Service businesses that collaborate with many organizations tend to be less innovative — and less profitable — than those that work with a smaller number of partners.
Courtesy of Apple.
Today, businesses are often encouraged to collaborate widely; collaboration with other organizations that differ in size, age, capabilities and geographic location has been hailed as providing access to novel ideas and business opportunities. The idea is that companies can trade upon new, nonredundant information when working with a diverse range of exchange partners. But do benefits from such interactions materialize down the road?
Not always. In fact, a recent study we and Gaia Rubera of Michigan State University conducted found that service businesses dealing with a diverse set of business partners focused less on innovation and generated lower profits than counterparts with fewer partners. In contrast, businesses that committed to a smaller number of exchange partners had a significantly greater focus on the introduction of new service processes and products. Committed companies also were more efficient in turning new ideas into greater net profits later on.
We conducted 152 in-depth interviews with service company managers across different industries on the U.S. east coast and throughout the United Kingdom and Germany.