Why many businesses are finding that collaboration is just as important as competition.
According to the traditional view, business is fundamentally about competition and the survival of the fittest. But recent years have shown the limitations of such thinking.
“Traditional business models relied on the ‘zero-sum’ game and an ‘us-versus-them’ competitive mentality,” says Jeff Wong, EY’s Global Chief Innovation Officer. “Most economic models and case studies were built around the concept of how a small competitor took away the market of the large one or how a large company crushed a smaller threat.
“While many companies still run this way, we believe that winning today means choosing to ask a different question: Can we win together?”
This is not a question of abandoning business basics. Rather, in a world of digital disruption and industry convergence, companies now often find they must collaborate to secure the skills, assets and support they need. Successful innovation, in particular, is difficult for any organization to achieve alone.
Of course, businesses seeking to work with others is nothing new. But in this accelerating business environment, how they go about doing so is changing, with many now finding new and increasingly creative and fluid ways to collaborate.
New kinds of collaboration for a new world
We’re at the dawn of a golden age of rapid business innovation. However, today’s ever-shortening innovation cycle can make traditional partnership structures like mergers and acquisitions (M&A) or joint ventures (JVs) too slow, costly, and cumbersome to innovate at the speed necessary to keep up with the market.
Mergers and acquisitions require one company to have enough resources to buy another, which entails diligent, time-consuming negotiation and documentation. Joint ventures, although less complex, also require a high degree of rigor around revenue and cost-sharing.
M&A and JVs will likely always exist and still remain good solutions to many business challenges. According to research on disruption conducted by the Economist Intelligence Unit (EIU) and supported by EY, nearly a quarter of organizations have used M&A and JVs as avenues to address or drive disruption.
Yet, in response to current business pressures and rapid changes, companies are increasingly gravitating toward more fluid and agile alliances:
- According to the EIU report, nearly one-third of the firms surveyed have formed a strategic alliance with a company in their industry, and one-quarter have partnered with a player in a different industry.
- The EIU report found that nearly a third of financial sector organizations have formed strategic alliances with their counterparts to address disruptive forces. And collaborating with FinTech firms can help banks to drive digital innovation.
- These findings are complemented by EY research into future intentions for alliances. EY’s Digital Deal Economy Study revealed that a third (32%) of non-technology executives plan on creating alliances and partnerships in the next two to three years to achieve their transformational goals.
These highly fluid alliances, which we’re calling “industrial mash-ups,” are on the rise and are helping organizations better adapt themselves to face and embrace disruption.
Collaboration in a digital marketplace
In an industrial mash-up, a company shares an asset or capability with one or more partners in a way that creates new possibilities for all – without infringing on the company’s ongoing use of the asset. Participants are able to develop new products and services rapidly by piecing together components from a network of collaborating partners.
Unlike mergers or JVs, mash-ups operate under simple collaboration agreements that may not specify financial terms. Aimed primarily at finding mutual benefits through effective sharing and utilization of resources, they don’t tie participants to synergy targets or require complex post-merger integration efforts. Such mash-ups replace the physical vertical integration of an M&A or JV with collaborators, which helps reduce the inherently large risk each faces from undertaking a new business venture.
According to the EY Digital Deal Economy Study, these collaborations will become ever more popular in a marketplace increasingly driven by the forces of digital disruption: 58% of companies with underleveraged data, intellectual property or other assets said they would enter into an alliance to enable the monetization of these resources.
The sharing economy
The alliance between Apple and IBM, two former competitors, shows how the sharing of assets – in this case, Apple’s consumer know-how and IBM’s ties to corporate IT departments – can create an unassailable force. Similarly, Cisco Systems and Ericsson are leveraging their respective expertise to provide better networking solutions in a united front against the rapidly shifting telecom market and ahead of future disruptors to the sector.
According to Jeff Liu, Global Coordinating Partner, GE Digital-EY Industrial Internet, “the sharing economy exists because of the idea that you can separate, or detach, new kinds of value from an underlying physical thing. You’re able to use your car as a transportation service, or use your apartment as a hospitality service, because another organization has built an easy-to-use, automated transactional environment on the internet with new kinds of usage terms that depart from standard lease contracts.”
Collaboration is essential
Today’s biggest innovations tend to depend not only on sector-specific domain knowledge and customer relationships, but also on expertise in analytics, cloud services, wireless connectivity, software, and security. Few organizations possess all of these capabilities under one roof.
Speaking to the Economist Intelligence Unit about disruption, Julian Jenkins of GSK also echoed a similar sentiment over the need for collaboration. “We don’t think we can solve everything ourselves so we look outside to other pharma companies and maybe even to other industries as well,” he states. “That’s not something we did much of four or five years ago, [but] we tend to do a lot of it now.”
It seems that major industrial companies are recognizing the need to switch from a model based on sole control to one anchored in collaboration. They also should consider a shift from partnerships of potentially only two members to those that include many.
Yielding new value from existing assets
The combining of technology and industrial assets will produce a true revolution in productivity in many industries. In the immediate term, mash-ups offer an intriguing way for asset-intensive industries to generate new revenue from existing capital assets that normally lie idle some of the time. Like personal cars – which are used, on average, only 4 percent of the day – many industrial assets are underutilized. Industrial mash-ups could boost utilization of assets significantly – by 50 percent, 100 percent, or more.
Create value through new capabilities
Beyond increasing productivity by enabling asset sharing, industrial mash-ups can also help companies build entirely new capabilities. These new ventures rely on using application programming interfaces (APIs) to access software applications and tools to easily develop hybrid business models. Such B2B sharing platforms enable new capabilities by creating a user-friendly spot market for resources that were previously only accessible through ownership or via long leases.
Is a mash-up right for your organization?
For companies that embrace the challenge of collaboration, industrial mash-ups offer a 21st-century approach to deal making – a fast track to innovation and growth with less risk and cost. The digital future – forged by cloud services, smart mobility, social media, and big data analytic power – will demand and reward such agility and focus.
As the evolving business landscape challenges companies to move fast or risk falling behind, innovative industrial mash-ups could prove a key driver of future success and help organizations better keep pace with the breakneck speed of modern innovation.
However, an industrial mash-up may not be the right option for every organization. Its viability depends on some key factors. Ask yourself:
- Do we have any significantly underutilized assets or capacities that could benefit another business?
- Do we have the expertise in-house to innovate within and beyond our marketplace?
- Can we acquire new capabilities from such partnerships that add value?
- Do we know of non-competitive companies with objectives or a purpose aligned to ours?
- Do we need one or multiple alliances?
Industrial mash-ups offer a 21st-century fast track to innovation with less risk, but they may not be the right option for everyone.
Author: Paul Brody