Category Archives: suppliers

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.

Alliance Radar: Locate Competitive Advantage Outside of Your Firm’s Value Chain

PSA Peugeot Citroen, or Peugeot for short, is a former French industrial icon. In the past two years, it struggled to escape from € 7 billion losses. A €3 billion capital increase from the French state and Dongfeng, a Chinese carmaker, should help Peugeot secure its future[1]. Will it be bright?  
The alliance between Peugeot and Dongfeng is one of the thousands of alliances that companies formed around the world in the past 10 years. The classic frameworks of strategy analysis, however, don’t provide much guidance for how to extract value from alliances. Take for example a classic “value chain” tool popularized by Michael Porter:

* This figure is borrowed from http://www.insemble.com/software-value-chain.html
As a business educator and a consultant, I love this framework. It helps map activities of a firm and to think about how they relate to its competitive advantage. The weakness of the framework is that it is too much focused inside the firm and is not meant to help executives think about opportunities for value creation by collaborating with other companies.
I recently co-authored a book “Network Advantage: How to Unlock Value from Your Alliances and Partnerships”. In this book we offer advice on how companies can achieve competitive advantage by managing alliances and partnerships with customers, suppliers or competitors.
When I taught this book at INSEAD, a group of Executive Education participants[2] proposed a really cool way to integrate the logic behind the value chain with alliance thinking. This gave birth to a new framework which we call “Alliance Radar.”
The Radar can help you look outside of your firm.  It:
·       links alliances to specific parts of your value chain
·       helps visualize all of the alliances which your company has
·       identifies new opportunities for value creation across different alliances.
Let’s use this tool to compare alliances of Toyota and Peugeot. I picked these examples because I own cars from both car makers. Another reason is that lately Toyota has been much more innovative than Peugeot and this tool can help understand why.
Let’s start by identifying the key areas of two companies’ value chain. For simplicity, let’s assume that they are Production, R&D, Sales and After Sales.  You can draw a radar like this:

Now let’s take all of Toyota’s alliances and classify them into three categories: primarily aimed at cost reduction (red), aimed at innovation and differentiation (green) and those aimed at both cost reduction and differentiation (yellow)[3].


This approach helps us immediately see that most of production alliances are aimed at cost reduction (and efficiencies in general), whereas in other areas Toyota focuses on differentiation of its products.
We can also see areas in which Toyota can create value across different alliances. For example, let’s take three alliances and move them in the “bull’s eye”. Between 2008 and 2013, Toyota worked with Google to optimize search experience for Toyota’s products, collaborated with GM to make Prius in the U.S. and worked with Intel to integrate sensors inside the car with your smartphone. The tool tells us that Toyota can create value by integrating ideas across these three alliances and make a new product “Smart Social Prius”. I am not sure such car exists yet, but it is definitely in the works!

Because of Intel’s sensors, the car will feed information on your Prius driving habits to your social network. Some “friends” (like your parents or your insurance company) might actually want to know how well you are driving. In fact, an insurance company might even lower your premiums for good driving habits and make your insurance really “personal”! And you can even have a contest among your friends who is a safer (or environmentally friendlier) driver.
Now let’s compare Toyota’s Alliance Radar to that of Peugeot :



It is clear that Toyota has a lot more alliances than Peugeot, most of Peugeot’s alliances are aimed at cost reduction and not much on differentiation. Peugeot has a lot fewer opportunities to innovate across alliances. For once, it can work with both Mitsubishi and Changan: make electric cars in Spain (with Mitsubishi) and outfit them with Chinese interiors. Not as exciting as a “Smart Social Prius”? Well, Peugeot’s network of alliances doesn’t allow it to do much better than that because most of the collaborations are focused on cost reduction anyway. If I were to consult to Peugeot, I would have suggested to take a hard look at their alliance network and see if they can collaborate with partners that can provide them with something better than just cost cutting. 


Does your company want to have a big space for innovations a la Toyota? The Alliance Radar tool can help you see the opportunities. Experiment with moving different circles into the bull’s eye and challenge yourself whether you can create value by combining ideas or resources or market access across different partners. If you don’t see exciting opportunities, then maybe you need new alliance partners!
Lately Peugeot has been on an upward swing financially. Sales are looking brighter as the European market recovers[4]. Hopefully the company builds more and varied alliances that will help it not only to cut costs, but also to create innovative solutions by integrating ideas, resources or market access across its customers, suppliers or even competitors.
If you find Alliance Radar tool to be useful for thinking about your company’s alliances or to identify new value creation opportunities (like a Smart Social Prius), share your story with me (shipilov@insead.edu).
If you want to discuss this tool, you can do so in the “Comments” section.




[1] http://tinyurl.com/melxd2a
[2] Thomas Gudbjerg, Arvid Svenni, Haakon Fjeld-Hansen, Finn-Arne Lorentsen and Jarle Steen Stueflotten
[3] The data is on alliances which were formed between 2008 and 2013.
[4] http://tinyurl.com/melxd2a

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”

Use social media to connect to your… suppliers!

Last year, an INSEAD professor Quy Huy (who also has a separate INSEAD blog), and I collected data on how companies used social media to achieve competitive advantage. We are currently working on a major thought piece using the most useful insights, but given that the journal review process takes a very long time, I thought that I could sharesome results in their general form.

We asked close to 1000 executives worldwide. About 50% said that their companies did not use social media at all, which was an interesting finding in itself.

The graph below shows which social media tools (video sharing, blogs, social networking, wikis, podcasts, microblogs) the companies that did use social media relied on and for what purposes. What is interesting is that companies use social networking as a principal social media tool, while they use microblogging and podcasts to a substantially lesser extent.

One of the more surprising findings was that social media tools are mostly used to interact with customers, as one would have expected, but they are used very infrequently for communicating with suppliers.

But this strikes us as a missing opportunity! Why do companies use social media to communicate with customers? Because they want to know more about customers, to build informal communication channels and build their brands with customers.

Why don’t companies want to use social media with their suppliers to build collaborative communities with them? Using social media to build communities with suppliers could help customers exchange information with them, enabling suppliers to serve these customers better and make suppliers feel more attached to their customers.

One executive we interviewed told us an interesting story. A research and development department in his company used social media to build a collaborative community with a research and development department in a supplier’s company. The engineers from both companies really enjoyed being members of this community. One day, the supplier’s senior management decided to stop working with this company and start serving the company’s competitors. Once the supplier’s R&D engineers learned about this, they went to these executives and pushed really hard to continue working with their current customer, so that they could continue being members of the inter-firm collaborative community. Faced with this surprising revolt, the executives had no other choice than to stay with this customer.

So, our learning from this is the following: just like we want to connect to our customers with social media because we have a fundamental human need to be connected, we should do the same with our suppliers. In the networked world, connections to both customers and suppliers are important for the companies’ competitive advantage.

Another interesting learning for us was that companies also used social media to improve horizontal communication across different functional units inside their organization (e.g. helping R&D departments to talk to Marketing) as well as to improve vertical communication across the levels of hierarchy (e.g. senior executives talking to lower level executives and the other way around). More on that usage of social media for competitive advantage in the next post…

Click on the image to enlarge: