Open Source Software and Firm Productivity

Frank  Nagle

Article | Management Science | March 2019

Open Source Software and Firm Productivity

Abstract

As open source software (OSS) is increasingly used as a key input by firms, understanding its impact on productivity becomes critical. This study measures the firm-level productivity impact of nonpecuniary (free) OSS and finds a positive and significant value-added return for firms that have an ecosystem of complementary capabilities. There is no such impact for firms without this ecosystem of complements. Dynamic panel analysis, instrumental variables, and a variety of robustness checks are used to address measurement error concerns and to add support for a more causal interpretation of the results. For firms with an ecosystem of complements, a 1% increase in the use of nonpecuniary OSS leads to an increase in value-added productivity of between 0.002% and 0.008%. This effect is smaller for larger firms, and the results indicate that prior research underestimates the amount of IT firms use.

Keywords: Software; Open Source Distribution; Performance Productivity; Information Technology; Strategy;

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Citation:

Nagle, Frank. "Open Source Software and Firm Productivity." Management Science 65, no. 3 (March 2019): 1191–1215.

Knowledge work is becoming increasingly challenging as pace of change in the knowledge frontier is increasing. Organizations have created multiple mechanisms to minimize knowledge gaps and increase learning such internal training, mentorship programs as well as encouraging their professionals to exchange knowledge outside the boundaries of the organization. Reaching outside the organizational boundaries for knowledge exchange has changed dramatically in the last decade with the rise of online professionals communities. In the case of computer science and software engineering it has become a norm to learn and as questions that used to be kept within the boundaries of the organizations, externally, with a community of external professionals help answer and learn. It is less clear whether contributing to such online communities helps improve professionals’ knowledge work or becomes a competing or distracting force from their work place knowledge work. This is the empiric puzzle our study has set to explore. We conducted a mixed method study combining qualitative data from more than 100 interviews with software professionals with a unique quantitative dataset measuring software professionals’ code productivity in their workplace by the hour/every week for one to two years.

User communities represent a unique organizing structure for the exchange of ideas and knowledge. They are organizations composed primarily of users working collaboratively, voluntarily, and with minimal oversight to freely and openly develop and exchange knowledge around a common artifact. The prevalence of user communities appears to be on the rise, as evidenced by communities across a variety of fields ranging from software to Legos to sports equipment. In this essay, we discuss how firms can benefit from working with user communities––that is, we discuss the opportunities for firms to leverage user communities as a source of open innovation. We theorize the conditions under which user communities will emerge and function and discuss the benefits that user communities can provide and the challenges they can create for firms, thereby illustrating the relevance and import of user communities to firms and the strategic management literature.

Working Paper | HBS Working Paper Series | 2019

Government Technology Policy, Social Value, and National Competitiveness

Frank Nagle

This study seeks to better understand the impact that government technology procurement regulations have on social value and national competitiveness. To do this, it examines the impact of a change in France’s technology procurement policy that required government agencies to favor open source software (OSS) over proprietary software in an attempt to reduce costs creating an unexpected demand shock for OSS. Analysis using the rest of the EU as controls via difference-in-differences and synthetic control frameworks shows that this policy change led to an increase of nearly 600,000 OSS contributions per year from France, creating social value by increasing the availability and quality of free and open source software. Estimates indicate this would have cost paid software developers roughly $20 million per year to replicate. However, the open nature of such goods means that any country can reap the benefits of these efforts. Therefore, additional economic outcomes that enhance France’s competitiveness are also considered. The results show that within France, the regulation led to a 0.6%–5.4% yearly increase in companies that use OSS, a 9%–18% yearly increase in the number of IT-related startups, a 6.6%–14% yearly increase in the number of individuals employed in IT related jobs, and a 5%–16% yearly decrease in software-related patents. All of these outcomes help to increase productivity and competitiveness at the national level. In aggregate, these results show that changes in government technology policy that favor OSS can have a positive impact on both global social value and domestic national competitiveness.

Keywords: social value; competitiveness; Government Administration; Technology; Acquisition; Policy; Value;

Citation:

Nagle, Frank. "Government Technology Policy, Social Value, and National Competitiveness." Harvard Business School Working Paper, No. 19-103, March 2019. View Details

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Open Source Software and Firm Productivity

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