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Collaborate to Build Competitive Advantage
By Arun Kottolli
IntroductionFor high tech startups & medium sized
technology service firms, it is increasingly difficult to maintain competitive advantages on basis of technical advantage
Future advantage will go to those who can simulate & support collaboration with their alliance partners to leverage their distinct resources
As startups grow, they have to compete with global giants for international resources & worldwide market
Semiconductor Industry Semiconductor industry is dominated by a handful of
global players: Intel, TI, ST Micro, Samsung, Philips, Freescale, Micron, NEC, Toshiba, etc who have global reach, enjoy economies of scale and have deep R&D capability
Startups have to compete with these giants for resources, technology development & market access. Startups have always competed with these giants by carving niche markets
Transition & growth from the startup stage to mature stage requires firms to gain competitive advantages in ways unique to that industry
Semiconductor – Case studyConsider the case of Nvidia & Xilinx, these
firms were able to establish firmly in semiconductors arena – not by their technical powers alone – but with their ability to leverage technical strengths of their vendors, customers & partners
They were able to lower the costs of technology development, and develop products that was better aligned with the market needs by collaborating with others; In the process developing the fabless business model
Case Study - NvidiaNvidia put together an alliance with fabs
(TSMC, IBM), packaging/testing firms (Amkor & ASE), software developers & OEM/ODM manufacturers to deliver the best in the class product at a very competitive prices – and win against competitor such as Intel.
Nvidia collaborated with IBM & Sony to develop new graphics chip for Sony’s Playstation-2 and leveraged this knowledge in PC graphics segment
Case Study – Xilinx Xilinx – a Programmable chip vendor worked with
TSMC to develop Vertex-4 line of FPGA with more that 150K gates on a new 90nm process technology – a first of its kind for Xilinx & TSMC
Xilinx also worked with customers & IP vendors to identify the built-in IP blocks in the chip. › Xilinx worked with IP vendors to minimize the area for that
IP, added programmable logic to increase its flexibility of use; thus creating a win-win situation.
› IP vendors got the minimum die size estimate on 90nm process – which they can use to promote their IP to other customers
› Customers got a flexible product which meets their needs
Gaining AdvantageStartups must continuously seek new sources of
competitive advantages against global giantsBy collaborating, startups can gain economies of
scale based on their partner’s scale of manufacturing & economies of scope based on their partner’s business units in diverse locations
Firms can gain competitive advantage by sharing knowledge, jointly developing new products & services & better leveraging their dispersed resources
Global Innovation Today, technology companies have their value chain
activities dispersed all over the world› Sourcing components world wide, manufacturing it at lowest
cost locations, R&D done where talent is available For Most companies product development teams are
scattered all around the world Globally dispersed units often develop into “centers of
excellence” & tend to be dominated by the thinking and technologies available in that location› Manufacturing in Taiwan, Packaging in S.Korea, Testing in
Malaysia, product development in India, Marketing in the US For high impact innovation, one has to integrate far
flung business units in sharing knowledge & leverage different skill sets
Global Innovation By sourcing and Integrating knowledge from dispersed
geographic locations, companies can generate more innovations of higher value and lower costs
Innovation typically arises from combining existing technology & expertise in new ways
Companies can greatly improve their innovation process by assembling the best combination of technical know-how & market expertise
Coordination or Collaborating with other units in the value chain becomes the key enabler for global innovation› For startups, other units in the value chain may be other firms
with which they have strategic alliances or business relationships
Collaborate to Reduce CostsGlobal Supply chain can exploit the lowest cost
for each activity – thus reduce the overall costs of operation
Cost of utilizing distant resources may be lower. For example, Firms are leveraging the low cost of programmers in India, Aerospace engineers in Russia
Collaborate with other firms in those low cost locations to leverage the cost advantage while avoiding huge investments in those countries which is otherwise needed to tap the cost benefit
Tapping into the BenefitsTo reap the benefits of collaboration, companies
must do three things:› Prospect – Find suitable partners› Assess – Decide on the optimal nature of
collaboration› Mobilize – Use cost effective mechanisms to reap
the benefits of collaboration & Motivate employees of the firm to make the best use of the collaboration
Valuable knowledge exists in other organizations, where the very different environments tend to encourage diverse skills & capabilities
Collaboration is not Easy Collaboration can be a source of competitive advantage
– but it does not happen automatically. There are several barriers that impede collaboration To overcome these barriers, companies have to develop
distinct organizational capabilities that cannot be easily imitated
Top level managers must develop a framework to drive collaboration with others – The framework must address means to reduce the barriers to collaboration & promote several types of value creation
Framework for Collaboration
Management Levers
• Leadership, Values and Goals• HR procedures• Legal procedures• Formal & Informal
systems
Barriers to Collaboration
Unwilling to Help
UnableTo help
Needle in a Haystackproblem
Needle in a Haystackproblem
Hoarding ofExpertiseProblem
Hoarding ofExpertiseProblem
“Stranger”Problem
“Stranger”Problem
SeekerOf Help
ProviderOf help
Not-inventedHere problem
Value Creation
• Best Practice transfer• Joint Problem Solving• Cross selling• Bold Ideas• Cross pollination
Frame work for creating value through collaboration
Value Creation from CollaborationFirms must collaborate only if it can reap
economic benefits by doing soTypes of benefits generally falls among 5
categories› Cost savings through transfer of best practices
› Better decision making based on partner inputs
› Innovation through cross pollination of ideas
› Enhanced capacity for collective action that involves dispersed units
› Increased revenue sharing through sharing of expertise and products
Barriers to CollaborationGiven the obvious advantages of collaboration,
its surprising to see that collaboration agreements between firms often do not work well.
Often companies unknowingly erect barriers that prevent individuals from engaging in collaborative activities:› Not invented here syndrome
› Needle in a haystack problem
› Unwillingness to help
› Inability to work together & transfer knowledge
“Not-Invented-Here” Syndrome Organizations often encourage in-house innovativeness and have
incentive schemes to promote in-house innovation.› Formal & informal policies to reward heroic individual efforts rather than
collaborative efforts› Policies which encourage people to fix their own problems instead of
seeking help These policies have an un-intended effect: “Not-Invented-Here”
syndrome Employees spend time & effort in reinventing the wheel –
instead of learning from others At Nvidia senior management keeps a close watch on the extent
their business unit ask for assist from collaborators & will intervene if someone is not asking for enough help
Another management lever is recruitment: hire people who have the natural inclination & confidence to ask for help
Needle-in-a-haystack Problem Even when employees are willing to seek help, they may not be
able to find it or search efficiently so that the benefits outweigh the cost of searching.
In a globally dispersed network this needle-in-a-haystack problem impedes collaboration
Someone in the global network knows the answer to the problem, but its nearly impossible to connect the person who has the expertise with the person who needs it
Companies can create Intranets for knowledge sharing – but it is usually off-limits for anyone outside the firm
To overcome, firms can create an informal network of people who are experts in a certain field & create opportunities for them to interact with experts from their collaborating partners
Companies need to create “Connectors” i.e., experts who can connect with other experts in other firms
Unwillingness to Help Sometimes the problem lies with the potential provider
of help. Some employees are reluctant to share information & help people from other organizations
Employees will hesitate to share information with those who are seen as potential competition
Employees have no incentives to help others – HR policies are designed to reward individual performance but does not reward for helping others
This can be overcome by having a suitable HR policy – A 360 review involving people from collaborating firms to encourage knowledge sharing & peer assist programs
Inability to Work Together Sometimes people are willing to work together but can’t easily
transfer knowledge. › This is often the case involving “tacit” knowledge which is difficult to its
contents & nuances to others – who in turn may find it hard to understand Knowledge in question may be related to a specific culture. The
problem gets aggravated when people are separated by a huge geographic distances
Tacit, culture specific knowledge takes a longer time to transfer than explicit knowledge
To alleviate this, management should work to establish relationship between employees of the partner firms› Create opportunities for employees to interact, arrange for training at the
partner locations etc.› Employees who move temporary move to other locations on assignments
develop strong bonds with people there – leading to cross-site collaboration success
How to Promote CollaborationManagement procedures to promote
collaboration include:› Leadership, Values & Goals
› Human Resource Procedures
› Lateral Cross unit mechanisms: Formal Internet systems for knowledge sharing & Informal people network
“As Leaders signal the importance of collaboration by working together among themselves, employees are more likely to seek & provide help”
Leadership, Values & GoalsLeaders signal the importance of collaborating
to the entire organization through their actions & words
Some leaders are very effective in motivating employees towards the goals
Leaders must help employees locate experts and help employees to work well together
Leadership behaviors and articulation of shared values & goals are necessary but not sufficient conditions for effective collaboration between firms
Human Resource Procedures Recruitment & reward policies also reduce the
unwillingness to seek or provide help Recruiting people who have a natural inclination and
confidence to seek or provide help will populate the organization with people who thrive in a cooperative work environment
Setting procedures to reward those who exhibit collaborative work culture sends the right signals to the entire organization› Promotion to those who cooperate with other organizations
› Compensation structure which promotes cooperation
› 360 review involving peers from other organizations
Lateral Cross unit Mechanisms If the problem is the inability to find help, then it can be
overcome by:› Cultivation of “connectors” – experts in the firm who have connections
with other experts in other firms› Development of electronic yellow pages/directory that lists experts from
both within the firm and from the collaborating firms› Development of benchmark systems that allow employees to identify best
practices from all the collaborating firms in the network If the problem is the inability to work together, it can be
overcome by:› Creating opportunities to establish strong professional relationship
between employees from different firms› Development of formal cross-unit groups/committees to promote
interaction between companies› Provide a forum for employees to know one another and develop strong
personal bonds that facilitate knowledge sharing› Create opportunities for employees to work with other collaborating firms
Collaborate to Innovate Innovation invariably needs a driver – A necessity to
drive the innovation process, which in most cases comes in form of customer needs
Most collaboration for technical innovation involves a combination of complex market and technical knowledge
Mobilizing knowledge is not easy or cheap – it involves additional costs
Companies must also develop suitable mechanisms for knowledge transfer by electronic means
In case of transferring/Learning complex tacit knowledge, it may be necessary to transfer people to other locations where the knowledge is
Mobilizing KnowledgeHigh
HighLow
Complexity Of MarketKnowledge
Complexity Of TechnicalKnowledge
Move technicalInformation toWhere Market Knowledge is
Move technicalInformation toWhere Market Knowledge is
Arms lengthExchange
Information Digital Transfer
Will suffice
Arms lengthExchange
Information Digital Transfer
Will suffice
Move knowledgeBy rotating people
or by temporaryrelocation
Move knowledgeBy rotating people
or by temporaryrelocation
Move market Information to
Where technicalKnowledge is
Move market Information to
Where technicalKnowledge is
Potential Downsides Collaboration can create substantial value, it also has a
downside that needs to be managed. One big pitfall is that it can be easily overdone Employees motivated by their need to collaborate, may
create several unnecessary cross-unit networks which does not have a strong focus on the bottom line
Employees may work too much on a collaborative work with another firm – but that activity may not have any significance to the parent firm
Managers need to have a dual capability: Ability to deliver results in their own units and their responsibility to seek and provide help others
Closing Thoughts How one views the importance of collaboration relates directly
to the ideas about the purpose of any firm and the reason for its existence
Firms come into being in order to enable them to achieve collaboratively what they could not achieve alone
For a startup, collaboration with suppliers, vendors, partners & customers can be a significant source of competitive advantage
Today, economies of scale & scope are not enough to sustain competitive advantages
Managers must focus on steps to foster collaboration between firms to innovate & gain competitive advantage
Innovate for product development or process improvement Collaboration must be centered around mutual gains; A win-win
relationship Successful exploitation of collaborative possibilities holds the
key for startups to gain competitive advantage over their well established global competitors.