Many businesses are loath to share proprietary information with others, fearing it will undercut their long-term financial prospects. They view openness as a threat to innovation.
But a new years-long study of the wireless router industry shows that businesses that are transparent with suppliers and partners about their technologies can increase innovation and speed the introduction of new products.
Specifically, the study finds evidence that openness—in this case, via the use of open-source software drivers—improves supplier autonomy and new product introductions by enlarging the number of business options available. And the biggest component suppliers benefited the most by expanding their opportunities to do business with others, shows the study, coauthored by Shane Greenstein, the Martin Marshall Professor of Business Administration at Harvard Business School.
“When suppliers have lots of business partners, you eventually see benefits.”
Greenstein cautions that the paper’s findings may not be applicable to every industry and prescribes more research to pinpoint how and why openness impacts innovation within specific sectors. But businesses should at least consider suppliers as a potential source of innovation rather than fearing what could happen if they freely share ideas, suggests the work, which Greenstein wrote with Do Yoon Kim, an assistant professor at Boston College’s Carroll School of Management, and Roberto Fontana, a professor at the University of Pavia.
”When suppliers have lots of business partners, you eventually see benefits,” says Greenstein. “With more business options, you see a different variety and a bigger variety of products available. Everybody benefits at the end of the day.”
Tracking a brand new industry
For their study, Greenstein and colleagues had the unique opportunity to study the evolution of an entirely new industry—the wireless router sector—from its inception in the late 1990s to its maturation into a $12.5 billion worldwide market by 2020.
Researchers collected data for all routers sold in the United States between 2002 and 2018, much of which came from the Federal Communications Commission’s (FCC) massive database of Wi-Fi products.
The researchers used the FCC documents and other sources to observe firms’ positions in a supply chain with rich detail, helping them see company behaviors before and after staggered open-source standards were introduced. These eliminated restrictions on who can access and control the routers’ technical specifications.
“We could keep track of everything. With other industries, you just can’t do that.”
In all, the researchers tracked the experiences among more than 300 router-assembler firms and key component suppliers. To create an unusually detailed supply chain, they observed about 4,700 interactions among the firms.
“We were looking at a very specific product that didn’t even exist 30 years ago,” Greenstein says of wireless routers. “The industry was young enough that we could observe every product ever built. We could keep track of everything. With other industries, you just can’t do that.”
From openness to autonomy to innovation
The researchers found that staggered introduction of open-source drivers led to increases in supplier autonomy, as measured by the degree to which a supplier could act independently of a buyer. Potential innovations were also achieved through a very specific mechanism: expansion of firms’ ability to do business with others.
For instance, when a large Wi-Fi firm opened up, such as Atheros in 2005, Broadcom in 2007, or Qualcomm in 2011, on average it led to 15 new business partners and 6.5 more devices in the short term, or about 6 years, Greenstein says. Viewed another way, firms that became more open experienced a 37 percent increase in new business partners—and each 10 percent increase in autonomy increased new product innovations by about 17 percent, Greenstein explains.
“There are lots of suppliers behind the scenes inventing new ways of designing their components and redesigning and restructuring the supply chain,” says Greenstein. “In our paper, we brought out something that was otherwise invisible to the average person.”
But the business-to-business (B2B) implications of openness varied among wireless-router suppliers, with larger firms tending to benefit more from openness than smaller companies. Researchers suspect the difference is because larger firms have more negotiating power than smaller suppliers.
‘It’s so nuanced’
The impact of openness on supply chains will vary from sector to sector. “It’s so nuanced,” Greenstein says. “We found you have to be really persistent and precise when it comes to identifying (the impact) of openness. You have to understand the mechanisms involved.”
“When a firm deliberately makes its drivers available, they’re giving up some of that proprietary protection they’ve made for themselves in the interest of trying to invite more partners.”
He adds that he understands why some firms are reluctant to open up their technology to suppliers and other B2B partners.
“It’s a tradeoff,” Greenstein says. “When a firm deliberately makes its drivers available, they’re giving up some of that proprietary protection they’ve made for themselves in the interest of trying to invite more partners. It’s extremely challenging to definitively connect suppliers’ openness to more products. But, in general, I would have to say the more partners, the better.”
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