WHY DO COMPANIES COLLABORATE?

Rapid economic and technological change, declining productivity growth and increasing competitive pressures, global inter-dependence, and the blurring of boundaries between distinct organizational entities, all facilitate collaboration.  Collaboration is a response to turbulence that individual organizations are unable to manage because of a lack of resources or an inability to control externalities.

Low collaboration and high competition increase the risk that one party will act against others. The best strategy for organizations is high collaborations and high competition, with the major benefit of mutual learning for participants.

Trust plays an important role in collaborative networks. Transactions take place among organizations involved in reciprocal, preferential, mutually supportive actions. Such relationships are different from markets in that transactions involve joint, bilateral coordination of plans and activities. They differ from companies or hierarchies in having no single actor-participant in control, organizations maintain their independence, coordinating through negotiation and broad information interchange.

Successful collaborations combine the strength of two or more companies. They outclass competitors by establishing de facto standards, and avoid the risk of large stand-alone investments. One reason for forming such a network is to co-market. Network members market products under a common brand name and portal while otherwise retaining their independence. The benefits of networking can include pool selling of products and services, pool buying of supplies and equipment, joint research and development resources, and improved quality objectives – summed up in the slogan, “Joint solutions for common problems through collaboration”

Understanding the Benefits

Collaborative arrangements aid organizational learning and the transfer of intangibles such as knowledge, organizational routines and skill, experiences, reputation, and goodwill.  Companies gaining access to new technologies or markets are more likely to collaborate, benefiting from economies of scale in joint research, production, and marketing, and gaining complementary skills by tapping into sources of know-how located outside the boundaries of the company. Other advantages include sharing risks in activities and gaining synergy by combining different strengths. 

Strategic partnerships are a critical measure of a company’s ability to compete in the new economy. Paradoxically, inter-company differences, such as knowledge, skills, core competencies, and resources, usually form the underlying strategic motivation and remain essential for maintaining it.  Differences in partner characteristics may have a negative impact on collaborative longevity and effectiveness. The erosion or convergence of the differences destabilizes the relationship. Confidence and trust in partners are recurring elements in successful collaboration.

Managing Electronically Enabled Collaboration 

Collaboration has certain disadvantages. Sharing expertise with others can reduce management control, increased dependence on external organizations can lead to greater need for more bureaucracy in order to manage what becomes virtual. Greater financial ties can lead to restricted access to other organizations and their capabilities.

Collaboration may increase one partner’s competitive advantage over the other(s). As business increasingly turn to fast-alliance strategy the vast majority of alliances will fail to deliver on their promises. Complementary objectives and learning are vital to the success of the alliance. When partners are equally intent on internalizing each other’s skills, distrust and conflict may spoil the alliance.

What are the risks?

Participants may take advantage of a collaborative relationship and play side games: the relationship might finish and one partner benefit by copying others.  There is the risk that one party will gain all the benefits from the venture.

A lack of understanding of partners can lead to resistance and conflict. If cooperation is lacking, opportunistic behavior will become the norm. Partners may relinquish their competitive position by loss or transfer of core competencies as a result of a sense of security or rationalization pressures. The most desirable alliance arrangements are between partners approximately equivalent in terms of their size, profitability, and status in their own industry and that possess complementary know-how and resources. 

Some alliances have been criticized for being too flexible, thus causing a situation in which individual partners may have insufficient details on how to collaborate, little irreversible commitment, unclear property rights, or a weak authority structure. Partners may join competing groups. The advantage of high level of rigidity, especially through equity investment, including increasing incentives and commitment, aligning the partners’ interests, and deterring opportunistic behavior. Such rigidity may seem especially paradoxical when the enabling technologies promise virtual flexibility.

The Framework for Collaboration

Collaborative business models are crucial for value creation. The more developers, the quicker problems and opportunities can be identified. Over the duration of the relationship, partners can share benefits and control, contributing in one or more key areas. The loss of proprietary information, substantial organizational disruption and conflict help to explain the structural instabilities of business –to-business relationships. Alliances involving access to knowledge and ability are, more likely to dissolve as the party gaining access acquires its own internal skills through the partnership. Collaborations designed to gain benefits of scale or learning in performing an activity have a more enduring purpose. 

Collaborations among businesses in the new economy with complementary resources, while creating substantial risks, is necessary for survival and growth. A realistic view of collaboration sees alliances as built on a foundation of dualities. Alliances are:

  • Temporary but often produce long-lasting relationships;
  • Both cooperative and competitive weapons;
  • Strategically determined and emergent;
  • Likely to have emergent benefits that are more important than the intended purposes.

They are dialectical systems whose scalability is determined by balancing multiple tensions within systems of accountability that handle tension without stifling innovation. 

Conclusion

Organizations need to design virtual, reflexive strategies of inter – organizational ties and self-governance. These must be managed by twin methods: accounting on a time basis (on a professional-practice model that delivers the best value for partners with a client focus) and cultural design of a meaningful context of collaboration that keeps the values of the collaboration uppermost.

Manager with reflexive capacities account for their time and act in accordance with cultural values consciously designed to frame the specific collaboration project.

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