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.