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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Companies made more than 42,000 alliances over the past decade worldwide, many of which failed to deliver strong results. This book explains why and how you can seize the benefits from your business’s network of alliances with customers, suppliers and competitors.
This network can provide three key advantages:
· superior information
· better cooperation
· increased power
Network Advantage shows how awareness of these three advantages can help align your portfolio of alliances with your corporate strategy to maximize advantages from existing networks and to position your business as an industry leader.
This book is written by three leading authorities in the field of organizational management who work with many international corporate clients. Based on groundbreaking research and illustrative cases, it provides practical tools to help you think strategically about reconfiguring your alliances and partnerships. For business executives, consultants, and executive MBAs who want to get the most advantage from the combined power of their alliance portfolios, Network Advantage offers in-depth, practical guidance. Make it your first strategic connection to gaining competitive advantage!
Companies’ connections to other firms—their network of alliances—matter for economic success. In this practical, jargon-free, evidence-based book, three experienced scholar/educators provide practical tools to understand your company’s network positioning and what to do to build webs of relationships that provide competitive advantage and economic value.
—Jeffrey Pfeffer, professor, Graduate School of Business, Stanford University and co-author of The Knowing-Doing Gap.
The book, Network Advantage, presents compelling ideas and is a must-read. It articulates three different perspectives to think about a firm’s network advantage and shows how a firm can maximize the value of its alliance network. The book is filled with theoretical and practical insights on the topic and offers captivating case studies to illustrate its key points. It is fun to read. I highly recommend this book.
—W. Chan Kim, The BCG Chair Professor of INSEAD and the Co-director of the INSEAD Blue Ocean Strategy Institute
In this eminently researched book, the authors show how executives and entrepreneurs alike can unlock the value of alliances. And the book comes with some "secrets" to success that most managers overlook. Every CEO, executive and entrepreneur who are collaborating with other firms ought to read this book.
—Morten T. Hansen, Professor at University of California at Berkeley, author of Collaboration and co-author of Great by Choice.
Don’t compete alone! “Network Advantage” provides a fresh perspective on how all firms can benefit from their alliances and partnerships. The authors seamlessly integrate academic research and real life examples into a practical step by step guide for unleashing the power, information and cooperation advantages available in networks. A must read for thoughtful executives and entrepreneurs alike.
—Stein Ove Fenne, President, Tupperware U.S. & Canada
Having the "right" business network is everything for a company's success in Asia and worldwide. With its rich cases and practical tools, this book is an indispensable guide for a thoughtful executive on how to design, build and manage a network that will make your firm globally competitive.
—Yong-Kyung Lee, Former CEO of Korean Telecom, Member of the Korean National Assembly.
Alliances and Partnerships, in their various formats and guises, are the bridges that allow businesses to thrive in their ecosystems by leveraging each other's strengths. The authors show how those bridges, when used appropriately, can help your firm create an alliance network to enhance your business power. The book contains many examples and models to help you shape your own alliance strategy in a world of ever increasing co-opetition.
—Ricardo T. Dias, Strategic Alliances Director, Hewlett Packard (HP) Software, Asia Pacific & Japan
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Seitenzahl: 341
Veröffentlichungsjahr: 2013
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Table of Contents
Endorsements
Title page
Copyright page
Acknowledgments
Preface
Bridging the Gap between Academics and Executives
Our Perspectives
Increasing Your Network Advantage
The Toolbox
Benefits For You
Introduction: All Roads Lead to London
Three Degrees of Network Advantage
From Academic Research to Management Practice
How to Use this Book to Increase Your Network Advantage
Going Forward
Chapter Highlights
Chapter One: Network Advantage: Making the Stealth Bomber
A Tale of Two Attempts
The Principles of Network Advantage
Alliance Portfolios
Alliance Portfolios versus Ecosystems
First-Degree Network Advantage
Second-Degree Network Advantage
Third-Degree Network Advantage
Why Networks Fail
Going Forward
Chapter Highlights
Chapter Two: Comparing Network Advantage: Sony versus Samsung
First-Degree Advantage
Second-Degree Advantage
Third-Degree Advantage
Going Forward
Chapter Highlights
Chapter Three: The First-Degree Perspective: Strengthening the Foundation of Network Advantage
“Four Dimensions of Fit” Framework
Applying the “Four Dimensions of Fit” Framework: The Chalhoub Group Case
Capturing the “Four Dimensions of Fit”: Alliance Fit Chart
Using the First-Degree Assessment Tool
First-Degree Assessment in Action: Philips Electronics
Going Forward
Chapter Highlights
Chapter Four: The Second-Degree Perspective: Understanding the Alliance Portfolio Configurations that Deliver Network Advantage
Hub-and-Spoke Alliance Portfolio Configuration
Integrated Alliance Portfolio Configuration
Hybrid Alliance Portfolio Configuration
Renesas's Hybrid Portfolio Configuration: A Blend of the Two
The Configuration Alignment Tool (CAT): Conceptual Overview
Going Forward
Chapter Highlights
Chapter Five: Evaluating and Changing Your Alliance Portfolio Configuration
Visualizing the Second Degree
Visualizing Your Firm's Second Degree
Going Forward
Chapter Highlights
Chapter Six: The Third-Degree Perspective: Achieving the Status Advantage
What is a Firm's Status?
When Network Status Matters Most
What High-Status Companies Can Do with Their Status
And What About Low-Status Firms?
Going Forward
Chapter Highlights
Chapter Seven: Assessing and Increasing Your Status: Extracting Energy from Waves
Understanding and Enhancing Your Firm's Status
Using Public Relations Strategies to Increase Your Status
Be Prepared for Greater Scrutiny and Commit Long Term
The Birth of Poseidon
Going Forward
Chapter Highlights
Chapter Eight: Maximizing Network Advantage: Designing Your Alliance Portfolio Strategy
Designing Your Alliance Portfolio
Should I Build or Should I Join?
When and How to Leave Alliances … And How to Plan for Termination
Going Forward
Chapter Highlights
Chapter Nine: Recognizing Patterns: Two Alliance Portfolio-Building Styles
Why Patterns Matter
The Hub-and-Spoke Portfolio-Building Style: ARM and Apple
The Integrated Portfolio-Building Style: Ford, Toyota, and Honda
Styles of Emerging Market and Developed Market Companies
How to Change Your Style
Going Forward
Chapter Highlights
Chapter Ten: Management Practices to Sustain Network Advantage
Managing Information Flows
Alliance Management Offices
Alliance Management DNA
Management Practices Needed to Realize First-Degree Advantage
Management Practices Needed to Realize Second- and Third-Degree Advantages
Going Forward
Chapter Highlights
Appendix One: About Our Research
Academic Background
Mapping the Networks
Network Advantage Measures
Appendix Two: The Toolbox
The First-Degree Assessment Tool
The Second-Degree Assessment Tool
The Third-Degree Assessment Tool
The Build or Join Tool
The Alliance Portfolio Jigsaw Tool
Appendix Three: Directory of Company Names
Glossary
Index
“This is one of the best written guides for creating alliance networks, which are needed for success in highly global, complex and competitive markets. It provides not only valuable academic concepts for building and developing networks, but also sound practical ideas on how to jointly develop value with partners. A must read.”
Jean-Christophe Visentin, Head of Strategic Alliances, Orange Business Services
“In an increasingly globalized world, companies are faced with a growing number of challenges—new regulations, disruptive technologies and evolving value chains. These are impossible to tackle alone and require learning how to cooperate with others. The tools, anecdotes, cases and lessons from Network Advantage would be handy to CEOs and corporate strategists who are looking to make alliances and partnerships a source of competitive advantage for their organizations. This book is a must read.”
Yash Khanna, Director, UK & Europe, Tata Consultancy Services
“In today's world, cooperation is an important driver of business success. Yet in the excitement following the announcements of new alliances and partnerships, executives often approach them without a truly strategic view of how they fit with their companies’ long-term goals. The not-to-be-missed insights, ideas and tools contained in this book will help all executives to not only ensure that each and every alliance they form has a solid foundation, but also that the entire portfolio of alliances helps their firm to achieve its objectives.”
Julie Wrazel, Ph.D., VP Strategic Alliances, Pacific Nanoscience
“Although many executives understand the importance of collaboration, they lack the big picture of how all of their alliances and partnerships fit in a coherent whole. Network Advantage does a great job of bridging academic research and practical examples to help companies re-discover their competitive advantage. This is a great guidebook to all senior executives.”
Marie-Noëlle Castel-Barthe, Head of Europe, Sanofi R&D Pharma Alliance, Management and Partnership Department
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Acknowledgments
This book is the product of a discussion among colleagues of what we do well at INSEAD. One of the answers was that we understand the role of networks in business. Another is that we can bridge the research we do and the practice that we teach. The discussion made Andrew and Henrich think about writing this book, and we immediately realized that we needed Tim on board as well. The teamwork that spanned Singapore, France, and Canada has been a great part of writing the book.
Even with three authors, we owe debts to others. This book contains not just our ideas, but those of numerous other academics, who have written research articles, discussed their work with us, commented on our work, and asked interesting questions. We reference their intellectual contributions in the book in deference to their stimulating insights.
Rosemary Nixon at Wiley supported our project from the beginning and has been a great help through the process. Our writing has benefited from the generous, creative, and thorough advice of Katherine Armstrong and Marianne Wallace. Michelle Ie has produced the graphics and helped with the fact checking. Anne-Marie Carrick has helped with interviews. And Matt Fullbrook has helped with several examples.
INSEAD and the Rotman School have supported us throughout. In addition to providing us time, INSEAD supplied funding for the book-writing project. Both schools have made possible the conversations with colleagues and executives that inspired us as we worked on the ideas for this book. In particular, we benefited from conversations with Annet Aris, Fares Boulos, Yves Dos, W. Chan Kim, Renée Mauborgne, Bill McEvily, Yong-Kyung Lee, and Melissa Schilling.
Finally, in spite of our ambition to keep our families unaffected by this project, we do owe them debts for their patience and grace. It is important to thank our parents, Solveig and Arent, Marie and Frank, Iryna and Victor, for instilling early on the sense of intellectual curiosity that made us pursue academic careers. As researchers and teachers, we generally spend more time thinking about work than we should, even at home, so it is only natural that we thank our spouses Takako, Robin, and Ekaterina for their support.
Preface
Between 2002 and 2011, companies around the world formed close to 42,000 alliances.1 That comes out to about 4,000 per year—a lot of time, energy, and money invested in collaboration. Clearly, executives and entrepreneurs believe that alliances, partnerships, and joint ventures—which we collectively refer to as “alliances”—are important tools for building competitive advantage.
As individual alliances have proliferated, firms in many industries have become connected in large “alliance networks.” These networks are like a system of roads connecting cities. Each city is like a potential alliance partner. In the same way you can get to far-off destinations by going either through selected major cities or minor hamlets, your firm can reach its goals by taking certain roads to reach different alliance partners. The route you pick gives you access to many combinations of new ideas, breakthrough technologies, unique resources, and smart people that may be available only in unexplored, perhaps distant, parts of the network.
Alliance networks come in different configurations. For some industries the network might resemble a dense spider web of highways connecting clusters of cities. In other industries, the network is very fragmented with highways linking many otherwise unconnected cities through one main city hub. The shape of the alliance network matters for innovation and competition in the industry.
Firms have different positions in the alliance network. Some firms are found in dense clusters of companies that all have ties to each other. Other firms exist at the center of a spider web of firms that connect to them but not to each other, others are at the edge of the web, and yet others are isolated. A firm's position in the alliance network matters greatly for its success. And the configuration of your network matters for the competitive future of your firm.
Bridging the Gap between Academics and Executives
We wrote this book as a result of an observation we made while collectively reflecting on our alliance research and our experiences teaching executives: there is a gap between how academics and managers see alliances. Extensive research by academics in management, sociology, and economics illustrates that alliance networks are conduits across which information, power, and cooperation flow. These studies show that firms extract competitive advantage from their positions in alliance networks. However, most managers are unaware of the competitive advantages available in alliance networks and are instead preoccupied with capitalizing on the advantages gained from single alliances. They see the individual roads (alliances) from their perspective, but they don't observe how all of the alliances their companies have formed actually work together (the alliance portfolio). And they certainly don't see the whole map (the alliance network).
This myopic focus on individual roads and not on exploring the broader map prevents countless executives from understanding how they can benefit from alliance networks. Having identified this gap, we want to share our research with managers to help them generate greater returns from collaboration by shifting their perspective from single alliances to the more comprehensive alliance network surrounding their companies. By reading this book you will see how your firm can achieve the network advantage: gaining more information, cooperation, and power from your alliances and your firm's position in the alliance network as compared to your competitors.
Our Perspectives
Collectively, the three of us have spent 40 years doing research on alliances. Together, we've published findings from nearly 30 studies on alliances in leading academic journals. We've interviewed numerous executives and taught hundreds of executive program participants at INSEAD (France/Singapore/Abu Dhabi) and the University of Toronto. Over several decades we've studied alliances in a variety of industries including investment banking, global shipping, steel, and semiconductor manufacturing. We're also familiar with research done by our colleagues who have studied alliances in many other contexts including telecommunications, pharmaceuticals, and information technology. And, as editors of academic journals that publish alliance research, we've also helped shape the evolution of the new knowledge on alliances.
Unfortunately, academics (ourselves included) don't usually do a good job translating what we know about the business world to the executives who operate in that business world and who need this knowledge to drive value. In turn, executives probably never read our journals, and rightly so. Most academic journals are not written for executives. In this book, we seek to do a better job translating and communicating the key insights academics have discovered about alliance networks that can help managers improve alliance success and their competitive advantage.
Increasing Your Network Advantage
This book is intended for managers who are concerned with generating competitive advantage and maximizing the benefits from their alliances. If you are a business executive whose company has alliances with customers, suppliers or competitors, then this book is for you. If you don't have such relationships but are considering forming them in the future, then this book is for you as well. Any executive thinking about how to build network advantage needs to understand the rationale behind his/her alliance portfolio, its position in the overall industry's network, and whether both of these are aligned with the firm's strategy. In this book, we refer to organizations as “firms,” but our advice is valuable for other organizations such as NGOs, hospitals, not-for-profits, or educational institutions. Finally, this book is for entrepreneurs. More than other types of companies, many young and/or small ventures succeed chiefly by accessing resources through alliances. Entrepreneurs lack deep pockets, sit outside established industries and need to do more with less. They have to be highly strategic about alliances, because their competitive advantage is directly related to alliance networks.
We know that many managers are frustrated by their experiences with alliances. Over 50% of alliances fail and these failures erode their companies' competitive advantage. It's common to place blame on the other alliance partners: those who must have had the wrong resources or culture, were not very trustworthy, or were not willing to cooperate fully. Some managers say they were just plain unlucky.
The somewhat myopic mentality of many managers masks a bigger issue. The firm's network advantage does not simply depend on each individual alliance in isolation. The benefits reaped from an individual alliance depend on the other alliances surrounding the firm—its alliances with other partners, its partners' alliances with other partners, and the overall network of alliances. So, despite a firm's best efforts to form a cooperative and mutually beneficial alliance, it may still not meet expectations. By understanding how each individual alliance fits into a broader alliance network, managers will reduce the failure rate of their alliances. It might not be bad luck or bad timing that takes you down, but a bad alliance portfolio and a bad position in your alliance network.
The Toolbox
This book is full of tools and concepts based on our own research published in academic journals as well as research done by colleagues we admire. We present an overview of each tool within the book and then collate them in Appendix Two for easy use and reference later on. The tools will help you evaluate whether you have the correct alliance portfolio and whether you have the right position in your industry's alliance network. We can help you understand where competitive advantages lie in your alliance network and how you can change both your portfolio and your network position if you find that they are not right for your strategy. The tools will also help you think through your existing alliances and see whether there are new sources of competitive advantage that you can discover by recombining your existing partners' knowledge, experience, and resources.
We tested and refined these tools in executive education classrooms in Europe, Asia, the Middle East, and North America. We collected many case studies through which we will translate the key academic findings. Some of these cases come from studies published in major academic journals or teaching case libraries, while others were shared with us by our executive program participants.
Benefits For You
By the time you finish reading this book, you may be challenging your assumptions about managing alliances and partnerships. If you're an executive in a firm that has never had a particular alliance strategy, you may have developed a foundation for one. If you're unsure of what your alliance portfolio should look like, you'll see that we've provided the tools to help you design it. If you're stuck in the wrong alliance portfolio, the book will provide you with ideas on how to change it. If you're suffering from lack of partners, you may be surprised to see that there are multiple ways to increase your attractiveness to them. If you run a large organization and think you're too busy to set up specialized operations for managing alliances, we'll show you that it's not that difficult to do.
From our research we know that there are executives and entrepreneurs who intuitively understand how to achieve network advantage. They get new ideas, better information, or unique resources from their alliance networks. This knowledge gives them the edge over their competition. Good news! This knowledge need not be for the chosen few; it can be learned and taught. We invite you to read the book, use the tools, and unlock your own network advantage.
Note
1 Data from SDC Platinum Database owned by Thomson Reuters, accessed November 2012.
Introduction: All Roads Lead to London
History teaches us that position is important. Imagine you've been transported back in time to the Roman province of Britannia in year 150 AD. You meet a Roman soldier and ask: “Where do the roads lead to on this island?” His answer is not Rome, but rather “Londinium” (London), a city which was founded around 50 AD and within a hundred years became a central connecting point for the major roads in the region (see Figure I.1). Londinium was connected by main routes to Durovernum (Canterbury), Noviomagus (Chichester), and Calleva (Silchester Roman Town), all key cities in the production and distribution of important resources. These cities provided road access to the major military bases of Eburacum (York) and Deva (Chester) and to major transportation hubs such as Dubris (Dover).1 Sitting on the waterway later to be named the Thames River, Londinium was a central hub in the vast and growing network of transportation routes which gave it an advantage over other cities. Because all roads led to Londinium, it had better access and control over the flow of resources.
Figure I.1: All roads lead to London
This also holds true for alliances, which work in the same way as roads connecting cities. Alliances can be defined as enduring and formalized collaborative relationships between two firms that involve significant exchange of information and resources. We make this definition intentionally broad and include “strategic alliances,” “joint ventures,” and “partnerships” within it. Our definition also includes any enduring buyer–supplier, joint manufacturing, R&D, or licensing agreements between firms. Because alliances are collaborative relationships, we refer to firms connected through them as alliance partners or simply partners. The traffic between partners includes the exchange of ideas, technologies, resources, and people. All of the alliances a firm has with its partners represent the firm's alliance portfolio.
In Ancient Rome, building and maintaining roads was an important government task—survival of the state depended on it. The Empire needed roads to move troops and military supplies and to facilitate communication, trade, and the transport of goods. The road network was a source of advantage: good quality roads, routes leading to many other cities, and shortcuts which provided faster access to resources in other regions, were key ingredients for prosperity and growth. Cities with these characteristics enjoyed greater flows of commerce and information across the Empire and were better able to mobilize forces against rebellion uprisings.
Just as the prosperity of individual cities in Roman Britannia depended on their position in the network of roads, your firm's prosperity depends on its position in an alliance network—the system of alliances that interconnects all firms within your industry and beyond. Your firm can unlock three key advantages from its alliance network: information, cooperation, and power.
Information exchanged through the network can provide your firm with ideas for product or service innovation, sources of operational efficiencies, or opportunities for finding new customers.Cooperation with partners in the network, through pooling resources or knowledge to achieve resource-sharing synergies or joint learning with them, enables your firm to benefit from the assets and expertise of others.Power, your ability to influence your partners and make them do what you want them to do, allows your firm to structure the activities of the alliances and influence the allocation of rewards.In short, alliance networks affect your firm's ability to achieve competitive advantage. And because firms occupy different positions within their alliance networks, these positions become sources of competitive advantage for some and sources of disadvantage for others. The firms that discover and unlock the hidden potential in their alliance networks achieve the greatest advantages.
Intuitively, we can understand the importance of road networks for the prosperity of cities. However, many executives we speak to don't understand the importance of alliance networks for the prosperity of their companies. To be fair, they do understand the importance of individual alliances and say that these alliances are important. This is why firms around the world formed close to 42,000 alliances over the past decade. But, when executives refer to “alliances,” they almost exclusively mean relationships with individual partners and they seldom think about how all of their firms' relationships fit together. Nor do these executives actively manage these networks to extract the competitive advantages within them. A Director of Corporate Alliances at Unisys validated this by saying “I don't think that we spend a lot of time thinking how our [alliance] network works today. In most cases, worrying about how [individual relationships] fit within a larger network isn't something we've spent a lot of bandwidth on.”2 We recently spoke with a senior executive from another multinational firm who confirmed that “even if we can map our alliance network and see where our firm is, we still don't know how to use this knowledge.”
Let's go back to our road analogy. Focusing on individual alliances and not seeing the importance of a firm's position in an alliance network would be the equivalent of attributing Londinium's eminent role in Britannia's road network solely to the one road connecting Londinium to the city of Calleva (now only an archaeological dig).3 This would ignore Londinium's additional benefits of having roads that led to major military encampments in York and Chester or to other transportation hubs such as Dover. It would also fail to recognize the value of the goods and information traveling from Calleva not only to London but also to other cities in the province.
When you take a myopic view and concentrate only on your firm's individual alliances, you miss the opportunity to capitalize on the additional information, cooperation, and power inherent in the broader network of alliances surrounding your firm. By aligning the structure of your alliance portfolio with your strategy and by using your firm's position in the alliance network, you can maximize the value of your individual alliances and generate greater competitive advantage. In other words, your network position becomes a distinct source of competitive advantage. We call this the “network advantage.”
Three Degrees of Network Advantage
Throughout the book, we will use three different perspectives to think about a firm's network advantage. Imagine you're examining your firm's position in its alliance network by looking through a microscope where you can adjust the lens (and degree of magnification) to expand or reduce your field of vision. This same approach applies when looking at digital road maps. You can zoom in to see the individual street-level perspective or zoom out to see the broader city or country map. Figure I.2 provides a useful image of the three perspectives you can see using this imaginary microscope. We call these the three degrees of network advantage.
Figure I.2: Three degrees of network advantage
First-Degree Network Advantage
If the relationships between your firm and its partners could be placed under the lens of a microscope, you (and most managers) would use the narrowest field of vision (or highest degree of magnification) to see your individual alliance partnerships—the first-degree perspective. At the first-degree perspective, you see only individual relationships. Therefore, your first-degree network advantage comes from your ability to combine your firm's resources and capabilities with the resources and capabilities of each individual alliance partner. For these relationships, two key factors contribute to first-degree network advantage: partner compatibility and partner complementarity. Compatible partners trust each other and have similar skills and routines that make it easy to work with each other; complementary partners bring different skills and knowledge which they combine in order to achieve their objective.
Most firms form successful alliances with complementary partners. A firm in the United States may look for a Russian partner to access markets in the former Soviet Union. An investment authority in the UAE may be looking to world leaders in the public utility sector to bring their expertise in nuclear energy to the Middle East. A biotechnology firm with expertise in developing tools for testing new drugs may seek to partner with a pharmaceutical firm to learn about how to make or market drugs.
Most alliances fail because they lack compatibility between partners. The alliance partners need to be comfortable working together. This requires the ability to form joint routines around the operations of the alliance whether this involves doing research, developing products, or producing a good or service. Collaboration requires knowledge of what the other firm wants and willingness to supply it as well as trust that such knowledge and willingness exists on the other side.
Compatibility can fail for fairly basic reasons. In shipping, for example, some managers cite differences in quality culture as reasons not to work with another firm. Difference in quality culture simply means that the firms have different answers to the question: If something unexpected happens to a ship, how much extra cost are we willing to take on in order to deliver the goods on time? In other cases, compatibility fails because companies have vastly different formal organizational structures and policies. Imagine the difficulties a firm with a high-quality customer service policy would have when it forms an alliance with a firm that tolerates providing low-quality customer service. Our experience working with companies shows that executives responsible for making alliances spend a lot of time thinking about complementarities between partners but not enough time asking themselves about compatibility, whether or not the partners have similar or vastly different cultures that can affect how successfully they will work together.
In one research project, we studied how shipping line operators benefited from their global strategic alliances during the 17-year period 1988 through 2005. We found that these shipping firms increased their performance if they formed alliances with partners having ships of similar age. In other words, the alliances succeeded when firms with older ships partnered with firms having older ships and when firms with newer ships partnered with firms having newer ships. Similarity between the age of ships indicated compatibility between the firms' operating cultures. Were both firms willing to invest in new ships to provide superior quality service or were they comfortable operating old ships and providing lower quality service to customers? If a firm with newer ships formed an alliance with a firm having older ships, that alliance was more likely to perform poorly because these two firms had different policies on service quality.4
In another study, we examined how investment banks in Canada increased their share of the market for Initial Public Offerings by collaborating with other investment banks during the 38-year period 1952 through 1990. We found that investment banks with complementary partners were able to obtain a greater share in the underwriting market.5 See Appendix One for more details about these and other studies.
The first-degree perspective is critical for building network advantage. Without the right alliance partners, ones which are both complementary and compatible, your organization will not be able to access information, cooperation, or power. If we travel back in time to Roman Britannia, Londinium generated its first-degree advantage based on its high-quality roads which led to seven nearby cities. Each of these cities traded goods and exchanged information with Londinium. A careful look at the rest of the map shows that no other city in Britannia was as connected by roads to as many neighbors as Londinium. Clearly, the quality of the roads leading out of Londinium and the willingness of its individual neighbors to trade goods and share information contributed greatly to increasing Londinium's prosperity. If a city is surrounded by bad highways leading nowhere, it will not get much information about what its neighbors do, cannot call for help, and cannot influence the decisions made by other cities. It will not thrive. The same is true of alliances.
Mastering the first-degree perspective is critical for building network advantage, however, it is only the beginning. In our experience, managers tend to focus on generating and monitoring the specific benefits expected from each individual relationship, and this is where they usually stop. Investing in relationships with individual partners is necessary, but it's not sufficient to extract maximum network advantage. Working just at this level delivers only a small amount of network advantage in terms of achieving information, cooperation, and power benefits. To get the biggest network advantage, you need to expand your field of vision (change the microscope lens) to see the second- and third-degree perspectives on your alliance network.
Second-Degree Network Advantage
Let's broaden the microscope's field of vision to capture your organization's whole portfolio of alliances including alliances between partners—the second-degree perspective. At the second-degree perspective, you look at all of your partners in your alliance portfolio and at their connections. The second-degree network advantage is the unique ability to get timely access to information, secure cooperation, and gain power by using the connections among your firm's alliance partners. The extent to which your partners have alliances with one another determines the power, cooperation, and types of information flowing across the network.
Different patterns of connections can exist between you and your partners. There are three basic alliance portfolio configurations: hub-and-spoke; integrated; and hybrid. Hub-and-spoke is an alliance portfolio in which your firm operates at the center (the hub) and is connected like spokes in a wheel to partners that are mostly not connected to each other (see Figure I.3). Integrated refers to an alliance portfolio in which your firm is connected to partners that are also mostly connected to each other (see Figure I.4). A combination of these two types, the hybrid, is an alliance portfolio where your firm has some connected and some unconnected partners (see Figure I.5).
Figure I.3: Hub-and-spoke alliance portfolio
Figure I.4: Integrated alliance portfolio
Figure I.5: Hybrid alliance portfolio
Hub-and-spoke and integrated portfolios are fundamentally different and they are used for different purposes. An integrated portfolio connects your firm to interconnected alliance partners who share the same types of information and are more likely to develop common norms around extensive exchange of information. This facilitates coordination and execution of complex projects as well as incremental innovation. In contrast, being at the center of a hub-and-spoke portfolio provides your firm with access to new information from each partner. It also helps your firm to engage in “brokerage”—combining ideas and resources from one partner with the ideas and resources of another partner. This portfolio is great for making breakthrough innovations.
We studied how the performance of firms in the semiconductor and steel industries was affected by the presence or absence of relationships among their alliance partners. We found that firms in the semiconductor industry performed well when they had hub-and-spoke portfolios, but firms in the steel industry performed well when they had integrated portfolios. Steel industry firms benefited from integrated portfolios because they did not need access to new information to promote breakthrough innovations. Instead their competitive advantage was based on having the ability to share incremental learning and process improvements. In contrast, firms in the semiconductor industry benefited from hub-and-spoke portfolios because they needed to combine new knowledge from different partners in order to achieve breakthrough innovations.6 We'll return to discussing the implications of this study in subsequent chapters.
Steve Jobs was very good at building hub-and-spoke portfolios between partners that did not work with each other. Think about how he created the iPhone. He gained key knowledge about mobile phone manufacturing and how to deal with telecommunications providers through a not-so-successful collaboration with Motorola to integrate the Motorola Rokr phone with Apple's iTunes player.7 After working with Motorola's executives, Jobs connected what he learned from Motorola to what he learned from relationships with the content providers for his AppStore and relationships with the manufacturers of the iPod. Because the AppStore content providers did not know what the mobile phone makers knew and the iPod makers did not know what these other two Apple partners knew, Jobs was uniquely positioned in the center of a hub-and-spoke portfolio. He combined all of the elements needed to make the iPhone.
A hub-and-spoke portfolio is not intrinsically better than an integrated portfolio. Sometimes a firm may need to innovate and at other times it may need to coordinate and execute. A hybrid portfolio combines the benefits of both portfolios. The more unconnected partners there are in a hybrid portfolio, the more this portfolio resembles a hub-and-spoke portfolio and the better it is for developing breakthrough innovations. The more connected partners there are in a hybrid portfolio, the more this portfolio resembles an integrated portfolio and the better it is for incremental innovation and project execution.
The Roman Britannia roadmap in Figure I.1 shows that Londinium had a hybrid network of roads but it was very close to a hub-and-spoke network. Except for Camulodunum (Colchester) and Durovigutum (Godmanchester), most of the other cities to which Londinium was connected did not have alternative direct roads. Because the majority of its neighbors were unconnected by direct roads, the goods and information from them had to pass through Londinium. This enabled the city to be the center of information exchange and trade among its immediate neighbors.
Third-Degree Network Advantage
By broadening the microscope lens yet again, you can expand your field of vision to the network of ties connecting all the firms in your industry and beyond—the third-degree perspective. The third-degree perspective looks at how your firm's partners share connections to other firms. Are your firm's partners connected to other well-connected partners? If so, your firm will be seen as a valuable partner whose opinions are worth listening to and whose products are of high quality. This broader network determines your status, which is defined as the perceived influence and leadership your firm has in your industry. Customers are more willing to buy products from high-status firms, and a high-status firm's suppliers are more willing to sell their products at a lower price. In short, a firm's third-degree network advantage is the information, cooperation, and power gained from being positively evaluated by others as a result of the firm's central position in its alliance network.
Status is an important resource for your firm and it requires time and effort to build and maintain. Recall that Canadian investment banks benefited from building relationships with complementary partners. In a different study, we also found that the higher the status of an investment bank, the more likely this bank was to increase its share of the market for Initial Public Offerings.8 Another study showed that higher status investment banks were also able to secure capital at a lower cost.9
The most obvious strategy for increasing your status is to form alliances with other high-status firms. One step to make yourself attractive to a high-status partner involves investing in brand awareness, thought leadership campaigns, and increased visibility in the industry. Your firm needs to be smart about how and when it communicates with the public about its alliances with high-status partners and about its experiences as an alliance partner. You also need to establish a strong track record as a good collaborator and make it known. High-status firms will want to partner with your firm if they know that you work well with partners and help them to create value.
Londinium's high status in Roman Britannia's system of roads was driven by the fact that many of its roads led to other important towns. For example, it had connections to major transportation hubs such as Dubris (Dover), Isca Dumnoniorum (Exeter), and Glevum (Gloucester). Access to these highways meant that goods and information from important cities beyond its immediate neighborhood traveled to Londinium, further increasing its wealth and prosperity. During times of unrest, Londinium could quickly draw military help not only from the small neighboring cities but also from major military bases like Eburacum (York) and Deva (Chester), which provided needed security. Londinium's proximity to the river leading directly to what we now call the English Channel also meant that it could be reached by ships from continental Europe. Its status was further enhanced by a visit from the Roman Emperor Hadrian in 122 AD. After this visit, Londinium made its higher status enduring by constructing impressive public buildings that reminded people about the city's special position in the province.10
From Academic Research to Management Practice
By developing the ability to see first-, second-, and third-degree perspectives on alliances, you begin to understand, manage, and ultimately realize network advantage.
Finding complementary and compatible partners is your key to first-degree network advantage.Forming the right portfolio configuration (hub-and-spoke, integrated, or hybrid) to match your firm's strategic imperatives is the basis of second-degree network advantage.Building advantages associated with status is the way to realize third-degree network advantage.Research shows that companies which are informed about these benefits and proactively managing alliance networks will achieve network advantage. We don't think these advantages are difficult to explain and understand, yet they have remained little known because of the gap between research and practice. Over the past 20 years, strategy and management journals have published tons of academic articles on the subject of network advantage. These papers represent a treasure trove of knowledge about the opportunities and threats companies face when they find themselves in different types of alliance networks. Based on this research, we know how to tell different network structures apart and how they change over time. We know that some network structures help firms discover new opportunities and complex innovations. Yet, other network structures provide an inexpensive form of cooperation among firms as well as a community of trust that promotes economic exchanges and some forms of development efforts. Unlocking the advantages of building different network structures—innovations, control, cooperation, trust, and execution—requires looking beyond individual alliances. Unfortunately, the academics who write these articles, including us of course, don't usually do a good job of translating what they know about the business world to the executives who need this knowledge. Our goal in writing this book is to act as “brokers” connecting the academic and professional communities. We both have one thing in common—trying to understand how to benefit from collaboration.
How to Use this Book to Increase Your Network Advantage
We put this book together to help you increase your firm's network advantage. In Chapter 1, we'll examine in detail how shifting your field of vision between the first-, second-, and third-degree perspectives can help you understand the sources of network advantage. Using a case study on the creation of the Stealth Bomber, you'll see how one company initially failed when trying to build network advantage only to discover it 30 years later. We'll also introduce the basic concepts for how to depict alliances between companies.
In Chapter 2, we'll compare the alliance portfolios of two companies—Sony and Samsung. This chapter will help you practice shifting your field of vision (adjusting the microscope lens) between the first-, second-, and third-degree perspectives. You'll see how Samsung was able to unlock network advantage while Sony stumbled with its alliances.
Chapter 3
