Executive Interviews: Interview with Alan MacCormack on Collaboration
March 2008 - By Dr. Nagendra V Chowdary

Alan MacCormack
Associate Professor in the Technology and Operations Management, Harvard Business School.

• What was the impetus for your study "Innovation through Global Collaboration"?
  The management of innovation is changing. No longer is the creation and pursuit of new ideas the bastion of large central R&D departments within vertically integrated organizations. Instead, innovations are increasingly brought to the market by networks of firms, selected according to their comparative advantages, and operating in a coordinated manner.

  In this new model, organizations deconstruct the innovation value chain and source pieces from partners that possess lower costs, better skills and/or access to knowledge that can provide a source of differentiation. The aimis to establishmutually beneficial relationships through which new products and services can be developed. In short, firms increasingly seek superior performance in innovation through collaboration. So we need to understand how firms can effectively develop and deploy this new skill.

• What trends are driving firms to adopt collaborative approaches to innovation?
  There are three main drivers.

1. First, the complexity of products is increasing, in terms of the breadth and number of technologies they include. Cars send maintenance data wirelessly to dealerships; sneakers contain silicon chips to fine tune their fit. It just isn't possible for one firm to master all these skills, let alone house them under one roof.
2. Second, a pool of low cost yet highly skilled labor has emerged in developing countries, creating incentives to substitute these for highercost equivalents. Indeed, some regions of the world are developing unique skills which can provide a valuable source of product differentiation. India, for example, is well known for its software and engineering expertise, while China and the Philippines, are known for their skills in low cost electronics manufacturing and assembly.
3. Finally, advances in development tools (e.g., computer aided design) coupled with a move to more open architectures and technical standards have driven down the cost of distributing work.

When you add these different trends up, it is clear that collaboration is no longer something that is "nice to have." It is becoming a competitive necessity.

• What are the advantages to firms that do it well?
  A big one is lower cost. That's often the reason that firms look to collaborate in the first place. But lowering cost in R&D is not a source of sustained competitive advantage; so leading firms look for payoffs that go way beyond cost. Collaboration can help shorten development time and increase capacity; it can facilitate access to skills, capabilities and intellectual property that a firm does not possess; and it can allow firms to acquire relationships and knowledge in parts of the world where it has no experience. In essence, collaboration helps firms improve their bottom lines through lower costs and their toplines through increased growth. For a few, it provides a real source of strategic advantage.

• What are the main findings from your study?
  Our study revealed dramatic differences in the performance of firm's collaboration efforts, driven by contrasting approaches to their management. In particular, many firms mistakenly applied a "production outsourcing" mindset to collaboration, viewing the use of partners only as a means to achieve lower costs through "wage arbitrage" substituting a US resource with a cheaper one of equivalent skill. These firms saw little need to change the way they organized their innovation efforts to facilitate collaboration. By contrast, successful firms went beyond simple wage arbitrage, asking global partners to contribute knowledge and skills to projects, with a focus on improving their topline.And they re designed their organizations, to increase the effectiveness of these efforts.

• Why can't firms manage collaboration the same way they manage outsourcing?
  Production and innovation are fundamentally different activities while the former seeks to replicate an existing product, the other seeks to develop something entirely new and valuable. Furthermore, outsourcing and collaboration have different objectives. Outsourcing involves procuring a commodity asset or resource at the lowest price. Collaboration, in contrast, entails accessing dispersed knowledge, leveraging new capabilities and sharing risk with partners. It is a much more sophisticated skill.