Case #6 – Siemens Enterprise Communications facing ‘open competition’
Having barely been able to hold back for five postings, it’s finally time to begin tooting my own horn – but not only because I think Competition from the Commons? Siemens Enterprise Communications and Asterisk (Case 308-388-1 at the European Case Clearing House) is in fact not a bad case, but because, to the best of my knowledge, it’s one of very few cases about how open competition affects the business dealings of closed innovators. In doing so, it allows instructors and students to put themselves in the shoes of a manager who needs to find a way to fight against open innovation; and, notably, only if you have an idea of how your competitors might react to you engaging in open innovation can you truly judge its potential value for innovation!
Specifically, the case looks at the Enterprise Communications division of Siemens – the leftover of what used to be Siemens largest business only a few years earlier. This division mainly produces private branch exchanges (PBXs) – hardware that allows building an internal phone network to connect many more phones with each other and the outside world than the number of phone lines actually coming in. This industry is undergoing a technological transition that has favored the emergence of new players not traditionally found in the enterprise communications market, and even led to the inception of firms entirely based on software in an industry that traditionally saw itself as hardware-focused. Not only do these changes pose a considerable challenge to Siemens, they are exacerbated by an entirely new breed of competition: open source software. And as in other well-known examples of open source-based competition entering a field of business (think ‘IBM and Linux’ presented earlier), incumbents such as Siemens face a huge threat of eroding profits because of customers migrating to these cheaper, more flexible platforms.
What makes this case unique is that it is about a firm for which open source is not a natural extension of or fit with existing strategies and product lines, as are for example cases on IBM, Sun, or Novell. Rather, it is about a firm that might be considered struggling already, for which open source makes things worse. In addition, the telecommunications setting allows instructors to emphasize different or multiple aspects of the case, making it a facilitator of discussion of a whole series of topics including platforms, disruptive and architectural innovation, business model innovation, and, of course, open innovation. However, its close account of the details of the telecom sector might make it difficult to access for students lacking a strong technology background – the case does present an introduction to the topic including many useful references, but when teaching the case, I found that some students would still come to class with little to no understanding of the role of the underlying technology. In turn, this clearly suggests that this case is best taught in the context of a class on technology and innovation management, innovation strategy, information systems, or platforms and that instructors should point out to students when assigning the case that a thorough understanding of the technologies presented is pivotal to successful class discussion.
For instructors, the teaching note (ECCH case 308-388-8) providers further information on the technological background, as well as a layout for a class that discusses both the technological change in the industry as well as the open source competition, and how both are threatening Siemens’s current business model. In addition, further modes of using the case to teaching slightly different topics are mentioned.
I hope that this case can be useful to you. Please feel free to get in touch with any feedback, questions, or comments you may have!
Oliver Alexy, Joachim Henkel, Gerald Hopf, Winfried Mundl “Competition from the Commons? Siemens Enterprise Communications and Asterisk” ECCH Case 308-388-1, October 16, 2008, http://www.ecch.com/educators/products/view?id=85871, last accessed September 19, 2011