Collaboration is more prominent than ever due to the emergence of a series of trends. Outsourcing has created new linkages between the outsourcer and the outsourced. “Open innovation” means that companies are increasingly collaborating with others to create new products. In other areas, old industry lines are becoming blurred: new products – such as Apple’s iPod/iTunes – are a combination of assets and products from different industries, requiring managers to know how to collaborate across boundaries.
One word summarises all of these trends: fragmentation. The world is increasingly defined by people, ideas, technologies, information and knowledge that are scattered across units. This is equally true for a multinational company located in Chicago, Paris, Moscow or Shanghai. In this new world, the leader’s role is to make sure the organisation harnesses this fragmentation and not be a victim of it.
Many companies, however, become too focused on collaboration as an end in itself. Instead, the key goal must be to create value because companies that collaborate well can reap three types of economic rewards.
First, better innovation. Procter & Gamble is an especially good example of this. Consider the development of its skin care range, Olay – Daily Facials: the skin-care unit provided expertise on the surfactants needed for cleansing the skin; experts from the tissue and towel unit provided substrate knowledge; and the team involved in Bounce (a cleaning product) provided expertise from a technology that put a fragrance on to clothes.
US bank Wells Fargo is a good example of how to increase sales through collaboration by successfully cross-selling products. On average, Wells Fargo banking households have 5.2 products with the bank, the highest number of products in the industry. Wells Fargo is able to collaborate internally across more than 80 businesses to present “one Wells Fargo” face to its customers who, in turn, buy more products.
A third upside is cost savings through best practice transfers across units. Take the example of the oil giant BP. A few years ago, Deborah Copeland, head of BP’s retail operations in the south-eastern US, launched a scheme in the Atlanta area based on the innovative experiences of her counterparts in the UK and the Netherlands. The pilot stores stocked 26 per cent fewer stock-keeping units than similar control sites. The results were dramatic: this inventory reduction led to a 20 per cent decrease in working capital even while sales rose 10 per cent.
This all sounds great, but collaboration is exceedingly difficult to get right – and most companies do not. In my research, I have seen more bad cases of collaboration than good ones. For some companies, collaborating within the company is even more difficult than collaborating with external partners.
There are three ways companies get it wrong. First, many companies over-collaborate. When BP started to instill cross-unit collaboration, for example, leaders encouraged the formation of cross-unit networks focused on areas of shared interest. Over time, this idea flowered into an unforeseen number of networks and sub-networks which consumed increasing amounts of managers’ time. An audit within the exploration business alone identified several hundred such networks, which consumed increasing amounts of managers’ time.
Second, some businesses collaborate poorly. In this case, collaboration can turn into a battle as different units disagree and the project comes to a halt. At the time of Apple’s launch of iTunes, for example, Sir Howard Stringer, then head of Sony’s US operations (now the CEO of Sony), tried to put together a similar business called Connect. At least five different parts of Sony needed to be involved: the PC group based in Tokyo; the portable audio team responsible for the Walkman; the unit responsible for flash-memory players; Sony Music in the US; and Sony Music in Japan. But because Sony had long cultivated inter-unit rivalry, people from these teams would not collaborate. As a result, Connect was a flop.
Third, some companies under-collaborate. This is when companies do not collaborate when they really should – and someone else does and runs away with the prize. Take the example of Bertelsmann, the German media company. Its managers took three years to catch up with Amazon.com in launching an online bookstore, in large part because its publishing houses, book and music clubs, and distribution and multimedia divisions could not collaborate on this new business opportunity.
If collaboration is so difficult to achieve, what is the solution? My research suggests that the answer is disciplined collaboration: instilling in the organisation both the willingness and ability to collaborate, and demanding rigor in choosing projects with a solid business case.
What can managers do to instill disciplined collaboration? First, they need to engage in a disciplined analysis of the barriers to collaboration – why are people not collaborating? Second, they need to pursue a disciplined design of management levers to reduce those barriers – different barriers require different solutions. Third, they must instill a norm of disciplined selection of collaboration initiatives, such that people will develop a business case before selecting which projects they pursue.
I began by mentioning the fragmentation of activities in the world and suggested that collaboration is a mechanism that integrates these elements. The message is simple: fragmentation can work in your favour if you can master collaboration, but it becomes a threat if you cannot. Indeed, if you do not, you are likely to be run over by those that do.
Morten T. Hansen is professor of entrepreneurship and holds the André and Rosalie Hoffmann Chair in Family Enterprise at Insead. He is currently writing a book on disciplined collaboration.
