.png)
Introduction
For Small and Medium sized Enterprises (SMEs) the establishment of business relationships and collaborations is becoming increasingly important in the face of market globalisation. Multinational companies are investing in strategic procurement programs with a view to drastically reducing their supply bases and focusing on increased spending with a smaller number of strategic partners.
Individual firms cannot be good at everything. They must specialise and learn to combine their capabilities with those of other firms and organisations. These collaborations consist of identifying possible partners (e.g. clients or suppliers), providing them with appropriate information, setting up a common environment for communication and finally starting commercial operations. Until the early 90's, the limited resources that SMEs could allocate for such purposes significantly undermined the efficiency of the collaboration. However, recent advances in technology, including the rapid increase of the use of the Internet, suggest that efficient and cost-effective collaboration between SMEs is possible.
“In the 21st century, competition will be between networks of collaborating enterprises (value chains) rather than individual enterprises” International IFIP Conference, 1998
The following will be reviewed in more detail:
Why Collaborate?
The Economist Intelligence Unit found that more than 50% of executives believe collaborative working “will either form an important part of their firm’s competitive advantage or will actually be central to its survival over the next three years.” Business models are already changing to take advantage of these collaborative partnerships.
Based on a trans-European survey [2007] conducted as part of the SMEcoll project, respondents cited the following reasons for collaboration. Many organisations viewed collaboration as a faster way to achieve these goals.
What Research tells us
Companies collaborate for the following reasons:
1. To increase market share by developing relationships which lower prices, increase quality of products and services, reduce time to market, enhance customer services or reduce order fulfilment time (Lewis, 1990; Parker, 2000; McCarthy and Golicic, 2002; McLaren et al, 2002).
2. To increase company income by developing relationships that help reduce cost, increase asset utilisation, share investment cost, reduce inventory, share business risk, eliminate duplication and waste or achieve economies of scale (Lewis, 1990; Parker, 2000; Horvarth, 2001; McLaren et al., 2002; Tidd et al., 2002).
3. To increase flexibility and capabilities by developing relationships that increase skills and knowledge, enable easier product development, allow access to new technologies, reduce time to market and simplify production processes (Lewis, 1990; Parker, 2000, Holton, 2001; Tidd et al., 2002
Advantages of Collaboration practice
Research literature points to the following advantages for those involved in collaboration:
Achieve best practice (Manders and Brenner, 1995; Jagdev and Browne, 1998): Collaboration enables organisations to focus on their own competencies within the overall supply chain.
Reduce lead times and increase market responsiveness (Parker, 2000; Martinez, Fouletier et al., 2001): Good information systems between partners who are structured to maximise efficiency across the supply chain helps reduce lead times and improve responsiveness.
Leverage resources across the supply chain (Bowersox, Closs & Drayer, 2005): Successful supply chain collaboration results in the development of extended enterprises designed to leverage joint capabilities and resources across the supply chain.
Increase innovation capacity and capability (Huxham, 1996): When partners focus on their own competences, innovation grows through the continuous attention to performance improvement.
Access specialist resources (Huxham, 1996; O'Neill and Sackett, 1994): Collaboration facilitates sharing of all type of resources (equipment, know-how, special skills, facilities etc.) among partners.
Minimise the risk of new investment (Huxham, 1996): A key feature of collaboration is to reduce risk, such as the avoidance or sharing of the risk for necessary investments.
Exploit economies of scale (Harland, Lamming et al., 1999; Martinez, Fouletier et al., 2001): Collaboration facilitates access to customers and markets that would be outside the capability or scope of any one partner.
Benefits of Collaboration
Companies collaborating together typically share resources, share & exchange information and complement weaknesses & competencies. Various studies have shown the collaborations lead to sale growth and risk reduction when they are successful.
The SMEcoll survey found the following reported levels of success across different collaboration goals:
Huge Productivity boost reported with Collaboration
A survey of 300 business leaders conducted by Deloitte Consulting found that 75% of those surveyed consider collaboration a top priority, and those who've linked partners and suppliers to their internal business processes report 70% greater profitability than companies that haven't integrated with partners yet. However, 45% of respondents say they're concerned about the complexity of implementing collaborative tools, 33% are unconvinced of the maturity of collaborative software, 33% cite internal hurdles that might keep them from making progress, and 31% say trading partners and other external forces are potential obstacles.
Emiliano Duch, chairman of The Competitiveness Institute, gives an example of the Cadore Region in the north of Italy. With almost no indigenous industry it now controls more than 35% of the world’s manufacture of eyewear. A large cluster of 900 companies and workshops all collaborate to provide the training and skills needed for every element of production.
Case studies in Collaboration
Web portal and workflow case study 1
Web portal and workflow case study 1 - presentation format
Web portal and workflow case study 2
Web portal and case study 2 - presentation format
Why many Collaborations fail
With so many perceived benefits, it is worthwhile to wonder why so little collaboration takes place, especially among small companies and organisations. Unfortunately, many relationships based on collaboration fail.
According to Lambert and Knemeyer (2004), alliances often fail because they should not have existed in the first place. According to Sabath and Fontanella (2002) “… supply chain collaboration is at the same time the most used, the most frequently misunderstood, the most popular – and the most disappointing – strategy that has come along to date”. Daugherty et al (2005) found that collaboration efforts often fail because critical long-term details are overlooked. Not enough care is taken to select the right partners, to match inter-organisational needs and capabilities and to clearly define standards, metrics, goals and implementation procedures over a medium to long-term planning horizon.
Pitfalls
The following are the main pitfalls indicated in the literature:
Misalignment of goals (Bruner and Spekman, 1998): Collaboration requires objective sharing between partners. Lack of agreed objectives and strategy will lead the alliance to fail.
Loss of independence (Bruner and Spekman, 1998; Drago, 1997; Parker, 2000): Collaborating organisations depend on other partners for their success. This implies shared decision making, which is not always welcome by individual companies.
Unwillingness to learn from others (Hansen & Nohira, 2004). The Not-Invented-Here syndrome can transfer to collaboration activities. This can be particularly prevalent when companies feel that they have nothing to learn from others.
Confidentiality of information. Confidential information needs to be shared and specific know-how transmitted to other partners. This is allied to an unwillingness to help other partners for fear of losing advantage (Gupta et al, 2004).
Inability to work together. People need to have more than just superficial relationships in order to understand one another. This is particularly valid where ‘tacit’ knowledge in involved. Research has found that projects can take 20% longer to complete where close personal relationships do not exist between operating personnel (Haas, 2002)
Lack of leadership, difficult to manage (Martinez, Fouletier et al., 2001; Parker, 2000): Effective leadership and coordination among partners can be difficult.
Lack of trust. The changes required for a collaborative approach to business cannot occur without trust. As Fawcett et al (2004) noted “Without trust, neither partner is willing to step out of traditional comfort zones to take on new roles and responsibilities”.
Cultural differences among partners (Bruner and Spekman, 1998; Drago, 1997): Cultural differences between companies and between different societies have to be recognised and facilitated. If not, trust can be affected which inevitably leads to a deterioration in the relationship.
Resource investment to build partnership: A lot of management and leadership time and other resources, such as training, are required to build a good collaboration partnership. According to Bruner and Spekman (1998) collaboration can take 3 to 4 years before it is operating effectively.
Overdoing collaboration (Hansen and Nohria, 2004): The focus on the goals of collaboration can be lost over time such that projects arise that are better managed internal to the partners. These waste time and money. Partners should only collaborate when there is a clear competency or risk need to do so.
The SMEcollaborate tools and methodologies are designed to address these typical reasons for failure by providing a methodology and the appropriate management systems.
Collaboration is not just some over-hyped buzzword, but an essential part of business life.