Question: How does collaboration between companies work in
today's competitive landscape?
Collaboration between businesses has been an old, old idea. You can go
back to the East India Company, go back to the old shipping ventures
that were done where a ship will go to the east to get silk and spices
and have a bunch of business people who would basically pool resources
and say, "Okay, I’m investing in this shipping venture, and I’ll get a
piece of the action, a percentage of the profits."
But I think
collaboration today has taken on a totally new meaning. As you see
complexity on the demand side and supply side, you see what I call,
shrinking the core, expanding the periphery. So, let’s look at the
supply side. On the supply side, you have companies saying, I can’t
produce all the inputs that go into my part anymore. So I want to shrink
what I used to all core. Core was a lot of things that I produced
myself. I’m going to do much less of that myself. And you know, so they
start to do a whole variety of things. Take a look at this device, you
know, you all know this device, an iPhone. By some accounts, 90% of the
inputs that go into this device are not made by Apple. A vast majority
of them being made by a whole range of suppliers, who work very closely
with Apple to design, develop, configure, make sure all of these things
are interconnected. Now, that's shrinking the core.
same... that has to be with the supply side of complexity all of the
things they had to get together to make it work. Apple—this is the
company that used to produce almost everything itself. Printer cables.
So, they finally saw the light, they had to operate in a much more
Now you also have demand-side complexity.
Customers who are much more demanding, wanting different things. And so
you see what I call expanding of the periphery. Organizations saying, my
customers need to receive bundles. They need to see solutions. They
need to be able to customize what they have. I’ll go back to the iPhone
again. A hundred thousand applications in the applications store. None
of which are made by Apple, but allow thousands of us to customize this
device for our special needs. And all Apple gets is 30% off the top.
Great business model. So you start to see organizations shrinking their
core, expanding their periphery, operating in a much more interconnected
And they are not alone. Another example of a company that I
looked at is the largest mobile operator in India, Bharti AirTel.
Bharti AirTel outsourced first the maintenance of a cell tower network.
So they were not managing or maintaining its cell towers anymore. They
outsourced the entire IT infrastructure to IBM. Subsequently, they
decided to spin off the ownership of their cell towers. So, here’s an
organization that does not own its cell towers, does not maintain its
cellular network, and does not maintain its IT systems, or own them. And
you say, "What do you do?" And it’s growing 35% a year, the largest in
India which is the fastest growing market in the world.
also would add that this is not for the faint-hearted. You can look at
the recent example of Boeing and the delays in its 787, some which is
attributed to its inability to coordinate effectively with its
suppliers. And by some accounts, depending on how you define this, half
or more of alliances may fail. So, you have to figure out how to manage
alliances because if you’re going to make this a centerpiece of your
growth, you have to know how to make alliances work. And there’s some
basic fundamental principles to effective collaboration that
unfortunately many organizations miss and in those cases this completely
backfires on them.
Question: What are some examples
of companies that have collaborated effectively?
Gulati: So I think collaboration is not rocket science. It’s human
nature, how do you work together with another entity and make it work.
And I think there are some basic principles that are important. The
first of them is strategic alignment. Do we share similar goals, or
compatible goals? You don’t have to have the same goals; you’ve got to
have compatible goals. And furthermore, these are things that develop
over time, you have to continually reaffirm with each other that do we
continue to share compatible goals? We may have had compatible goals
back then, do we have them today? So, how does goal alignment work and
evolve over time is key.
Then you have structure issues. When
you form these collaborations, you have two aspects of structure,
there’s an economic structure and then there’s a government structure.
The economic structure is about incentives, carrots and sticks. Who does
what and what are the penalties associated with that. That gets done
pretty well by the lawyers and business development people who are
involved in the alliance, the structuring of the incentives in the
collaboration. But the second part, which has to do with the government
structure, which is the decision-making, information sharing, how things
will get done, doesn’t happen. And it doesn’t happen because the guys
who are going to manage the deal are not involved in creating the deal.
And so the guys that are doing the dealmaking are not so interested,
involved in that part of it.
The third piece of the equation is
the process of behavioral issues. This one really kills them. And these
have to do with the dynamics of interaction between the entities. Are we
culturally aligned? Are we behaviorally aligned? Are we emotionally
aligned? And you might say; how can two organizations be emotionally
aligned? You can look at organizations that have long histories of
collaboration. Fuji-Xerox, been around for 50 years. CFM, which is
aligned with GE and a French company, to make jet engines; been around
for decades. So you have alliances that do persist and endure over time
and they do so because they have a structure that is aligned, the goals
are aligned, you have governance in place and you have the behavioral
sides in place. And it’s the coming together of all of these that allow
you to really be an effective collaborator. Common sense; doesn’t
Recorded on April 20, 2010