“In the same way, you can never go backward to a slower computer,
you can never go backward to a lessened state of connectedness”
Douglas Coupland - Canadian novelist and artist, author of “Generation X”
Healthcare, education, entertainment, spending habits, thinking patterns … The Information Age has revolutionized all of them. Fortunately, the process of partnering for innovation has not remained immune to technological progress either. In the same way, Millennials will never experience a world without connectivity or mobile devices, companies will never return to a lesser state of connectedness.
How so? The short answer is open innovation – in all its inbound-outbound-coupled glory.
As they contemplate their make-or-buy decisions, organizations start by considering a number of factors. Time, money, and talent all weigh in. When this decision takes place in what FastCompany calls “overdrive”, however, the parameters multiply. In a fast-paced, hyperconnected world customers, suppliers, complementors, competitors, and even governments all have a stake in the make-or-buy decision and its potential outcomes.
From the first alliances in IT and healthcare in the 1970s to modern-day ecosystems of co-created value, collaboration for innovation is taking new and exciting forms. Take a recent co-creation exercise between journalists and VR specialists for a concept called immersive journalism, or the way architecture firm Elemental is building half-houses to empower people in disaster-struck areas. Not only do these new open/collaborative relationships require distinct ways to think about time, money, and talent, either inside or outside the boundaries of the firm. They also encourage innovating for the greater good.
Before I explain how companies initiate and nurture ecosystems of co-created value, let’s take a brief look at what has been happening in the past. The following insights were pooled together with the help of my colleague and mentor, Prof. Nadine Roijakkers, and represent some of my research group's inquiries into the topic.
According to strategic management scholars, companies have spent the last half-century in a transition. This journey has taken them from closely managing to apparently not managing their strategic relationships. Not in the classical sense at least.
Pressured by increasing competition, shorter product lifecycles, and increased risk, companies today see the advantages of connecting to a variety of collaborators and collaborator types. In other words, the logic of collaboration is shifting. With it, firms’ outlook, protection mechanisms, and mission are shifting too. The result? Long-term focus, less IP, and more joint strategizing. Above all, the activity of an organization is no longer about individual wellbeing. Today, there is more and more talk about ensuring the survival of the whole.
As follows is a brief description of the four main types of collaboration known to us today (Alliances, Portfolios, Innovation Networks, and Ecosystems), and the importance of each.
The most basic and longstanding type of collaboration for innovation is the strategic alliance. Strategic alliances are agreements between two (dyads) or more (triads, for example) independent firms, which temporarily combine resources and efforts to reach their strategic goals.
Alliances made headlines in the 1970s and 1980s as multinationals in IT (IBM, Microsoft, Apple), semiconductors (Intel) and biotechnology (Roche, Genentech, Eli Lilly) were experiencing the limitations of their own internal resources. As a result, they began tapping into externally available assets to increase competitiveness and reach ever-complex goals.
The main reasons to engage in a strategic alliance, and through this ensure continuous innovation, included:
- To compensate for in-house weaknesses or technological gaps,
- To establish new product lines and portfolios,
- To successfully enter new markets,
- To serve customers better,
- And to reduce NPD (New Product Development) costs, risks, and time.
In the strategic alliance era, collaboration meant creating formal, all-encompassing, legal arrangements that allowed firms to cast a strong influence on their partners. Technology swapping, joint projects, and equity stakes were all used to have a greater say in a partner’s innovation projects. And to cash in on the profits, of course.
While formal control was largely the norm, the advantages of collaboration and looser coordination began to show. In other words, collaboration moved forward.
The second type of collaborative arrangement, still often used today, is the portfolio.
Having understood the benefits of creating alliances, firms were now interested in sustaining their benefits for longer. As such, alliances began to be centrally managed and the practice of building portfolios gained ground.
In effect, portfolio management was all about extracting best practices from alliance experiences and then spreading these internally. In this process, a so-called ego firm (or a focal firm) established agreements with independent companies but then managed the knowledge flows through specific functions.
Traditionally, large pharmaceutical companies have been excellent portfolio builders. In the industry’s beginnings, these firms would often collaborate with small biotechnological firms to assimilate knowledge and patents in the most efficient and effective manner. While conflicts were frequent at the start – small biotechs often felt ‘robbed’ of their key resources – collaboration moved on. Effective portfolio management models were the key to this success.
All in all, the growing popularity of portfolio management translated into a new attitude towards collaborators. This attitude would later become the “co-creation” view, which we will come to in a bit.
3. Innovation Networks
The third type of collaboration for innovation is the network. Networks include groups of firms that share R&D goals related to products, services, processes or business models. Some examples include CITER – the Centre for Textile Information in Emilia Romagna, Italy founded in 1980, KLM and Northwest Airlines (now Delta) initiated in 1989, and The Human Genome Project, an initiative that made waves in 1990 with its first published study/article.
Dense network structures are natural progressions of alliances and portfolios. As collaboration tools and practices spread from high-tech to medium and low-tech sectors, new ways of structuring the innovation activity emerged. The key difference: all firms were now interconnected, orchestration became less strict, and low-medium competition replaced the fierce battles for survival.
In time, networks started competing against each other, whereas suppliers, complementors, competitors, and even the customer could now contribute to the innovation process in new and surprising ways. Also, firms were no longer concerned with managing individual collaborations and ties. They were now managing their position in the network.
Despite higher coordination costs, the utility of networks soon became apparent. Networks were mainly used to:
- Scan firms’ environments for technological advances,
- Develop individual and group capabilities,
- And secure long-term survival.
All in all, networks emphasized, even more, the collective well-being of the collaborators.
The fourth and most advanced type of collaboration for innovation is the ecosystem.
In their 2016 HBR piece called “The Ecosystem of Co-created Value”, authors Marc Kramer and Mark Pfitzer, make a strong case for ecosystems. From their work, we learn not only how ubiquitous ecosystems have become but also begin to understand their power to improve individual and collective wellbeing.
Today, companies like Salesforce – client relationship management systems, IMEC – Nano electronics, Korean Air – air travel, and ENEL – electricity, and gas distribution are just a few examples of how ecosystems can and should be used to create value that no single organization can create on its own.
While a generally accepted definition of ecosystems is lacking, scholars like Ron Adner have underlined a few key characteristics. In his view, ecosystems have a long-term orientation, are partly self-adjusting, and make complex interdependencies between various types of partners, including end customers, explicit.
Other prominent researchers such as Satish Nambisan and Robert Baron add more nuance to ecosystems and show how ecosystem partners co-evolve. In their view ecosystems are “loosely interconnected networks of companies and other entities that coevolve capabilities around a shared set of technologies, knowledge, or skills, and work cooperatively and competitively to develop new products and services”.
The most comprehensive description of ecosystems, however, is captured by marketing experts. In their work, researchers Stephen Vargo and Robert Lusch define ecosystems as: “relatively self-contained, self-adjusting systems of resource-integrating actors connected by shared institutional arrangements and mutual value creation through service exchange”.
The latter view is extremely important for two reasons:
- First, ecosystems are governed by certain rules and norms that influence the relationships between members.
- Second, in ecosystems value is uniquely determined by the collaborator(s) or customer(s). Hence, innovation is no longer in service of the focal firm. Innovation is now a jointly orchestrated activity.
All in all, ecosystems are typically characterized by:
- The absence of formal authority,
- Strong dependencies among members,
- A common set of goals and objectives, and
- A shared set of (complementary) knowledge and skills.
Shared vision, shared enterprise, serving each other, helping each other create value, committing to each other, and pursuing jointly formulated strategies and goals hence become the norm.
To conclude, effective collaboration can take many forms. From the first strategic alliances in IT and pharma to modern-day ecosystems in transportation, retailing, and utilities, companies and their collaborators are coming together to solve problems no single one of them could address alone. Self-stirring pots, smart thermostats, and 3-D printed bridges are all the product of ambitious collaboration.
But collaboration is not for everyone. Before deciding to invest in setting up sophisticated alliances, portfolios, innovation networks, or ecosystems, a firm must ask itself: “Do these means justify the end?” In other words, “Does partnering for innovation fit my firm’s strategic goals?” To answer that, and before moving on, I leave you with a few excerpts from the “Strategic Alliance Best Process Workbook” by Robert Porter Lynch. While this work was published in 2001, its principles are just as relevant today.
IS COLLABORATION FOR YOU? A QUICK GUIDE
Before starting to collaborate ask yourself:
- What are your goals? What do your customers need?
- Can you achieve your objectives alone?
- Would collaboration help you compensate for your weaknesses and enhance your strengths? How?
- What happens if you do nothing and maintain the current course? (“Go-It-Alone Strategy”)
If collaboration is indeed necessary, move on to:
- What is my value as a partner in collaboration? What do I bring to the table?
- What do I expect of my partner(s)? What is on my wish list?
As you select your partner think about:
- Strategic fit: Shared vision and mission, little possibility of becoming direct competitors, potential synergies (1+1>3), similar plans for the future, etc.
- Operational fit: Geographic coverage, visibility, approaches to decision-making, performance measures/incentive schemes, workforce, etc.
- Chemistry fit: Compatible work ethics, long-term commitment to the industry, community, company, and people, Stability of personnel, flexibility, and innovation, predictable, consistent behavior (in a crisis), etc.
Source: Strategic Alliance Best Process Workbook (2001). Contributed by Robert Porter Lynch