Reading both IT and business innovations, developments and highlights these days, I notice that collaboration keeps popping up as a central issue. In trying to answer the question why collaboration is so hot a topic for companies now, I quickly listed the reasons behind this. This blog post and my next “The networked age’s economic model” is highly related. This morning, while reading Tom Friedman’s The World Is Flat: A Brief History of the Twenty-first Century, I was worried that he would stole my line. He didn’t. He did mention some ideas close to some of the ideas I had, but focused on facts rather than analysis. Anyway, let’s go back to the central question of collaboration.
My answer to the importance of collaboration today is the “organic solidarity” arisen from economic and social needs in a highly-specialized society. The term “organic solidarity” is from Emile Durchheim’s The division of labor in society. In this work, the authors argued that “Different specializations in employment and social roles created dependencies that tied people to one another, since people no longer could count on filling all of their needs by themselves.” I found 4 main driving forces for why this “organic solidarity” heightens the need for collaboration.
1. The move from “we do-it-all” to highly-coordinated supply chain model – A need for cross-company collaboration
The end of the 20th century saw a movement into highly-coordinated supply chain model. The “we do-it-all” model, a product of the 20th century, was no longer sufficient. Earlier in the century, syndicates and large corporations thrived because they had access to all the important technologies, finance and human capital necessary to compete effectively. They own most part of the value chain and used it as a major part of their competitive advantage. However, new waves of democratization in technologies, finance and information (like Tom mentioned in his The Lexus and the Olive Tree: Understanding Globalization) have changed the competitive landscape. In addition, a new labor market emerged with the end of lifetime employment, even in Japan and European countries. These, together with the deregulation of major markets helped clear above-mentioned barriers and let new, smaller companies to enter the market and compete in a more leveled field. At the beginning, new companies normally specialized on particular parts of the value chain or market segments. To compete effectively, large companies unbundled their value chain and focus on areas that they could do best. As the result, the supply chain is now consist of many different companies.
Meanwhile, there is an increasing need for coordination along the supply chain. As demand grows more sophisticated and gets more difficult to predict and product lifecycles get ever shorter, opportunity cost and cost of obsolescence become more significant for companies. However, in a multi-party supply chain, the flow of information about demand and supply, as well as knowledge and skills is interrupted at the company borders. These create a need for collaboration among parties in a supply chain. After the first phase of supply chain planning and execution, it is the time for innovation collaboration. In this form of collaboration, companies need to work with supply chain partners to innovate their processes as well as products/services.
2. Process standardization, outsourcing and offshoring – A need for intra- and cross-company, as well as cross-border collaboration
High specialization brings productivity. Companies understand this and standardize their processes, no matter whether they are in manufacturing or service business. With increasing employee turnover, more and more intelligence goes from human into processes. We at SAP have done a project for a major logistic company. In the project, a newly-hired can learn how to manage the whole inbound and outbound logistics of a warehouse in 20 minutes without any formal training.
On one hand, process standardization creates chances for outsoucing to external parties and/or sending the job overseas, offshoring. Beside labor cost arbitrage, higher specialization, thus efficiency, better talent pool and higher utilization are among the key benefits. On the other hand, process maturity helps company to control the quality and progress throughout the parts handled by the outsourcing partner or its branch overseas.
The problem here is again the cost of handover and interruption of information and knowledge. Although some of these can be done with the help IT and Knowledge Management initiatives, they are not enough. Collaboration is required not only to transfer the information and knowledge, but also innovate quickly across companies or borders. The latter is vital for companies to remain relevant after eliminating or shifting their functions somewhere else.
3. Pressure to stay focus while don’t miss any chance – A need for cross company collaboration
I was stunned by the fact that R&D spending as the percentage of the total cost for most of the companies don’t change over time, since their first IPOs. If you don’t believe me, just go ahead and do the calculation your self. While other costs have been reduced quite significantly recently, the same percentage means less R&D expenses. The reason for this are, in my opinion, the pressure from financial market to stay focus and keep the cost down. Meanwhile, as product lifecycles are getting shorter, so does the window of opportunity.
My friend, Quang Nguyen, said that companies are accepting more risks. I have a slightly different opinion. Some of them do, but other diversify the risk or turn themselves into platform for innovation. Companies with high R&D content often spin off high-risk, less-relevant R&D work while actively search for possible innovations coming up. Some partner with and invest in the new companies or organization, like in the case of IBM and open-source community, Pfizer and Genesys; some focus on acquiring, such as Cisco and Oracle; and some imitate, like Microsoft. Another strategy is platform strategy. Companies can make themselves the open platform for others to develop on. This however, only works if the company achieves a large enough installation base, or adoption. Examples are Google Map, Mozilla Firefox, SAP Business Process Platform, to name a few.
The need for collaboration in case of risk diversification is low, but it is essential in platform strategy. Without effective collaboration between the platform company and the partners, and among the partners themselves, co-innovation will never take off.
4. Cross-field innovations
I see a paradox. While specialization is increasing, along comes convergence of different fields, e.g. that of entertainment, data and voice; or that of computing, genetic and medicine. To achieve the exchange of knowledge and creation of the next breakthrough, collaboration is key. This need exists not only for companies, but also individuals working in the areas.
Conclusion
The above four driving forces are the reason why collaboration is in such a need. However, this need only become reality if there are enough conditions for them to work. I want to put this through a test and try to explain the difference in the need among the regions. I decided to pick US, Germany (representative for EU countries) and Vietnam as the candidates. In general, US has all the needs and necessary conditions, therefore has a huge demand for collaboration methods and tools. Vietnam is on the other extreme with low specialization so there is almost no need at this moment. Germany, conversely has a conservative labor market, many union constraints thus is difficult to outsource move jobs overseas, an economy based on manufacturing, and a somewhat lower demand for short-term result from financial market. Therefore, the need for collaboration is not that high as in US, and it’s more important in some of the industries where global competition is high, e.g. auto manufacturing.
