The Importance of Collaboration in Business

The market is fast changing forcing businesses to diversify their methods of operation to remain competitive and relevant in the modern business environment. The paper focused on collaboration strategies as the emerging business strategies used to enhance customer satisfaction, maximize profit, remain dominant in the market, and increase organizational market share. To meet the objective of the study, the paper addressed collaboration in the modern context and its effects on business competitive advantage, and innovation. The study revealed that companies collaborate for different reasons; while others focus on reducing the cost of production, well-established firms use it to increase product differentiation. There are international motives to collaborate such as gaining location-specific assets, overcoming legal constraints, minimize exposure to risky challenges, diversify geographically, gain market knowledge, and avoid competition. Some of the discussed collaboration strategies include licensing, franchising, management contract, turnkey operation, joint ventures, consortium, and equity alliances. The study also established with the current competition in the market, collaboration has proved to be effective in reaching a broader market scope.

Key words: Collaboration, Innovation, Competitive Advantage

Introduction

            Effective business management steers the organization towards achieving a given set of objectives including customer satisfaction, profit maximization, market dominance, and increased market share[1]. The outlined goals often lay out policies and guidelines that the business should use to run different operations. Collaboration is one of the methods used to enhance institutional performance and solving problems[2]. To collaborate successfully with external partners, the business should be capable of collaborating successfully internally. However, these practices require management to develop strategies and practices to facilitate the strengthening of collaboration culture internally through inter-departmental collaboration in which each segment of the organization has its mechanism to deal with arising challenges[3]. The market is increasingly becoming competitive, and with the ever-changing tastes and preferences of the consumers, there is a need to create a collaborative work environment. Collaboration has an excellent influence on organizational innovation, success, and corporate market share. Innovation has become the top agenda of each management team to enhance business competitive advantage[4]. To increase the odds of success, businesses should comprehend the need to collaborate with external players and ways to achieve it successfully. There are two significant merits to engage external players in the market: they challenge internal assumptions of the business and bring the new body of knowledge to the business. Recent studies continue to support the theory that external collaboration is connected to fundamental institutional innovation. Currently, businesses that want to expand their business borders and innovate around marketplaces and models should consider outside partnerships with other organizations and consumers is vital.

Collaboration in the Modern Context

            Collaboration is competition in a different form. Each business never forgets that its new partners may be out to disarm it; thus, it enters cooperation and strategic coalitions with clear aims and understanding ways that the goals of their allies would influence their success[5]. Since the extent of collaboration has limits, businesses need to defend against competitive compromise. In the modern context, the concept has proved to be effective. Using a strategic alliance with the rivals to gain new technologies, skills, and gaining insight into various market dynamics is not deceitful. The exercise reflects the obligation and ability of every player to absorb the skills and expertise of the other. In business collaboration, strategic intent is an essential element in the commitment to learning. In contrast to competition, collaboration involves working together to achieve a common purpose. The practices are essential to inspire businesses, grow organizational networks, educate business management, reduce the cost of production, and solving various organizational problems[6]. From the management perspective, it is easy to engage in multiple institutional practices and forget to apply emerging efficient techniques. Through collaboration, businesses discuss, communicate, and share information, which unlocks various benefits associated with keeping vital information. Companies should move out of their common practices to acquire fresh perspectives, trigger their creativity, review incoming information objectively, and add knowledge to their current experiences to ensure effective management of businesses[7].

            No business operates in isolation. Regardless of the level of competition, the company functions across the markets are related, which makes it vital to consider building a business network. Successful businesses have common interests in meeting new customers, establishing relationships, and creating a list of contacts across the globe[8]. Building a successful business requires consistently connecting and forming alliances with the other industrial players. Even though not every business contact results in collaboration, each time the institution tries to reach out to others it explores its chances of exploring the possibility to expand the organizational network. No business has exploited the full potentials of the market. One of the most significant advantages of collaboration is the opportunity to learn. Market challenges are similar but unique to every organization. Since collaboration brings a set of skills, strengths, and perspectives to businesses, it gives insight into the challenges faced by the competitors and ways of addressing the associated problems. Each company aims to make a profit through sustainable organizational practices such as reducing the cost of production. Most of the collaborative relationships involve splitting intellectual contributions and sharing the cost of risks associated with collaboration. When collaborating with other businesses and part of the terms include sharing marketing and development expenses, such organizations can double their budgets while reducing associated costs. In recent years, crowdsourcing has been on the rise; it is undeniable that there is power in numbers

Collaboration and Competitive Advantage

            The traditional business practices focused on competition to increase institutional profitability, market share, and enhanced brand image. The ability of the business to collaborate has become the new competitive advantage. Based on Michael Porter’s five forces model, businesses achieve their competitive advantage by optimizing every element of the value chain to outperform their competitors consistently. Recent scholars have cited the end of sustainable competitive advantage as most firms continue to seek out the transient advantage. However, in truth, neither the findings represent today’s business environment. Certainly, well-established, and stable businesses such as Apple Inc. continue to dominate the market, but their sources of competitive advantage have change. Businesses no longer compete in the resource economy, rather in a semantic economy in which companies build, manage, and widen their external connections through collaboration. The world has become highly involved with certain factors such as economic development, globalization, and technology assisting to blur the lines of traditional borders to the level that businesses desperately require to reconsider their old practices[9]. The current economy is social. Consequently, collaboration has become pivotal in achieving organizational success. Previously, businesses dominated the markets through resource accumulation and driving efficiency. However, in the modern market, agility and interoperability define essential factors. Companies should shift their focus from capabilities and assets to design, empathy, and networked organizations.

            Companies need to cope with the challenges associated with demanded sustainability. Collaboration and competition have become important approaches in the modern market. Collaboration between competitors has become a new fashion to create a solution where everyone benefits. Some of the successful collaborations include Siemens and Philips develop semiconductors and Cannon supplying photocopiers to Kodak. However, the widespread of competitive collaboration through outsourcing, joint ventures, licensing, and cooperative research has activated unease regarding the long-term consequences[10]. Strategic associations are important in strengthening collaborating companies against the outsiders. Collaboration is increasingly becoming a low-cost route for the new market entrants and significant industrial players to gain technology and market access. With the current competition, the path to sustaining business competitive advantage has become a central concern for organizational strategists[11]. For many years, strength has been considered as a function of industry selection and position in the industry. Most theories of establishing organizational competitive advantage including Porter’ five forces model provide a framework for being competitive within a stable industry. Nonetheless, such theories do not factor what happens when technological advancements and innovations create a new market niche that completely flips the existing industries. For most companies, it is hard to apply such competitive frameworks, especially when new businesses and industries start to emerge in shared economies and more collaborative.

            Regarding competitiveness, the rising collaboration trend opens many opportunities for social entrepreneurs and businesses to thrive. Considering that social enterprises are collaborative, they require support from different entities, influencers, and stakeholders. When a company has an idea that could make a significant impact on the global markets, such ideas need assistance from major industrial players to support and market the business to succeed[12]. The creation and pursuit of new ideas and innovation are no longer the bastions of the research and development (R&D) departments in any business integrated vertically. Instead, innovations and other sources of competitive advantages such business brand, target market, and business position are brought to the market by a network of businesses, selected based on their collaborative powers, and operating in each coordination. Successful companies often go above asking for global collaborations to enhance their knowledge skills to projects while focusing on improving their top lines. Such companies are focused on redesigning their processes for increasing the effectiveness of these efforts.

Collaboration and Innovation

            Many scholars have noted the need to reconsider the way businesses manage innovation[13]. With the rising competition across the market, companies are shifting from the red ocean strategies to blue ocean strategies to make market competition irrelevant. Innovation remains the only way to discover and explore the untapped market potential[14]. The traditional approaches were based on the assumption that creating and pursuing new ideas is accomplished by a collocated and centralized R&D team. However, these practices are increasingly becoming outdated. Instead, innovation is becoming associated with a network of firms with unique capabilities and operating in a coordinated manner. With such new demands, businesses need to develop a set of skills, especially collaboration, to partner with others to achieve superior innovation performance in the market[15]. Also, the new model advocates for the deconstruction of the innovation value chain and source other vital elements from the partners. Recent scholars consider innovation as a process of managing collaboration and interaction of various partners to deliver new solutions within the business context[16]. In the current business environment, businesses are competing to win through innovation. The process involves working with others in the value chain by opening to external partnerships, becoming less protective of intellectual property, and increasing reliance on collaborative idea generation. Accordingly, success innovation collaborations enable the discovery of new and meaningful mechanisms of satisfying the needs of customers in a way that builds bottom line products for the partners in the value chain.

            When properly implemented, collaboration can improve productivity, communication, and innovation. Innovation has become a widely recognized principal means to gain a competitive advantage[17]. Nevertheless, most firms lack the necessary resources required to increase their innovation capabilities. Business collaboration with other organizations has become a viable alternative for most businesses. Collaboration is effective if firms engage with others identified as being similar regarding objectives and plans based on a blend of cognitive and organizational proximity. Involving more collaborators in the market generate a larger pool of ideas, which creates more opportunities for identifying a single idea that consumers would love[18]. Nonetheless, there is a need to consider more diverse teams to assist in generating better concepts. Involving collaborators across different functional roles such as R&D, consumer insights, and marketing has significant impacts on concept performance. The success of innovation through collaboration depends on the partners having clear objectives, agreeing to adopt credible and manageable goals and transparent process of sharing results and investments and with adequate flexibility to accept the unforeseen risks. As witnessed in most innovation activities, there are risks associated with a collaboration that each business should understand.

            Collaborations are essential to innovation and present significant impacts: enhancing business insights, scaling organizational network, speeding up R&D, and opening avenues for distribution. Businesses are increasingly launching products, which do not meet the needs and expectations of the customers. Before initiating any product or service, there is a need to understand the market to gain insight into consumer behaviors and awareness. Ultimately, partnerships can assist businesses to understand their target audience and provide useful strategic insight for purposeful and profitable innovation. Successful companies understand how to leverage R&D in-house capabilities and collaborate with the external player to drive organizational innovation. As most companies continue to lose their market share because of failure to generate innovative products and services that meet the emerging demands of customers, major industrial players such as Walmart and Microsoft are have their collaborative strategy to fight Amazon. In their deal, Walmart aims to use Microsoft’s cloud services and work with the corporation on artificial intelligence. Through the collaboration, Walmart would transform its digital operations to compete with its competitors, and on the other hand, Microsoft aims to outdo Amazon in areas associated with cloud computing.

Collaboration Strategies

            In most firms, little efforts are given to strategies; they focus on using global partners to lower costs without evolving from the goal[19]. In contrast, leading firms in the market often develop explicit strategies to collaborate; their strategies are designed to support their business goals. Even though some businesses consider collaboration as a tool to reduce cost, well-established firms view it as a strategic benefit to increase product differentiation[20]. To achieve such benefits, successful organizations leverage on the partner’s superior capabilities and accessing contextual knowledge of the partner. There are international motives for collaboration such as gaining location-specific assets, which applies to foreign companies by acquiring operational assets when teaming with local industrial players. Other reasons include the need to overcome legal constraints, diversify geographically, minimize exposure in risky environments, avoid competition, gain market knowledge, and secure vertical and horizontal links[21]. The resource-based view of the firms holds that every business has a unique combination of competencies. Large and diversified businesses usually realign their focus on the significant strengths. The type of collaborative arrangements considered in the company may necessitate different trade-offs among organizational objectives, especially when they allow for greater spreading of the assets across the countries. Most enterprises have challenges finding a desirable partner. There are different collaborative arrangements: licensing, franchising, management contract, turnkey operation, joint ventures, consortium, and equity alliances.

            Under the licensing agreement, a business (the licensor) grants rights to intangible property to another company (the licensee) to use in a specified geographic area within a given period in exchange that the licensee pays a royalty to the licensor[22]. However, the rights could be exclusive or non-exclusive. The agreement requires the licensor to furnish technical information and assistance while the licensee to exploit the rights effectively while the needed amount of compensation to the licensor[23]. There are several motives for licensing: economic motives such the desire to experience faster growth, reduce costs, and access more property rights such as technology. The strategy reduces the risks and costs of a given venture for the licensor[24]. On the other hand, franchising refers to a unique form of licensing in which the franchisor sells the intangible property, which is essential to the franchisee’s business and operationally assists the company to frequently. Franchising involves providing intangible assets and continually infusing the necessary assets. The strategy requires that both parties act like a vertically integrated business due to their interdependence with each producing a part of the product that reaches the customer. Based on the organization of franchising, the franchisor penetrates the foreign market by dealing directly with the international franchisees or establishing a master franchisee and empowering the business the rights to open its outlets or develop sub-franchisee in the overseas markets. From the operational modification perspective, the success of the franchise depends on various elements: high market recognition, product standardization, and the effects of cost control. However, there is a classic dilemma to the franchisors: the more they standardize globally, the low product acceptance they would experience.

            The management contract is another important business collaborative strategy. Under the approach, arrangements are made in which a firm provides management personnel to undertake specialized roles to another entity at a fee. Most firms often pursue the strategy when they believe that their partners can manage certain operations efficiently and effectively. On the other hand, turnkey operations are a form of collaborative plan in which one of the collaborating firms contracts another to build a complete and ready-to-operate facility. In most cases, the suppliers in the approach are construction and industrial-equipment businesses. Such projects often cost billions of dollars, as the targeted customers are state agencies and large multinational corporations. In the joint ventures, there is a direct investment in which two or more business partners share ownership[25]. With the reduction of a firm’s share of equity, its ability to control certain operations decline. A consortium refers to the combination of different entities to combine resources while strengthening organizational ability to pursue significant undertakings[26]. Some businesses have also considered equity alliances, which is a collaborative arrangement in which one of the parties take an ownership position[27]. Studies have established that equity alliance is vital in solidifying a collaborating contract, which makes it difficult to break.

Conclusion

            The market is increasingly becoming competitive forcing businesses to develop survival techniques. Furthermore, the ever-shifting consumer tastes and preferences, the market has become even more complicated. Innovation is the key to remaining relevant and competitive in the market. However, as technology changes, new consumer needs arise forcing businesses to consider different strategic options including collaboration with the competitors or players from other industry. Based on the analysis, collaboration strategies have significant impacts on organizational competitive advantage and innovation. The study established that businesses often consider collaborative arrangements for various reasons including resource acquisition, risk minimization, and sales expansion. However, the motives are divided into general and specific to the international business. The analysis also revealed that control and prior expansion are the main factors that influence the form of a collaborative arrangement that a company chooses. Different types of collaborative arrangements are discussed: licensing, franchising, management contract, turnkey operation, consortium, joint ventures, and equity alliances.

Bibliography

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Byun, Jeongeun, Tae-Eung Sung, and Hyun-Woo Park. “Technological innovation strategy: how do technology life cycles change by technological area.” Technology Analysis & Strategic Management 30, no. 1 (2017), 98-112.

Chen, Victor Z., Jing Li, Daniel M. Shapiro, and Xiaoxiang Zhang. ”Ownership structure and innovation: An emerging market perspective.” Asia Pacific Journal of Management 31, no. 1 (2013), 1-24.

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Faqihi, B., N. Daoudi, and R. Ajhoun. ”From the Collaboration of Companies to the Interoperability of Information Systems (Concepts and Perspectives).” International Journal of Information and Education Technology 5, no. 3 (2015), 208-214.

Fındık, Derya, and Berna Beyhan. ”The Impact of External Collaborations on Firm Innovation Performance: Evidence from Turkey.” Procedia - Social and Behavioral Sciences 195, no. 3 (2015), 1425-1434.

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Majava, Jukka, Ville Isoherranen, and Pekka Kess. ”Business Collaboration Concepts and Implications for Companies.” International Journal of Synergy and Research 2, no. 1 (2013), 23-40.

Origho, Ann O., Oscar Japheth, and Wilfred I. Ukpere. “Innovation Through Global Collaboration: A new Source of Competitive Advantage (A Study of Nigerian Breweries PLC).” Mediterranean Journal of Social Sciences 5, no. 1 (2014), 709-724.

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[1] Steingrímsson, Jón G., Pinar Bilge, Steffen Heyer, and G. Seliger. ”Advances in Sustainable Manufacturing.” In Business Strategies for Competition and Collaboration for Remanufacturing of Production Equipment, 91-97. 2011

[2] Sharda, Kirti, and Leena Chatterjee. ”Configurations of outsourcing firms and organizational performance.” Strategic Outsourcing: An International Journal 4, no. 2 (2011), 152-178.

[3] Schilling, Melissa A. Strategic Management of Technological Innovation, 5th ed. New York: McGraw-Hill Education, 2017.

[4] Chen, Victor Z., Jing Li, Daniel M. Shapiro, and Xiaoxiang Zhang. “Ownership structure and innovation: An emerging market perspective.” Asia Pacific Journal of Management 31, no. 1 (2013), 1-24.

[5] Majava, Jukka, Ville Isoherranen, and Pekka Kess. ”Business Collaboration Concepts and Implications for Companies.” International Journal of Synergy and Research 2, no. 1 (2013), 23-40.

[6] Pisano, Gary P. ”You Need an Innovation Strategy.” Harvard Business Review. Last modified June 1, 2015. https://hbr.org/2015/06/you-need-an-innovation-strategy.

[7] Du-Plessis, Marina. ”The role of knowledge management in innovation.” Journal of Knowledge Management 11, no. 4 (2007), 20-29.

[8] Schilling, Melissa A. Strategic Management of Technological Innovation, 5th ed. New York: McGraw-Hill Education, 2017.

[9] Byun, Jeongeun, Tae-Eung Sung, and Hyun-Woo Park. ”Technological innovation strategy: how do technology life cycles change by technological area.” Technology Analysis & Strategic Management 30, no. 1 (2017), 98-112

[10] Faqihi, B., N. Daoudi, and R. Ajhoun. ”From the Collaboration of Companies to the Interoperability of Information Systems (Concepts and Perspectives).” International Journal of Information and Education Technology 5, no. 3 (2015), 208-214.

[11] Steingrímsson, Jón G., Pinar Bilge, Steffen Heyer, and G. Seliger. ”Advances in Sustainable Manufacturing.” In Business Strategies for Competition and Collaboration for Remanufacturing of Production Equipment, 91-97. 2011

[12] Du-Plessis, Marina. ”The role of knowledge management in innovation.” Journal of Knowledge Management 11, no. 4 (2007), 20-29.

[13] Origho, Ann O., Oscar Japheth, and Wilfred I. Ukpere. “Innovation Through Global Collaboration: A new Source of Competitive Advantage (A Study of Nigerian Breweries PLC).” Mediterranean Journal of Social Sciences 5, no. 1 (2014), 709-724.

[14] Von-Stamm, Bettina. ”Collaboration with other firms and customers: innovation’s secret weapon.” Strategy & Leadership 32, no. 3 (2004), 16-20.

[15] MacCormack, Alan. ”Innovation through Global Collaboration: A New Source of Competitive Advantage.” Harvard Business School. Last modified 2007. https://www.hbs.edu/faculty/Publication%20Files/07-079.pdf.

[16] Faqihi, B., N. Daoudi, and R. Ajhoun. ”From the Collaboration of Companies to the Interoperability of Information Systems (Concepts and Perspectives).” International Journal of Information and Education Technology 5, no. 3 (2015), 208-214.

[17] Rosell, David T., and Nicolette Lakemond. Collaborative innovation with suppliers: a conceptual model for characterising supplier contributions to NPD. Linköping University Post Print, 2011.

[18] Fındık, Derya, and Berna Beyhan. ”The Impact of External Collaborations on Firm Innovation Performance: Evidence from Turkey.” Procedia - Social and Behavioral Sciences 195, no. 3 (2015), 1425-1434.

[19] Bjone, Christian, and Ria Stein. Art and Architecture: Strategies in Collaboration. Basel: Birkhäuser, 2009

[20] Majava, Jukka, Ville Isoherranen, and Pekka Kess. ”Business Collaboration Concepts and Implications for Companies.” International Journal of Synergy and Research 2, no. 1 (2013), 23-40.

[21] Hebei University of Economics and Business. ”Chapter 14: Collaborative Strategies.” International Education School. Accessed December 4, 2018. http://web.heuet.edu.cn/jpk/jxnr/IM_14.htm.

[22] Von-Stamm, Bettina. ”Collaboration with other firms and customers: innovation’s secret weapon.” Strategy & Leadership 32, no. 3 (2004), 16-20.

[23] Hebei University of Economics and Business. “Chapter 14: Collaborative Strategies.” International Education School. Accessed December 4, 2018. http://web.heuet.edu.cn/jpk/jxnr/IM_14.htm.

[24] Pisano, Gari P., and Roberto Verganti. ”Which Kind of Collaboration Is Right for You?” Harvard Business Review. Last modified December 1, 2008. https://hbr.org/2008/12/which-kind-of-collaboration-is-right-for-you.

[25] Chen, Victor Z., Jing Li, Daniel M. Shapiro, and Xiaoxiang Zhang. ”Ownership structure and innovation: An emerging market perspective.” Asia Pacific Journal of Management 31, no. 1 (2013), 1-24.

[26] Bjone, Christian, and Ria Stein. Art and Architecture: Strategies in Collaboration. Basel: Birkhäuser, 2009

[27] Hebei University of Economics and Business. ”Chapter 14: Collaborative Strategies.” International Education School. Accessed December 4, 2018. http://web.heuet.edu.cn/jpk/jxnr/IM_14.htm.