Collaborate to Build Competitive Advantage

1. Collaborate to Build Competitive Advantage By Arun Kottolli

2. Introduction • For 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

3. 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

4. Semiconductor – Case study • Consider 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

5. Case Study - Nvidia • Nvidia 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

6. 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

7. Gaining Advantage • Startups must continuously seek new sources of competitive advantages against global giants • By 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

8. 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

9. 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

10. Collaborate to Reduce Costs • Global 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

11. Tapping into the Benefits • To 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

12. 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

13. Hoarding of Expertise Problem Not-invented Here problem Needle in a Haystack problem “Stranger” Problem Seeker Of Help Provider Of help Framework for Collaboration Barriers to Collaboration • Management Levers • Leadership, Values and Goals • HR procedures • Legal procedures • Formal & Informal systems • Value Creation • Best Practice transfer • Joint Problem Solving • Cross selling • Bold Ideas • Cross pollination Unwilling to Help Unable To help Framework for creating value through collaboration

14. Value Creation from Collaboration • Firms must collaborate only if it can reap economic benefits by doing so • Types 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

15. Barriers to Collaboration • Given 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

16. “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

17. 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

18. 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

19. 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

20. How to Promote Collaboration • Management 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”

21. Leadership, Values & Goals • Leaders 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

22. 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

23. 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

24. 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

25. High Move technical Information to Where Market Knowledge is Move knowledge By rotating people or by temporary relocation Complexity Of Market Knowledge Arms length Exchange Information Digital Transfer Will suffice Move market Information to Where technical Knowledge is Low Complexity Of Technical Knowledge High Mobilizing Knowledge

26. 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

27. 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.