Wednesday, November 15, 2006

Collaborate to Innovate

At the beginning of the 19th century till 1930’s most innovation was attributed to single individuals – James Watt’s invention of steam Engine or Ford’s Car or Einstein’s theory were all individual efforts. But in 20th century – collaboration became a necessity. Solving complex problems, handling extreme challenges required collaboration: Manhattan Project, Hover Dam, Human Genome, Pentium Chip – all needed collaboration on a massive scale. In Silicon Valley, companies often are founded via collaboration between several creative individuals. Bill Hewlett and David Packard founded HP; Larry Page & Sergey Brin founded Google; Andy Grove, Robert Noyce and Gordon Moore founded Intel; Bill Gates and Paul Allen founded Microsoft; and the list goes on.

Initial Stages

During the initial times, most of the innovation was carried out through teams located in a single location. The initial challenges in collaboration were mostly inter-company collaboration: collaboration between different groups, departments within the company. A new product development required collaboration between Finance, Engineering, R&D, Marketing and sales. Coordinating development teams which had to cut across functional boundaries. This was a complex challenge for companies in 1950’s to 1980’s. Organizations such as ABB, Fuji, Honda, 3M developed a complex “matrix” organizational structure.

Managing a matrix organizational structure is complex because every employee reports to two bosses, and the potential for a role conflict is high. Given the level of office politics – long term sustainability of a matrix organization is always a challenge. Over a period of time – with lots of time & efforts and learning from mistakes, companies have mastered the art of innovation management in a matrix organization.

Paradigm of 1980’s

Intense competition led to more daring collaboration strategies for 1990’s. Companies started to collaborate with each other in order to innovate. Personal computer is a classic example of such a collaborative effort. IBM introduced the Personal computer which had Intel’s CPU, Microsoft’s Operating System, IBM’s Memory chips. This PC was a creation of multi-company collaboration. The success of PC demonstrated the value of collaboration across companies. The model was so successful that it was replicated in Cars – Ford, GM with Cummins & Deneb. The Japanese firms were masters of inter company collaboration. Their “keiretsu” network had given then the experience and expertise in managing large collaborative networks. This expertise helped them to create new “keiretsu” networks – depending on the need. The challenges faced by the Japanese and their solutions is well described in the book Knowledge Creating Companies by Ikujiro Nonaka and Hirotaka Takeuchi.

Then came the 1990’s …

The success of multi-company collaboration led to transcontinental collaboration: Sony & Philips joined hands to invent the CD. This opened the flood gates of multi-company, transcontinental collaborations. Playstation-2 was a classic example of collaboration between IBM, Fujitsu, Nvidia, Electronic Arts, and Sony.

Promoting a good international collaboration is not easy – in fact it is a massive challenge. In a study by Bain & Co, more than 95% of such collaboration fails to deliver the full value. The collaborative projects often slip on timelines, over run their budgets and deliver inferior results. Project managers often find that collaboration between multiple companies and across multiple cultures to be particularly challenging. The common reasons cited are:

  1. Communication Breakdowns
  2. Mistrust between employees of different organizations
  3. Unwillingness to share information
  4. Inability to converge on a solution
  5. Too much pressure to deliver results

Foster Creativity via Collaboration

By the year 2000, intense competition and recession (following the bubble) forced companies to create dynamic, multiple collaborative networks. Often times these networks of collaborators included vendors, customers, suppliers and even competitors. Sony joined hands with TDK, Samsung, Panasonic, & JVC to create the Blu-ray DVD technology. The companies in this network are fierce competitors in home entertainment electronics market.

In the book “Competing for the Future” Dr. C.K. Prahalad & Dr. Gary Hamel preach companies to consider collaboration with customers, vendors, and even competitors – to innovate. Innovation will be more fruitful and profitable when many companies join forces – thus augment their resources, knowledge and expertise to create truly innovative and exciting products. A collaborative network also reduces risks. Blu-Ray collaboration is an example of a network created to minimize risks.

Collaborate – Rather Than Acquire

Mergers and acquisitions are best avoided in face of business uncertainties. When entering a new market – say India or China, it is better for US/EU companies to collaborate with local partners. Local partners have the contacts, market knowledge and cultural skills needed for success. If the venture is successful, then Western companies have the option to acquire their local partner.

Venturing into a new market via collaboration is ideal for risk sharing, conducting a one-off project, learning the cultural skills, using assets more productively and leverages the combined skills to provide wholly new product or service. Collaboration with a local partner when entering new markets has become a preferred route to expand in India, China, Vietnam, and other emerging economies.

When collaborating with local partners in emerging countries, ensure that the partner has complimentary skills – which helps to build inter-dependence between two organizations and there is strategic fit between two organizations. Ensure that the people involved in this collaboration have a high level of commitment – but avoid a rigid implementation plan. It pays to have a flexible implementation plan due to the challenges inherently associated with cultural conflicts, technology adaptation, revenue slippages, power struggles, etc.

Closing Thoughts

The complexity of the technical and business challenges forces a strong need for collaboration. The complexity of current innovation has reached such heights that the team size has grown beyond a co-location approach. Companies now have to integrate teams across multiple corporate cultures and across multiple national cultures. For most companies this is still a major challenge and managers are still grappling with it.

Successful companies in Silicon Valley and elsewhere have realized the benefit of having a dedicated team to foster these collaborative networks. The members of this team are dedicated to tackle all cross-cultural and cross-organizational issues. The lesson here is that companies have to collaborate in order to be innovative and thus maintain their competitive advantage.

Also See:

Virtual Scale - Alliances for Leverage

Global R&D Network

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