Innovation and business strategy experts are urging more companies to collaborate with outside partners to stay competitive, but research shows the risk can be great if the contribution level isn’t carefully considered.
While companies like Apple can thank outside collaborative partners for products such as the hugely successful iPhone, there are unfortunately many collaborative efforts that have failed. One of the most publicized was Boeing’s 787 Dreamliner aircraft that was grounded in 2013 because of several problems, including battery failures that caused fires.
“Some experts say Boeing’s Dreamliner ‘teething problems’ stemmed from mismanaged relationships with its outsourcing partners,” says Jason P. Davis, INSEAD Associate Professor of Entrepreneurship and Family Enterprise.
A recent study published in the Journal of Operations Management looked at project and senior managers who were in charge of 147 initiatives that relied significantly on the contributions of external partners in various industries. These projects averaged about eight months with budgets around $3 million. In addition, they operated with about 60 employees, which included both external and internal workers.
Researchers report that after collecting information on how the partnerships impacted market success and the revenue generated by the products, they found that outcomes can vary widely in such collaborations. Specifically, results ranged from a 50% plunge in income to a 90% boost.
The key to success – or the recipe for failure – depends on how partners are expected to contribute, researchers say. If there was very little or very high participation by partners, then the projects didn’t do as well. But those with a more balanced approach saw significant benefits, researchers say.
Further, the outcomes were better if partners were given specific jobs that let them intensify their contributions in certain areas, rather than trying to spread them more thinly throughout the process, the study says.
Davis of INSEAD, says that based on his extensive research of computer firms, the secret to ensuring outside collaborations thrive is to rotate leadership back and forth between the partners. However, those collaborations can come with even more challenges when there are three companies involved, bringing an “exponential increase in potential headaches,” he says.
After studying such a real-world scenario, Davis says that he’s determined that two or three companies seeking collaboration will be more successful if they cycle through collaborations with different pairs, something he calls “group cycling.”
“In this way, participants get the best of both worlds: relative independence from third party interference without the isolation and opacity of parallel twosomes,” he says.
Further research published in the MIT Sloan Management Review shows that when working with others to develop a new product, companies must ensure that communications is clear, which can be especially important when workers from different cultures are involved. In addition, companies must be flexible and be willing to adjust as necessary when they hit obstacles, because no amount of advance planning can foresee every snafu, the authors say.
Other suggestions in the MIT report:
- Make handoff decisions smoother. Product development managers need to identify which activities create and sustain shareholder activities and those that are “noncore” and can be safely outsourced. Once that decision is made, “there should be specific recommendations about how the handoffs will work across internal and external organizational boundaries.”
- Use value chain integrators. These are much more than program managers or relationship managers. “Their job is to coordinate and negotiate across the supply chain interface to maintain the integrity of the product vision from initial concept to customer delivery,” the report says. “They do this by marshalling an exacting mix of technical and business skills.”
- Synchronize data. Collaborative software, teleconferencing and shared enterprise resource planning systems can enable better product development. If the relationship is “tight and both sides feel confident about the future,” the organizations also can consider joint databases or jointly run computer-aided design systems.
- Be ready to continuously adapt. The authors note that in nearly every one of the collaboration examples they looked at “something that was being done one way at the beginning was being done another way by the end.” They stress that “the only thing you can be sure of is that changes will be necessary,” as organizations are forced to respond to macroeconomic issues, industry dynamics and technological innovations.
Those involved in studying collaborations with outside partners agree on one thing: It can provide long-term benefits if done correctly, even if there are often short-term headaches along the way.Posted in Agility, Business Innovation, Strategy | Tagged apple, boeing, chain integrators, Collaboration, customers, data, multiple partners, partners