open innovation behaviour related to, but distinct from, open source as licensing.  [Ing (2017) chap. 1, p. 1].

The label of open sourcing frames ongoing ways that organizations and individuals conduct themselves with others through continually sharing artifacts and practices of mutual benefit. The label of private sourcing frames the contrasting and more traditional ways that business organizations and allied partners develop and keep artifacts and practices to themselves.  [Ing (2017) sec. 1.2, p. 5].

The label of open source is most readily recognized from software development. An open source license allows free use, modification and sharing.  Open sourcing is a norm where the resources of system internals, e.g. artifacts and practices, are shared in a community beyond the originators.  Private sourcing is coined as a norm where the resources of system internals are reserved within a privileged group.  [Ing (2017) sec. 1.3, p.6]

This deal continues a socio-economic trajectory by IBM …

  • starting in 1993 with the Lou Gerstner expectation of “open, distributed user-based solutions” after the Chantilly meeting [Ing (2017) sec. 2.3.1, pp. 55-56];
  • with the 1998 IBM open sourcing with Apache while private sourcing Websphere [Ing (2017) sec. 2.3.2, pp. 56-59], and
  • with the 2000-2001 investment of $1 billion in Linux [Ing (2017) sec. 2.3.3, pp. 59-62].

IBM’s 2018 acquisition of Red Hat can be compared with the 2009 IBM withdrawal of a $7 billion offer for Sun Microsystems. That was followed immediately by an announcement of Oracle to buy Sun for $7.4 billion. Years later, it was revealed in court that “Oracle didn’t buy Sun just to sue Google but to keep it away from IBM”.

[Oracle CEO Safra Catz] explained that Oracle bought Sun because so much of Oracle’s own product was based on Sun’s Java, and they were concerned about what would happen if someone else acquired Sun.

By someone else, she later clarified, she meant that Oracle “was afraid” IBM would buy Sun [Bort (2016)].

For Oracle, their acquisition was a financial play, with Larry Ellison in 2012 declaring that “Sun Buy Paid for Itself, Now We Crush IBM“.  In the lawsuits brought by Oracle against Google, Larry Page said that “a lack of cooperation between tech partners was holding back progress”.

Page blamed a “focus on negativity and zero-sum games” for the industry’s failure to achieve its full potential.  [….]

Page named the tech giant Oracle as one of the roadblocks to faster progress. “Money is more important to them” than having any kind of cooperation, he said [Rushe (2013)].

In December 2016, Oracle was reported to have ramped up audits of Java customers, chasing them for payment, six years after open sourcing had effectively ended.  By September 2017, an industry analyst declared that “Oracle Finally Killed Sun“.

With IBM and Red Hat, philosophies on open sourcing are organizationally better aligned.  Red Hat and IBM started an alliance on enterprise solution in 1999 on x86-based servers, later extended to POWER and z Systems.  By 2009, an industry consensus viewed that “in the long run, Red Hat will have to be subsumed into a large company — most likely IBM” [Dignan (2009)].  In the open source ecosystem, the IBM and Red Hat have both taken leadership positions, amongst other companies playing mostly to a lesser degree in the same field.

The deal is a good fit for many reasons ….

Oracle has to hate this deal. Oracle’s Linux (the kernel part) is based on Red Hat. This will definitely cramp Oracle’s style. Most cloud providers resell Red Hat software, so now IBM will be getting money on their business. IBM could be in the position Microsoft has been for the last 30 years. For every PC made Microsoft got money.

Microsoft will hate this deal. Amazon will, too. [Cringley (2018)]

Since the Linux kernel is licensed under the GNU GPLv2, IBM is free to charge for the software … just as everyone else is free to charge for the software.  There is, however, more money beyond the operating system, in middleware, hardware and services.  Companies who have only embraced open sourcing grudgingly may have to learn new tricks.

Reviewing history at IBM, this company has a long history of acquisitions that have been successful.  Following a counterfactual, IBM is absent on a 2016 list of “worst tech mergers and acquisitions“, that includes:

  • #17 Cisco & Linksys
  • #16 Apple & Lala
  • #15 Facebook & Instagram
  • #14 Zynga & OMGPOP
  • #13 Myspace & News Corp.
  • #12 Novell & Unix
  • #11 Borland & Ashton Tate
  • #10 Microsoft & Danger. Inc.
  • #9 Caldera & SCO
  • #8 Hewlett-Packard & Palm
  • #7 Oracle & Sun Microsystems
  • #6 Northern Telecom & Bay Networks
  • #5 Google & Motorola
  • #4 HP & Autonomy
  • #3 Nokia & Microsoft
  • #2 AOL & Time Warner
  • #1 HP and Compaq

On the contrary, a 1998 article provides a case study of IBM and Lotus working together in post-merger integration.

What follows are some of the key tenets that I.B.M. followed.

  • Don’t drag your heels and don’t look for bargains. [….]
  • Get the right people to run the show. [….]
  • Insure autonomy, avoid layoffs and don’t send in an army of invaders. [….]
  • Understand the real cultures, not the outside perceptions. [….]
  • Don’t damage the acquired company’s credibility with customers and business partners. [….]
  • Go beyond peaceful coexistence to successful cross-pollination. [….]
  • Hold the champagne. If the two companies have learned anything, though, it is that success is a hard thing to hold on to, especially in the high-tech sector.  [Rifkin (1998)]

This was reinforced in a 2009 interview with the IBM executive who oversaw $15 billion in acquisitions of 70-plus companies since 2004.

… successful integration requires taking the time to align the acquired company and the leadership of the parent company on the goals of the acquisition. That clarifies roles, responsibilities, and priorities, so the team can execute the vision of the merger. [Moni Miyashita, Managing Director of Mergers and Acquisitions Integration at IBM] explains that the integration needs to be “focused on value,” rather than on check lists such as suppliers, IT, and office space. [….]

To guide the process, IBM has dedicated “integration executives” whose full-time jobs are to lead the integration and make sure the activities and results of the merger stay on track. Miyashita says integration executives must have world-class project management skills, a deep understanding of the parent company, and enough clout to be effective and influential with all organizations.

[….] What makes a strong leader in this case? Miyashita says, “You need savvy business people who know how to relate to all levels of people.” A leader needs to ensure continuity of the acquired business, work with all groups supporting the integration into the parent company, be able to drive change with both companies, and execute the business case expectations. What’s more, a leader must be ready to lead.

As for performance management, Miyashita emphasizes it’s important to have formal tracking on the acquisition’s performance, so there’s clear accountability and attention to lessons learned. At IBM, this includes monthly checkpoints and more extensive quarterly reviews. “It’s a very formal process,” Miyashita says. “It’s important to have the focus from the top. Having the CEO and CFO focused on our acquisition success ripples down to every deal.”  [Huang (2009)]

Citing leadership and performance management as central to integration shouldn’t be surprising for managing any business.  Does the new world of commercial enterprises actively participating in open sourcing communities change anything?

The research published in Open Innovation Learning is theory-building.  Three descriptive theories (in three paradigms) and three normative theories (in one paradigm) are developed.

What should IBM and Red Hat do to continue their track record of success? Three normative theories prescribe open innovation learning, extending practices that are already in place in both companies:

  • In a paradigm of co-responsive movement [Ing (2017) chap.9], IBM and Red Hat should build on their trajectories of:
    • (a) Innovation learning for, paying attention to:
      • (i) Proto-learning, continuing operational excellence on current offerings (e.g. Linux) with existing customers and the open source community, as they had previously;
      • (ii) Deutero-learning, extending existing offerings (e.g. Kubernetes and the Cloud Native Computing Foundation and Openstack) with incremental improvements; and
      • (iii) Trito-learning, cocreating new offerings (e.g. blockchain, the Istio service mesh, and technologies still in infancy) with open sourcing participation; and
    • (b) Innovation learning by, weaving their ongoing efforts though:
      • (i) Learning-by-doing, combining the knowledge bases on support services that previously were separated;
      • (ii) Learning-by-making, sharing both improvements and setbacks on code developed between the companies, and in open source repositories; and
      • (iii) Learning-by-trying, experimenting in open innovation labs and “offboarding” into real products; and
    • (c) Innovation learning alongside in agencing strands, with:

What would signal a successful integration of Red Hat into IBM?  Ex-post validation would require diligence in measuring (supporting or disproving) three descriptive theories on open sourcing while private sourcing:

  • 1. A descriptive theory of quality-generating sequencing [Ing (2017) chap. 6] sees open sourcing while private sourcing as entailed by three patterns:
    • (a) Program envisioning enables elevating common standards that are (i) worth backing; (ii) enable an offering superior to alternatives, and (iii) anticipates non-exclusive projects.
    • (b) Program realizing enables doing well by doing good where (i) a combination of commons and private interests outweighs independent action, (ii) the strategic bet is superior to alternatives; and (iii) the project shows momentum and continues to attract participants.
    • (c) Program elaborating enables cultivating perennial platforms so that (i) platforms can be elevated with emerging standards; (ii) maintenance updates and chargeable upgrades can extend relevance; and (iii) tangible evolution.
    • This theory is developed under a paradigm of architectural problem seeking, i.e. synthesizing IBM and Red Hat into a unified system that enables capabilities that the separate parts cannot.
  • 2. A descriptive theory of affordances wayfaring [Ing (2017) chap. 7] sees open sourcing while private sourcing as entailed by three patterns:
    • (a) Enskilling collective work by enabling access to the smartest people (i) at the frontier of knowledge; (ii) for basic functions and advanced features; and (iii) as modular for re-assembly to tasks at hand;
    • (b) Equipping a community to practice until they can’t get it wrong (i) with professional resources to volunteer initiatives; (ii) complementing capital investment over grassroots activities; and (iii) sharing processes and materials as readily available; and
    • (c) Legitimating an initiative to being on the right side of history (i) encouraging emerging directions towards open standards; (ii) associated with an identity with values attracting affiliation; and (iii) maintaining credibility collectively and individually.
    • This theory is developed under a paradigm of inhabiting disclosive spaces, i.e. IBM and Red Hat coordinating on private sourcing initiatives for specific commercial opportunities, while continuing to participate actively in open sourcing activities.
  • 3. A descriptive theory of anticipatory appreciating [Ing (2017) chap. 8] sees open sourcing while private sourcing as entailed by three patterns:
    • (a) Judging material reality as finding viability for the commercial beyond non-profit institutions with (i) customers embracing chargeable commercial extensions beyond non-chargeable platform; (ii) features and pricing distinct over competitors; and (iii) voluntary contributors welcomed;
    • (b) Judging formal value(s) as growing a bigger pie better than slicing a smaller pie, with (i) an industry champion seeing investments as commercially viable; (ii) a target segment of customers sustainable; and (iii) finding works worth perserving into perpetuity; and
    • (c) Judging efficient instrumentality in stratifying concierge levels above mainstream excellence, with (i) distinctive chargeable features; (ii) offerings resonating with customers; and (iii) volunteers continuing to contribute to the commons.
    • This theory is developed under a paradigm of governing subworlds, i.e. IBM and Red Hat organizing sets of practices for commercial taskscapes of customers receiving value for money, and in collaborative taskscapes of contributing developers where time and efforts are pooled.

The above theories aren’t meant to suggest that other theories couldn’t be built.  Multi-paradigm theory building leads to exploring alternative explanations and prescriptions to phenomena.

Practically, open sourcing while private sourcing has proven to be a viable way of doing business since the mid-2000s.  The IBM acquisition of Red Hat has been anticipated as an eventuality by many, yet hasn’t been appreciated in the frame of open innovation learning.

References

Bort, Julie. 2016. “Oracle Didn’t Buy Sun Just to Sue Google but to Keep It Away from IBM, CEO Says.” Business Insider. May 16, 2016. https://www.businessinsider.com/oracle-bought-sun-because-of-ibm-not-google-2016-5.

Cringely, Robert X. 2018. “Red Hat Takes over IBM.” I, Cringely. October 29, 2018. https://www.cringely.com/2018/10/29/red-hat-takes-over-ibm/.

Dignan, Larry. 2009. “Is an IBM Purchase of Red Hat Inevitable?” ZDNet. May 15, 2009. https://www.zdnet.com/article/is-an-ibm-purchase-of-red-hat-inevitable/.

Huang, Gregory T. 2009. “How to Integrate an Acquired Company: Lessons from IBM.” Xconomy. January 5, 2009. https://www.xconomy.com/seattle/2009/01/05/how-to-integrate-an-acquired-company-lessons-from-ibm/.

Humphries, Matthew. 2018. “IBM Acquires Red Hat for $34B.” PCMAG, October 29, 2018. https://www.pcmag.com/news/364649/ibm-acquires-red-hat-for-34b.

Ing, David. 2017. Open Innovation Learning: Theory Building on Open Sourcing While Private Sourcing. Toronto, Canada: Coevolving Innovations Inc. https://doi.org/10.20850/9781775167211. http://openinnovationlearning.com/online/

Rifkin, Glenn. 1998. “Post-Merger Integration: How I.B.M. and Lotus Work Together.” Strategy+Business, July 1, 1998. http://www.strategy-business.com/article/18930.

Rushe, Dominic. 2013. “Google’s Larry Page Says Oracle among Those Holding Back Tech Industry.” The Guardian, May 15, 2013. https://www.theguardian.com/technology/2013/may/15/google-larry-page.

ZDNet Editors. 2016. “Worst Tech Mergers and Acquisitions: Cisco and Linksys; Apple and Lala.Com.” ZDNet. September 20, 2016. https://www.zdnet.com/article/worst-tech-mergers-acquisitions-cisco-linksys-apple/.

ZDNet Editors. 2016. “Worst Tech Mergers and Acquisitions: Facebook and Instagram.” ZDNet. February 8, 2016. https://www.zdnet.com/article/worst-tech-mergers-and-acquisitions-facebook-instagram/.

ZDNet Editors. 2016. “Worst Tech Mergers and Acquisitions: Caldera and SCO, Microsoft and Danger.” ZDNet. February 10, 2016. https://www.zdnet.com/article/worst-tech-mergers-and-acquisitions-caldera-and-sco-microsoft-and-danger/.

ZDNet Editors. 2016. “Worst Tech Mergers and Acquisitions: Novell and Unix, Borland and Ashton-Tate.” ZDNet. February 9, 2016. https://www.zdnet.com/article/worst-tech-mergers-and-acquisitions-novell-unix-borland-ashton-tate/.

ZDNet Editors. 2016. “Worst Tech Mergers and Acquisitions: HP and Autonomy, Google and Motorola, and More.” ZDNet. February 12, 2016. https://www.zdnet.com/article/worst-tech-mergers-and-acquisitions-hp-and-autonomy-google-and-motorola-and-more/.

ZDNet Editors. 2016. “Worst Tech Mergers and Acquisitions: Nokia and Microsoft, AOL and Time Warner.” ZDNet. February 13, 2016. https://www.zdnet.com/article/worst-tech-mergers-and-acquisitions-nokia-and-microsoft-aol-and-time-warner/.

ZDNet Editors. 2016. “Worst Tech Mergers and Acquisitions: HP and Compaq.” ZDNet. February 15, 2016. https://www.zdnet.com/article/worst-tech-mergers-and-acquisitions-hp-and-compaq/.

Open Innovation Learning book cover

November 2nd, 2018

Posted In: governance, innovation, technologies

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