The Hand That Feeds You

Companies have always depended on suppliers to keep their operations running smoothly and efficiently. But these days, those relationships are more critical — and more complicated — than ever.

With global competition heating up, technology accelerating at unprecedented levels and customers growing more demanding, companies must deliver new products and services faster — and many businesses are finding they can't keep pace. So they're increasingly collaborating with their suppliers to design new marketplace offerings and improve their processes.

Cellphone companies, for instance, must constantly churn out new models to keep up with the rapidly evolving industry. But they don't have the resources or expertise to design all of the new components in-house, so they often turn to suppliers to design parts such as batteries, antennas and casings. Virgin Mobile, one of the fastest-growing cellphone-service providers in the U.S., has outsourced all of the technical aspects of the business, everything from cellphone design to network infrastructure.

The problem: As these collaborations grow more important, the failure rates are significant. Products often end up reaching the market too late to beat the competition or to make the crucial holiday season, or they come in way over budget.

We wanted to figure out what makes collaborations fail — and succeed. After numerous field interviews, focus groups and a survey of more than 450 supply-chain professionals, we discovered four crucial factors that separate companies that do well in collaborations from those that don't. Companies that excel in these areas achieve strikingly better results — not just with the job at hand but also in building a strong long-term relationship with their partners.

What follows is a close look at those factors and how companies can improve their ability to handle collaborations.

But, first, we need to answer a basic question: What exactly is a collaboration? Lots of companies work together in one capacity or another. What makes a collaboration different than any other kind of working arrangement?

For our purposes, a collaboration is an intense process where partners exchange information and pool their capabilities to solve problems that each can't tackle individually. For instance, the cellphone companies and component makers described above.

This is more than simple cooperation, where a company merely considers the needs of another organization while working toward its own goal. For example, in simple cooperation, a company might place all of its orders for a material with a single supplier so that the supplier can achieve economies of scale. In return, the supplier would give the company better pricing. The two companies are arranging things so that both come out ahead, but they haven't shared information or worked together closely to devise a novel solution to a complex problem.

Here, then, are the four critical elements that make or break collaborations.

1. Be Willing to Engage

Successful collaboration requires a willingness to engage. Companies must openly share information and expertise with their partners, meet face to face, make decisions jointly and resolve any conflicts that arise. While this sounds obvious, many companies say they want to collaborate but don't devote the time, energy or resources required, giving only lip service. They withhold important information from their partners or fail to listen to and consider important facts from the other side of the meeting table. Not only can this hurt the collaboration in question, but it can also damage the relationship between the partners.

Consider a case where a company wants to cut costs by changing its manufacturing process. The company knows one of its parts suppliers will have to modify its products to fit the new process. So the company asks the supplier to collaborate on the redesign, hoping to make the transition as seamless as possible.

But when the supplier says the change will force it to take on big new expenses — and possibly lead to disruptions in supply — the company dismisses the concerns. And it refuses to accept the supplier's alternative proposal, because it would mean adding a pricey step to the manufacturing process.

The supplier feels it has no choice but to agree to the company's plan. Down the road, the supplier turns out to be right. There are snags in production, and supply is disrupted. Both companies are hurt financially, and their relationship is damaged.

What if the customer had taken the supplier's advice seriously? Working together, the two companies might have come up with a plan that would have allowed them to share the burden of the extra cost — and let both of them come out ahead.

2. Build a Collaborative Environment

But a willingness to engage can only take a company so far. Businesses must ensure they have the right mix of skills, knowledge and processes in place to make the most of their collaborations.

These fall into three broad areas.

The first: making sure that the organization, from top to bottom, is focused on managing collaborations well. That means hiring people with a personal style compatible with collaboration, giving them incentives to collaborate, and training them in communication, conflict resolution and project management. The managers who specifically handle collaborations must be able to focus their team on common goals, and team members must be able to operate without ego. "Everyone must be open and must be willing to share what they know," one senior vice president in commercial construction told us. "You look for those styles and characteristics that are compatible."

In addition, companies should have a number of steps in place to ensure that collaborative projects go smoothly. First, they should involve experts and specialists as collaboration partners early in the process. For example, if a builder and architect are collaborating on a new building, they should let window designers, tile workers and others give their advice early in the planning. Not only will this ensure that the best ideas available are incorporated into the design, but also that cost and timing estimates are realistic for all aspects of the job.

It's also important to have processes in place to monitor the progress of the collaboration to make sure the job stays on track. The company should establish clear targets for cost, timing and quality, and communicate them clearly to all participants in the project. From there, all parties should closely watch those performance metrics for signs of trouble.

And companies should be sure to listen to collaboration partners — particularly their concerns about the cost they will bear in the project, likely the largest potential source of tension. As part of that, companies should make sure everyone's opinion in the collaboration is treated as important. Whether in the early stages of the project, or as an ongoing part of it, the participants need a formal process to discuss progress, identify problem areas or bottlenecks, and manage trade-offs. In that process, companies should encourage everyone involved to make observations about opportunities for improvement or problems that need to be addressed.

Finally, when the project is over, companies should examine what worked well and what didn't and use what they learn to improve the next collaboration project.

3. Learn From Your Partner

Next, companies must have the right mix of skills and know-how to recognize, assimilate and exploit knowledge from outside the company. A common barrier to successful collaboration is the "not invented here" syndrome — employees believe that they are supposed to solve their own problems and that those outside the company have nothing to teach them. For collaborations to succeed, companies must get past this way of thinking.

The best way to do it: build up the company's base of knowledge in critical areas. The more skills and information your company has in-house, the more likely that it will be able to absorb new information from outside the company.

Think about two students trying to learn calculus. One who has a good grounding in algebra can learn calculus and apply it much more quickly than one who does not. Or let's say two companies are buying an advanced new warehouse-management system from a third party. The first company has managed its own warehouses for years and designed its own in-house system for that job. When the company upgrades to the third-party system, it will be well-positioned to use the new technology. The second company, however, is a start-up that has used a third-party logistics firm to manage its warehouses. The company will be much less likely to appreciate the intricacies of the new system and will be less capable of implementing the system effectively.

Companies can increase their knowledge base — and their ability to absorb knowledge — in a number of ways. For one thing, they should encourage their employees to take part in training and education programs, professional organizations or industry forums. They can also rotate employees throughout the organization, which encourages them to broaden their base of skills and knowledge — and gets them in the habit of seeking out and using information from new areas.

Along with helping employees bolster their skills, companies should give more of them a say in decisions. This will have a couple of positive effects. Since all those new decision makers will bring disparate skills and knowledge to the table, the company's choices will be much better informed. And involving new people will drive home a crucial lesson: pay attention to knowledge from new sources.

Moreover, companies should institute formal processes for learning from outside sources. For one thing, they could use other companies in the industry as benchmarks to see how competitors get the job done. Companies might also encourage feedback — for example, making it easy for customers to complain and then figuring out what they can learn from the comments. It's also important for companies to learn from mistakes; analyzing failures, quality problems or accidents can help companies learn about the value of new practices.

Finally, companies should sweep out barriers to collaboration. They should work to eliminate red tape, rigid chains of authority and other institutional structures that might make it hard to recognize and apply knowledge from outside the usual hierarchy.

4. Bring Expertise to the Table

Finally, companies must have the skills necessary to contribute to the project at hand. Many companies are tempted to collaborate with a strong partner to compensate for a lack of necessary knowledge or capabilities. Unfortunately, if companies can't contribute some unique capability to the effort, they are not a very good collaboration partner — and that could have serious consequences.

If companies become too dependent on their partner, they may alienate the partner and end up affecting the quality of the project. And that, in turn, could damage their reputation and hurt their chances for future business with other partners. Moreover, if companies don't add anything to a partnership, it will be difficult to justify asking their partner for bigger fees or a bigger share of the revenue. In effect, the partner will be able to call the shots.

Let's say a builder wants to collaborate with a designer on a new building. The builder wants to weigh in early to make sure the cost, quality and timing targets are realistic. Otherwise, the builder could end up missing deadlines and budget targets — and spoil the relationship with the designer and owner.

But if the builder can't provide useful information the designer doesn't already know — such as the reliability and cost of local subcontractors, or the availability of certain materials in the area — the builder is better off staying out of the process. Otherwise, the designer will likely chafe at having to work with a partner who just duplicates his or her own skills.

"It's part of understanding your client's business, and that's where the best collaboration comes from," a vice president in commercial construction told us. "If you bring [knowledgeable] people in from those industries, the learning curve is just tremendously climbed very quickly."