Category Archives: brokerage

Collaborate to Innovate: Learning to Unlock Value from Your Alliances and Partnerships

How can you achieve competitive advantage using your alliances and partnerships?

What is “Network Advantage” and how can your company benefit from its collaborations with customers, suppliers and competitors?

How do giants like Philips and Samsung achieve profitable growth using their alliances?

I recently gave a 7 min TEDx-style talk for INSEAD Alumni reunion to answer these questions.

Collaborate to Innovate: Learning to Unlock Value from Your Alliances and Partnerships

How can you achieve competitive advantage using your alliances and partnerships?

What is “Network Advantage” and how can your company benefit from its collaborations with customers, suppliers and competitors?

How do giants like Philips and Samsung achieve profitable growth using their alliances?

I recently gave a 7 min TEDx-style talk for INSEAD Alumni reunion to answer these questions.

Can Your Alliance Network Lift a Stealth Bomber Off the Ground?

Does this airplane look familiar?
1940s Stealth Bomber Image
Source: Wikipedia
As I recently wrote on Harvard Business Review blog network, it should, because it’s a predecessor of the famous Stealth Bomber, a prototype completed by Jack Northrop’s company in 1948. In his time, Northrop — the inventor of the flying wing concept — was considered to be the aerospace genius, but he was not able to deliver on his promise to the U.S. military. The revolutionary airplane you never got beyond the prototype.
In 1980, Jack Northrop, then age 85 and confined to a wheelchair, visited a secure facility to see the first B-2 Stealth Bomber — the most advanced military aircraft capable of flying at extremely high altitudes and avoiding radar detection.
1980s Stealth Bomber Image
Source: Wikipedia
Even after 40 years of technological development and use of sophisticated computer design tools, the new bomber looked like a replica of Northrop’s original design for the flying wing. Reportedly, after seeing the aircraft, Northrop said he now realized why God had kept him alive for so long.
So why did one model fail and the other succeed?  Part of the explanation can be found by comparing the different networks of alliances that Northrop’s company formed in the forties and in the seventies.
In 1941, his alliance network looked small and simple hub-and-spoke system. Otis Elevators worked on design, General Manufacturing and Convair provided production facilities. Notice that the partners don’t work with one another and the U.S. Army Corps was actually brought in to arbitrate a dispute between Northrop and Convair.
Northrup's Alliance Network, 1940s
In 1980, the alliance network was more complex and highly integrated.  Network partners worked with one another, jointly negotiating technical standards. Vought Aircraft designed and manufactured the intermediate sections of the wings, General Electric manufactured the engine, whereas Boeing handled fuel systems, weapons delivery and landing gear.   In addition, each main partner formed individual ties with other subcontractors specific to their areas of responsibility.
Northrup's Alliance Network, 1970s
As we discuss in our new book “Network Advantage”, networks like this have two main benefits.  First, alliance partners are more likely to deliver on their promises.  If information flows freely among interconnected partners, how one firm treats a partner can be easily seen by other partners to whom both firms are connected. So if one firm bilks a partner, other partners will see that and will not collaborate with the bilking firm again.
Second, integrated networks facilitate fine-grained information exchanges because multiple partners have relationships where they share a common knowledge base. This shared expertise allows them to dive deep into solving complex problems related to executing or implementing a project.
This is not to say that the hub-and-spoke network of the 1940s doesn’t have its uses. In fact, they are usually more effective at coming up with radical innovation than are complex, integrated networks. In a hub-and-spoke configuration it’s more likely that your partners will know stuff you don’t already know and combining new, distinct ideas from multiple spokes leads to breakthrough innovations for the hub firm.
But Northrop’s hub and spoke portfolio was not useful in 1940s, because he already had an innovative blueprint for the bomber. All Northrop needed to do was to build reliable manufacturing systems that would execute his ideas based on incremental improvements made by multiple partners at the same time.  That scenario called for the integrated network of the 1970s.
The key to choosing between the two types of network is to ask: do you already have a final idea that needs to be implemented with incremental improvements? Is it important that all of your partners trust each other and share knowledge in implementing your idea? If so, then the integrated alliance portfolio is right for you. If you are exploring different options and it is not critical that your partners trust one another, work together to develop and/or implement them, then the hub and spoke portfolio is the best.
You can read more about this and other network-related stories in my new book “Network Advantage: How to Unlock Value from Your Alliances and Partnerships”

What networks are good for what?

There are two extreme types of network structures that are good for different things—open networks and closed networks. This post will describe advantages and disadvantages of an open network.
Open networks are networks where your partners are disconnected. For example, you may know 5 people and if these people don’t know each other, you are in an open network.
This network is great for generating innovative ideas. Because these people don’t talk to each other, you can get information from each one of them, combine them and produce your own idea that none of these people had. What made Steve Jobs so creative? One explanation is that he was able to speak to people who did not speak to each other. By talking to technology people (and being a technology person himself), he knew how computers worked. By talking to designers of electronics, he knew what designers knew; by talking to music executives he knew what they knew. But because technology people did not often talk to designers and neither designers nor technology people often talked to the music executives, no one of them was able to generate great ideas such as ipods, ipads and itunes. This description is a bit simplistic, of course, but helps illustrate the point: if you talk to people who don’t talk to each other you can access information that none of them has on their own and then you can create something that none of them was able to create on his/her own.
A person in an open network can refer to him/herself as a broker. This is not in the financial sense, of course, but rather in the sense of being able to broker information across different people.
A lot of academic research done, for example, by Ron Burt at the University of Chicago, shows that people who occupy positions in open networks are more likely to be perceived by their supervisors as generating good ideas, these people are promoted faster and are given better salary raises.
The disadvantage of such a network is that it is difficult to maintain. If you want to keep your partners unfamiliar to each other, you need to make sure you meet with them separately. It would have been much easier to maintain relationships with them if you invited them all to the same party, but then they would get to know each other and come to know what each one of them knows. So, your information advantage will be reduced. The more these people talk to each other, the more likely is your information advantage to be eliminated completely.
It is also difficult to verify the quality of information you receive. If one of your partners tells something to you, you have no idea whether this is true or not. Had your partners been connected, you could have verified by talking to another partner whether this person receives the same information as you are.