The risks and benefits of collaboration

Business collaboration can be seen everywhere. It is necessary and beneficial. Enterprises can't just compete and don't cooperate. These seem to be the consensus of managers.

However, despite widespread practice and sincerity, collaboration has been disappointing. In fact, developing an effective collaborative business strategy requires hard work, careful planning, and careful consideration of costs and benefits in advance.

Those who are serious about collaboration first need to understand four key questions: Why is it necessary for a business to collaborate, and why does intense business competition necessitate collaboration? What is the difficulty of collaboration? What does it take to collaborate? What are the risks of collaboration?

The need for collaboration

Globalization, deregulation, waves of privatization, emerging markets, the convergence of technologies, and the Internet have created new opportunities. Old rules and strategies are increasingly difficult to create value in new forms, and new opportunities require new ways of competing.

For example, from 1985 to 1995, managers around the world struggled with how to match the cost advantages of Japanese and Korean manufacturers. Numerous countermeasures, such as total quality management, business process reengineering, outsourcing, organizational streamlining, etc., all focus on reducing costs and improving efficiency, which are all necessary. But organizational downsizing will not help companies capture emerging markets for digital imaging, develop new products that integrate medical and personal care technologies, or understand peer-to-peer computer communications. Meaning for business.

These innovations require managers to master new rules of the game. A strategy can not only help a company position itself in a particular industry, but also open up new areas of competition. This requires combining efficiency with innovation, requiring managers to consider: reducing product cycle time and cost, leveraging scale and scope advantages, reducing resource usage, using partners as role models for change, reducing risks, and more.

To understand the importance of reducing product cycle time and cost, managers must understand that to compete in new markets, they must reduce product development or manufacturing cycles. More importantly, managers are also required to respond to changing competitive dynamics in less time, which means taking efficiency to new levels. For example, collaborating with suppliers in an open stance can reduce excess inventory.

Managers must also make better use of the size and scope of the business. Should 3M's divisions develop a common customer management strategy for Walmart? (They did.) Should GM's divisions share ignition system development platforms? (They were supposed to, but didn't.)

Platforms can't be shared, and resources are wasted. Most people think that financial institutions are supposed to provide customers with a blanket list of credit cards, checking and savings accounts, mortgages, auto loans, and life insurance they have with the same institution, but each business unit does it differently.

With the convergence of industry and technology in areas such as digital imaging and gene therapy, managers' knowledge structures must learn from the old. New knowledge (such as in the fields of genetics and biochemistry) may not yet be an indispensable technological foundation in old industries (such as cosmetic companies), but things will change.

Success in this new environment requires talent and capital, but no single company can afford it all alone. World-class skills may be more easily acquired from the outside than from the inside. Even if you can afford a huge capital investment, you can save time even better through collaboration.

Another problem is the use of partners as role models for change. Large, established businesses with the flexibility and speed of small businesses can adapt to rapid change, and collaboration can often breathe new life into an old culture.

Collaboration also reduces risk, which is often overlooked. For example, a firm may need multiple trials to determine whether a new market strategy is appropriate, and by spreading risk (ie, acquiring knowledge from other firms at low cost), multiple trials can be carried out.

Today, there are many factors that drive companies to collaborate with other business units internally as well as external suppliers and partners. However, most businesses are still looking to reduce costs and time-consuming product cycles. In other words, they focus more on supply chain and procurement efficiency than innovation. Therefore, most enterprises do not give full play to the benefits of collaboration, and act in isolation.

Difficulties in Collaboration

Collaboration requires bilateral or multilateral cooperation to share results. Managers who notice the obvious costs of collaboration but often fail to see the benefits may question: Do the benefits of collaboration really outweigh the costs?

Sociologists may relish the emergence of "borderless" organizational behavior, but in most large, diverse corporations managers rarely collaborate. They may discuss and communicate, but they are under pressure to quantify the return on collaborative investment, and they also struggle to distinguish tangible costs from perceived costs, which may include power struggles or corporate culture internal friction, the time-consuming cost of implementing collaboration, cross-charging and transfer prices, and administrative costs. Also, information technology systems across multiple business units may be incompatible, without a common data strategy, legacy systems can frustrate collaborative efforts.

It is important that advocates of collaboration recognize that the costs of collaboration are real and the benefits are potential. The gap is even greater when top managers' compensation is tied to business unit performance, thereby placing performance accountability at the business unit level. As a result, organizations often struggle to realize the full benefits of collaboration, such as eliminating redundancies, leveraging internal best practices, and innovating. People's lack of understanding of strategic benefits is not the reason that restricts collaboration. What really affects collaboration is the internal information technology conditions, management culture, and the characteristics of the performance evaluation system of the company's internal managers.

But the situation is not hopeless. While most diverse global businesses have low levels of collaboration, this can miraculously change if there is a clear and strong need for collaboration. Walmart's desire to deal with the same department at its major supplier 3M led to a rapid reorganization of resources and processes among 3M's divisions to form a unified account management team.

Internal collaboration is often more difficult than external (especially external suppliers or large customers). When collaborating with external businesses, the shared interests and data are clearer. The biggest benefit of collaborating with suppliers is cost reduction, response time reduction and inventory reduction; while collaborating with customers, the benefits are maximizing revenue and customer satisfaction. These efforts may also bring benefits in the development of new products and new processes. This collaboration requires information to be shared based on common operating parameters such as order volumes, inventory levels, and operational planning. Supply chain applications appear to be a successful form of external collaboration because the shared information is clear data, not tacit knowledge. .

Tacit knowledge has more to do with collaboration between business units within an enterprise. Directly shared data is often a matter of time-consuming product cycles and efficiency of inventory investments. And even if individual customer data and transaction experience, customer group structure and cost structure can be shared, it is not easy.

Prerequisites for Collaboration

Most businesses recognize that working closely with suppliers and key customers within the system can improve costs and response times. Through this collaboration, more efficient business processes can be established, sales and marketing opportunities can be increased, and customer satisfaction can be enhanced.

To reap the full benefits at this stage, businesses within the system must share information. Businesses may be willing to share order management, overall sales and marketing data, and sales forecasting data, but they may be hesitant to come up with individual customer sales profiles, product cost structures, financial and resource allocation data, and market intelligence.