Transparency in the Networked Economy Rise of the Transparency Network TRANSPARENCY IN THE NETWORKED ECONOMY Rise of the Transparency Network Anthony Williams ~ Acknowledgements ~ Transparency in the Networked Economy: Rise of the Transparency Network was produced for the Digital 4Sight's Leadership in the Networked Economy (LNE) research program. The research was generously funded by members of the LNE program including our executive sponsor Hewlett-Packard, in addition to AOL Time Warner, Bell Canada Enterprises, British Telecom, Canadian International Development Agency, Cisco Systems, General Motors, Hill & Knowlton, KPMG, McGraw-Hill, and Motorola. My colleagues Phil Dwyer and Alan Majer made enormous intellectual and personal contributions to see this project through to completion. None of this would have been possible without our shared commitment to research and inquiry. I also wish to thank many past LNE collaborators, including David Agnew, Amanda Clutton, Lauren Harvey, Phil Hood, Priscilla Li, Elaine Shin, Maria Sirivar, Don Tapscott, David Ticoll, Tim Warner, and Andrea Wood, all of whom provided invaluable input and support at various stages of the project. My thanks as well to several members of LNE's research board whose work has been tremendously influential in guiding and inspiring the development of the ideas presented in this paper, including Ann Florini, Virginia Haufler, Lawrence Lessig, Roger Martin, Charles Sabel, Saskia Sassen, and David Wheeler. Thank you all. © 2003. Digital 4Sight Inc. Leadership in the Networked Economy TABLE OF CONTENTS 1. Introduction...................................................................................................................................................1 Trust and the Brave New World of Transparency ..................................................................................................................1 Key Research Questions.........................................................................................................................................................3 Structure of the Report............................................................................................................................................................3 Executive Summary of Our Findings .....................................................................................................................................3 Key Takeaways .......................................................................................................................................................................4 2. Transparency in a Networked World...........................................................................................................7 The Meaning of Transparency................................................................................................................................................7 Globalization and Interdependence ........................................................................................................................................8 Transparency and the Interdependent Corporation.................................................................................................................9 Thinking Like a Network .....................................................................................................................................................10 3. The Evolution of Transparency .................................................................................................................12 Social Drivers: An Emerging Global Civil Society..............................................................................................................12 Changing social expectations................................................................................................................................................................12 Transnational civil society.....................................................................................................................................................................13 Political Drivers: A Rising Global Civil Foundation ...........................................................................................................15 Democratization.....................................................................................................................................................................................15 New rules for information disclosure ....................................................................................................................................................16 An evolution in global governance........................................................................................................................................................17 Economic Drivers: An Evolving Capitalist Economy..........................................................................................................19 Globalization and liberalization............................................................................................................................................................20 Intangibles and the knowledge economy...............................................................................................................................................21 Sustainable economics...........................................................................................................................................................................22 Technological Drivers: The Emerging Hypernet..................................................................................................................23 Accessibility ...........................................................................................................................................................................................23 Granularity ............................................................................................................................................................................................24 Immediacy..............................................................................................................................................................................................25 Collaboration and self-organization .....................................................................................................................................................25 It's a Transparent World—Get Used To It ............................................................................................................................26 Transparency drivers: timescales and intensity ....................................................................................................................................27 4. The Value of Transparency: Trust and Transaction Costs ......................................................................28 Transparency and Trust.........................................................................................................................................................28 Transparency and Transaction Costs ....................................................................................................................................30 Transparency, Trust and Lower Transaction Costs: Fueling a Virtuous Cycle ....................................................................31 5. Five Dimensions of Transparency.............................................................................................................33 Firm Transparency ................................................................................................................................................................33 Business Web Transparency .................................................................................................................................................35 Customer Transparency ........................................................................................................................................................39 Market Transparency ............................................................................................................................................................42 Public Transparency..............................................................................................................................................................43 Information Demands and Transparency Value Drivers ......................................................................................................45 Transparency Networks Traverse the Layers .......................................................................................................................46 Digital 4Sight Incorporated Principal author: Leadership in the Networked Economy Anthony Williams © 2003 Digital 4Sight Inc. All rights reserved i Transparency in the Networked Economy 6. The Rise of Transparency Networks .........................................................................................................47 Defining Characteristics of a Transparency Network ..........................................................................................................47 1. Transparency networks are not traditional organizations ................................................................................................................47 2. Transparency networks draw participants