We all know that alliances with customers, competitors, and suppliers are important to any company’s ability to compete. As I write in my latest post for Harvard Business Review, that ability is compromised by the way we manage those relationships: all too often, each alliance is “owned” by one team or business unit. Thus, companies often miss out on opportunities for innovation that would result from transferring ideas and resources from small silos to other aspects of the business.
I set out in my book, Network Advantage: How to Unlock Value from Your Alliances and Partnerships, that a more holistic approach to managing alliances allows companies to create innovative new lines of business. A recent collaboration between customer relationship management and analytics company Salesforce.com and Dutch electronics giant Philips provides a case in point.
The collaboration between two companies began as a simple buyer-supplier deal: Philips used Salesforce software to enhance its customer relationships. But somewhere along the line, executives in these two companies started asking: if Salesforce knows how to manage CRM data, can it also manage the clinical data from some 190 million medical patients that are treated each year with Philips-made equipment?
The two partners have decided to build a platform to connect healthcare providers, insurance companies, and patients to deliver clinical monitoring solutions. The Philips Digital Healthsuite Platform, as it is called, will collect and analyze data drawn from medical devices to enhance clinical decision making by professionals and allow patients to take a more active role in managing their personal health.
As a first move, the partners have created two applications — “eCareCompanion” and “eCareCoordinator.” The eCareCompanion is installed on a patient’s smartphone (or tablet) and connects to their health monitoring equipment, such as weight scales, pill dispenser units, blood oxygen measurement devices, and thermometers. Imagine John, a patient with obstructive pulmonary disease, often caused by smoking. John lives at home. To monitor his condition, John’s weight, blood oxygen, and body temperature data are constantly uploaded to the platform. The eCareCoordinator then analyzes the data feed from the devices worn by the patients. If the data pattern from a particular patient becomes worrisome, the eCareCoordinator can inform a nurse, relative, or doctor.
How can Philips and Salesforce persuade hospitals to start using this platform? How can the hospitals be sure the system is reliable and can lead to tangible cost savings? This is where an alliance between Philips and Radboud University Medical Center in the Netherlands comes into play. The two partners work very closely to develop and test new equipment, including the wearable devices that can collect patent data for the Digital Healthsuite Platform. The use of these devices on Radboud’s patients helps Philips develop a business case for using them in other hospitals. Furthermore, in the process of building the wearable devices, developing the apps, and analyzing patient data, Philips, Salesforce.com, and Radboud develop valuable know-how to share with future partners who want to build their own apps or devices.
This innovation was made possible by the way Philips manages its alliances. Philips has created an Alliance Management office, made up of a small team of professionals who help Philips executives run individual alliances. The team helped negotiate the contracts with Salesforce and with Radboud Medical Center, obtained agreement on the key performance indicators, and developed tools to evaluate the partners’ perspectives on the evolution of the alliance. They also manage regular meetings in which the Philips executives in charge of the Salesforce.com alliance can learn about what is going on in the alliance with Radboud and vice versa. This helps build multi-billion market opportunities across the three partnerships.
There are two lessons here for your company. First, get more out of your alliances as drivers by thinking of them as a network. And second, build a team inside your company to manage this network, especially where knowledge and resources overlap. There is huge potential in collaborating with customers, suppliers, or even competitors.
When he became CEO in the early nineties, he knew that LV had grown very quickly across the world without having all the management resources it needed to maintain global leadership positions. This meant that LV had to form alliances with distributors in most of the countries it operated in. These distributors played an active role in the company’s business operations.
Yet, 100% reliance on global business partners was not Carcelle’s philosophy. One of his earliest initiatives at LV was to take control of 100 percent of the distribution of LV’s products in almost all geographies. “With 100 percent distribution, you can have a good database…every morning you see the sales product-by-product, store-by-store, clientele-by-clientele all over the world,” he told me in a recent interview.
Partnerships and alliances are valuable drivers of competitive advantage, but if everyone in your industry relies on partnerships, there might be opportunities for achieving competitive advantage in a different way, i.e. when you integrate everything under one roof. Carcelle was willing to go against the grain, and now he remains surprised that no other luxury brand considered such a move. Even now most of LV’s competitors have a lot of distribution partnerships worldwide.
But why did LV decide to go against the industry’s majority opinion? During the 1990s, business revolved around the concept of outsourcing and many luxury goods companies moved many of their operations overseas. Carcelle argues that LV’s key source of competitive advantage was its know-how of product making. Success doesn’t always come from “manufacturing everything yourself, but from understanding and controlling the know-how and having your experts in-house,” he explains.
Does vertical integration always make sense?
Over time, LV bought out all of its partners, but there was one exception. “The only partners I decided to keep were our partners in the Middle East. This was not only because their values were the same as ours. Friendship and value-sharing is not enough. [A big reason for keeping them was that] the Middle East is complicated, legally and culturally,” he said.
As I explain in the new book Network Advantage: How to Unlock Value From Your Alliances and Partnerships, LV decided to stick with a Middle Eastern partner – Chalhoub Group. As Yves Carcelle commented, “Decision-makers [in the Middle East] speak Arabic and I decided it was important for us to continue to work with partners that opened doors, be our advisers and we were the first one to organise a joint venture for the whole Middle East market”. However, to still ensure as much consistency across regions as possible, LV decided to work with Chalhoub Group across several Middle Eastern markets, and not to try and find a separate partner for each country.
The lesson from Yves Carcelle’s experience is clear. The more unique your assets are and the greater the control you need to exercise over the value chain to extract competitive advantage from these assets, the more vertical integration makes sense. However, the higher the uncertainty and complexity in your markets, the more you should think about partnerships. LV’s key assets were a unique brand and long term experience in luxury goods. By vertically integrating, LV has ensured a highly consistent image all around the world. If you face a situation when you have unique assets, control over the value chain helps you extract value from them. Yet when you are dealing with complex and uncertain markets, then you need to find a single partner with expertise in most of these markets.
You can watch this clip for more insights on networks, innovation and creativity from Yves Carcelle– one of the most experienced executives in the world of luxury goods.
Let’s look at the alliance network of RIM. This picture is built by looking at the RIM’s alliance announcements between 2008 and 2011. Since these alliances happened a while ago, their positive or negative effects should be felt by now.
RIM is the firm at the centre of the picture and it has 4 (four!) alliance partners only. The alliance with the Royal Bank of Canada and Thompson Reuters (Woodbridge is its parent company) provided venture capital fund services to invest in mobile applications and services in Canada. The alliance with TiVo aimed at providing mobile television entertainment services for BlackBerry users globally. The alliance with NII Holdings Inc was to provide Blackberry Smartphone services in Latin America.
Creativity is an important driver of competitive advantage for companies. One way your company can be more creative is to hire executives who worked abroad. These people are likely to offer non traditional solutions to your problems.
I recently did a study with Frederic Godart, Will Maddux and Adam Galinsky. We looked at how foreign working experience of fashion designers affected creativity of their collections. We found that fashion critics and buyers were more likely to view a designer’s fashion collection as creative, if this designer worked (or is currently working) abroad.
Apparently, working outside of your home country changes the way you think: by looking at how different people in different cultures solve problems differently, your brain learns to think about how to approach any business problem differently. If a problem is solved in France in one way, perhaps the Italians solve it in a different way. And you can perhaps think of the third way to solve the same problem–by combining the French and the Italian approach. Karl Lagerfeld is even reputed to work in Italy and France during the same day!
Working abroad also shapes your personal network. If you work in one country and then go work to another country, you become a bridge between professional communities in both countries. For example, a fashion designer who works in France gets to know other French designers and when she moves to work to Japan, she can get to know Japanese designers. If she still stays in touch with her French friends, she will know what is going on in French fashion world while she is working in Japan. And this knowledge will help her combine French and Japanese fashion influences in the future collections. Our study shows that such collections are seen as being very creative.
So, next time you are looking for a senior executive to fill a job that requires creativity and ability to innovate, look up their Linked-In profile. Does it indicate that the person worked in several different countries? If so, she or he is worth looking at, as this person is likely to be indeed creative.
A recent article in International Herald Tribune entitled “Yin and Yang of corporate creativity” describes two approaches to innovation, one of Apple and another of Google. The Google approach is a bottom up, open innovation which is based on rapid experimentation and receiving quick customer feedback. The Apple model is more top down model where the company achieves close to perfect integration of different elements in the product and then pushes it down to customers (remember a now famous comment from Jobs: it’s not the consumers’ job to know what they want).