the collaboration advantage customer-focused partnerships...

The collaboration advantageCustomer-focused partnerships in a global market

A report from the Economist Intelligence Unit

Sponsored by

The collaboration advantage Customer-focused partnerships in a global market

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Contents

About the survey 3

Preface 5

Executive summary 6

Transact and collaborate 7

Introduction 8

The benefits gained from collaborative networks 10

Time Warner and Brightcove case study 12

Overcoming the challenges of partnering 10

Tapping into new talent through collaboration 16

Regional differences and similarities 17

The task of technology: a common platform for people and systems 19

Sizing up collaboration: the approach of small to medium-sized enterprises 22

Conclusion 24

Appendix: Survey results 26

Economist Intelligence Unit Limited 2008

Economist Intelligence Unit Limited 2008 The collaboration advantage Customer-focused partnerships in a global market

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Of the 516 executives responding to the survey, 33% came from Europe, 32% from Asia-Pacific, 28% from North America and 6% from the rest of the world. Participants represented �9 different industries, of which the top three were manufacturing, financial services and professional services. Forty-three percent of respondents’ organisations had annual revenue greater than US$�bn and 44% had less than US$500m in revenue. Board members and chief executive officers (CEOs) comprised 43% of respondents. Chief financial officers (CFOs), chief technology officers (CTOs) and other C-level executives made up the remainder of the respondent panel.

About the survey


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The collaboration advantage: customer-focused partnerships in a global market is an Economist Intelligence Unit white paper sponsored by SAP. The Economist Intelligence Unit’s editorial team

conducted the survey and wrote the report, and the findings and views expressed do not necessarily reflect the views of the sponsor. Shaun Young and Alan M. Brooke contributed to the report, and Debra D’Agostino and Nigel Holloway were the editors. Danielle Noble was responsible for layout and design.

Our research was based on a survey conducted in March 2008 of more than �00 business executives worldwide, as well as desk research and in-depth interviews with executives from around the world about the changing nature of business relationships, and the associated challenges and opportunities. Our thanks are due to all the survey respondents and interviewees for their time and insights.

October 2008

Preface

Economist Intelligence Unit Limited 2008The collaboration advantage Customer-focused partnerships in a global market

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In the global economy, the nature of business relationships is changing rapidly. Executives at companies of all sizes are beginning to realise the need to collaborate and partner more frequently

with suppliers, customers and alliance groups—and even competitors—to launch new products, innovate more quickly, lower costs and improve overall customer service. The goal is to develop a network of suppliers and corporate partners that is mutually rewarding and transcends traditional business agreements, which were based largely on price negotiation.

As companies collaborate with one another the old transactional arrangements have become more complex and, in some ways, more risky. Firms now share more information with their partners than before, opening up the possibility of sensitive business data ending up in the wrong hands and creating significant issues around trust. In addition, corporate cultures may clash, as companies extend their business networks across different regions, management styles and languages. As a result, companies must think very carefully about the types of partnerships that make the most business sense, and how best to manage the development of these relationships to ensure success.

In order to better understand the opportunities, challenges, risks and rewards companies have seen from these types of agreements, the Economist Intelligence Unit conducted a survey in March 2008, sponsored by SAP, which asked ��6 senior executives how their business relationships are evolving. The poll focused on the factors of success, the difficulties in creating closer partnerships, the terms of engagement and the relevance of technology. We also conducted interviews with senior executives, academics and industry experts. The study revealed the following key points:

l Collaboration among business partners is, among other things, intended to help companies get closer to the customer. Forty-four percent of respondents say that their collaborative relationships allow them to share business processes and information with partners to better serve their customers. Only 22% of respondents whose top relationship is transactional in nature can claim the same benefit.

Executive summary


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Two-thirds of respondents whose most vital business relationship is collaborative say their firms created or strengthened partnerships with customers in the past five years. These partnerships were not only designed to meet specific needs as they arise, but were also based on a long-term strategy to assess potential future business opportunities. Seventy-one percent of respondents whose most important business relationship is collaborative say that their business relationships are moderately or very successful in achieving expected results.

l Companies are embracing collaboration both to reduce costs and to enhance revenue growth. Among the 302 respondents (59% of the total) who said their most important business relationship was collaborative (rather than transactional), one-half are focusing on using their business ties to improve their sales and distribution channels for their products and services.

Over the next five years, 31% of all survey respondents say that a cut in production costs will be the main reason for improving business relationships. In addition, 2�% believe that achieving a higher sales volume will be the primary goal in improving their business partnerships.

l The biggest challenge in collaborating with business partners is building trust. One-half of all respondents say that trusting corporate partners enough to share information is the toughest aspect of a new business relationship, and 64% of executives agree that strengthening personal relationships is essential in establishing trust with their business partners. The lack of trust is a particularly thorny issue in the area of information technology (IT): less than 20% of respondents are prepared to share security systems, process technology or software applications.

l Technology is regarded as a key enabler of business relationships. Sixty-nine percent of survey respondents agreed that the adoption of new technologies has benefited their most important business relationships. But only �4% of respondents have upgraded their data network, and �2% have invested in new security systems to support their most important business relationships. This indicates that more work needs to be done in working with IT to make systems more open to partnerships.

Transact and collaborate

The Economist Intelligence Unit survey defines transactional relationships as agreements meant to fulfil specific, immediate needs. Collaborative relationships, meanwhile, are defined as partnerships created to meet mutually beneficial goals, and share the risks and rewards of future business opportunities. Both types of relationships serve valuable purposes for companies: the goal of transactional relationships tends to be the continued (and sometimes automated) execution of specific functions, such as order replenishment or ongoing maintenance of, say, the help desk.

Collaborative relationships, meanwhile, aim to connect companies to bring about faster innovation and create future growth opportunities. They can evolve from transactional relationships, particularly when companies seek ways to gain a competitive advantage in reaching the end customer. In order to contrast the characteristics of the two types of business relationships, the survey asked senior executives to classify the nature of their most important business relationship as transactional or collaborative. Fifty-nine percent (302 in all) of the respondents describe their most important business relationship as collaborative (called the “collaboration” group in the paper) and 41% of the surveyed executives define their most important business relationships as transactional (the “transaction” group).


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It was June 2000 and AG Lafley, the newly appointed chief executive officer (CEO) of US-based consumer goods giant, Procter & Gamble (P&G), had come to a realisation: the company could not achieve its

growth objectives by focusing on its internal capabilities and resources alone. Investments in research and development were yielding diminishing payoffs, and the company’s stock price had plummeted from roughly US$�8 in January to US$28 in June as a result of a failed restructuring initiative that cost the company US$1.9bn. Consequently, the US$76.5bn firm decided to abandon its “invent it ourselves” philosophy and shifted to a more collaborative approach—a strategy corporate executives coined “Connect + Develop”. The new model aimed to bring the capabilities and ideas of a variety of partners—suppliers, entrepreneurs, universities, competitors and others—together to innovate and improve products.

The strategy was a success. Today, over �0% of P&G’s products and innovation pipeline involve external partners, according to Jeff LeRoy, the firm’s external relations manager.

For example, ConAgra, a US-based packaged foods manufacturer, recently entered into a partnership to license P&G packaging solutions, such as wrappings and non-splatter valves on product bottles. This agreement was one of more than a thousand deals that P&G has struck since embarking on its Connect + Develop strategy. “P&G views a business deal as a success if both we and our collaborator are creating value”, says Mr LeRoy. He estimates that about US$3bn in sales for P&G’s partners is thanks in part to intellectual property created by P&G.

For P&G these collaborative relationships go beyond short-term deals and develop into long-term partnerships—even with competitors. For example, P&G developed an innovative plastic wrap product, now known as Glad Press’n Seal, that became the basis of a partnership with US-based Clorox struck in late 2002. Two years later, P&G’s contributions to the venture, including the technology behind Glad ForceFlex trash bags, released in 2004, have helped double Glad product sales and make it Clorox’s second billion-dollar brand.

Introduction


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Most companies may not be ready to collaborate with their competitors as P&G has, but they do need to become more agile in order to take advantage of changes in the market. But this is easier said than done. Because few companies today work entirely on their own to develop and sell their products, they have to make their entire business network more nimble—a significant re-engineering process.

Corporate executives are beginning to realise that they need to collaborate with their suppliers, alliance partners and customers in ways they would rarely have dreamt of ten years ago. For example, with respect to suppliers, most companies were intent on whittling down their supplier costs in order to save every last dime and renminbi. The supply chain was a food chain in which the strongest and fiercest emerged on top.

Although competition is certainly tougher today, many firms have realised that the old type of supply chain merely commoditises goods and services. When companies compete solely on cost, profit margins are cut to the bone. To avoid this fate, firms are partnering with their customers and suppliers in ways that create lasting value for all sides. Collaboration has become the watchword, both among and within companies. This paper focuses on external forms of collaboration.

As companies collaborate with one another, these formerly simple, transactional arrangements have become more intricate, complex and flexible. Firms work together now to develop new goods, services and innovative processes. To do this, they must share information that was once held in secret, known only to a select few employees in the company.

The benefits of this type of partnering are many and varied, but the main aim is to husband resources more powerfully—“to help each other get better faster”, in the words of John Hagel, co-chairman of the Deloitte LLP Center for Edge Innovation. No company has a monopoly on great ideas; each must go outside its own four walls in search of the most highly skilled partners, enabling all to focus on what they do best. By involving other companies in research and development, production and distribution, the relationship becomes richer and more strategic. It enables both sides to share the gains. What was a zero-sum game then becomes a positive-sum relationship that may deepen and last for decades.

There are great rewards to be gained from this kind of collaborative network, but there are also considerable risks. Business secrets may leak out, or vital customer data may end up in the hands of a competitor. A network of business partnerships is highly complex, requiring an alignment of objectives among companies. Corporate cultures may be very different, as partners are likely to be located in several parts of the world. All of these issues serve to undermine the success of collaborative partnerships.

One way of overcoming these challenges is to make full use of a wide range of technological tools designed to enable companies to get closer to their alliance partners, suppliers and customers. Of course, identifying which technologies are best suited to individual cases is part of the challenge, as is determining how partners split the cost of implementation.

Forming mutually enriching partnerships with other companies is the current task for most companies. But it is not the end of the story. The next stage in the evolution of business networks is to include the final consumer, along with suppliers and corporate customers, in the development of new products and services. This will require even more sophisticated methods of collaboration that corporate planners have only just begun to imagine.


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As one of the earliest adopters of collaborative partnering, Toyota Motors Corporation (Japan) has become the leading global car manufacturer thanks to the support of a network of loyal suppliers,

built up over decades. Toyota understands suppliers’ costs and defines a target price that discourages unreasonable cost estimates, but also allows the supplier to enjoy reasonable returns.

Toyota demands a great deal from its component makers. Not only will Toyota thoroughly investigate potential partners for operational strengths and weaknesses—a process that can take as long as five years from start to finish—it also requests design inputs from each of its suppliers to integrate into detailed master production plans. This helps the manufacturer ensure quality and monitor any problems with its process or products.

Suppliers that enter into the rigorous, long-term relationship are viewed as trusted partners—and see significant benefits as a result. For example, the company gave large up-front payments and price increases to its suppliers in Thailand to help them during that country’s 1997 financial crisis. Those suppliers made similar requests to other original equipment manufacturers (OEMs), but did not receive the same level of support.

The Toyota message has been heard in corporate boardrooms around the world. Although other firms have been slower to act upon Toyota’s best practices, more and more companies now understand the value of enhanced relationships with their suppliers.

The benefits of collaboration extend beyond the supply chain. Survey data reveal that firms prioritising collaborative relationships are more likely to partner directly with corporate customers. Two-thirds of respondents that identified their most important business relationship as collaborative created or enhanced partnerships with their corporate customers over the last five years, compared with only 56% of executives whose relationships are largely transactional.

Coca-Cola (US) is an example of a company that collaborates with its corporate customers. Anthony van der Hoek, Coca-Cola’s director of strategy and business solutions, says that it partners with retailers

The benefits gained from collaborative networks


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The benefits gained from collaborative networkslike Wal-Mart (US) and other food service customers around the world in what he calls a “demand-driven value network”. The network helps its partners “make sure that the right product is in the right place, at the right time and at the right price”.

For example, Wal-Mart analyses transaction-level data of its shoppers collected at the point of sale to predict purchase trends for specific shopper segments, organised by retail location, product quantity and product type. The data from the analysis are shared with suppliers over a common software platform. In turn, Coca-Cola shares with Wal-Mart the data it collects and analyses. “We all have information sources where we and our retail partners get knowledge and develop insights”, says Mr van der Hoek. “Taken together, it all contributes to the flavouring of the insights that we share.”

Coca-Cola’s collaboration with Wal-Mart demonstrates how such partnerships can improve a company’s ability to understand the end-customer’s behaviour and improve service. This is a key step toward creating a more customer-centric organisation, the top goal of business relationships in the future, according to surveyed executives. Specifically, when respondents were asked to share their firm’s main objective in improving their business relationships over the next five years, 41% said the goal was to tighten their focus on the customer.

“There’s a growing awareness that success hinges on anticipating and serving unmet needs in the marketplace”, says Mr Hagel. “The best way to do that is to get very close to the customers that are driving the edge of performance of the products with which you’re dealing.” One way of achieving this kind of close proximity is to form a network of relationships with companies that can open up new distribution

Over the next five years, what are the main objectives your company seeks in improving business relationships? Select up to three. (%)

Enhanced customer centricity

Product and/or service differentiation

Improved speed-to-market

Expansion into new geographies

Lower production costs

Enhanced market visibility/reputation

Higher sales volume

Expansion into new distribution channels

Lower risk profile

Other, please specify

Don’t know

41

35

34

31

31

28

27

25

12

1

2

Does the nature of your most important business relationship allow your partner to interact with your company’s end customers? (%)

Our partner has no access to our end customers

Our partner has limited visibility to our end customers

We share business processes and information with our partner to better serve our customers

We allow our partner to directly interact with our customers (eg, bring its innovations to customers)

21

30

35

14


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Time Warner and Brightcove

Collaborative relationships work best when they benefit all partners in a business network and, as such, are certainly not limited to like-minded firms, or even companies of similar sizes. Large enterprises often benefit from the expertise and agility of smaller companies, while mid-market firms can take advantage of their larger partner’s customer base, brand reputation and operational efficiencies. Such is the case for US-based Time Inc., the largest magazine publisher in the US, and US-based Brightcove, a smaller, privately-owned Internet TV services company.

Time relies on many business partnerships to deliver a good customer experience at its news, lifestyle and celebrity-oriented Web sites, according to Aiden Colie, senior vice-president, Web technology. In order to ensure that sites such as time.com and people.com meet consumers’ rising expectations, Time Inc. has assembled a network of partners who contribute to their online user experience. For example, the company partners with DoubleClick, a US-based digital marketing solutions provider, to serve all its online advertisements, Brightcove to provide video content management and US-based TypePad and US-

based WordPress for blog capabilities. “They provide us with technology that would be very difficult for us to build and maintain ourselves at a good price”, Mr Colie says. “By being able to tap into these various partners, we’re able to provide a much richer end-user experience.”

In return, the partners benefit from the experience of working with a leading brand, and Time Inc., which had annual revenue of about US$�bn in 200�, helped its partners develop new products and services for its customers. For example, Brightcove builds customised solutions for Time but is also able to develop its core products as a result of the partnership.

“Time comes to us with a variety of requests and requirements from its different properties. What we develop as a result of those requests we will roll back into our product and build offerings that will also benefit us, because our other customers will want those things as well”, says Eric Elia, vice-president for creative services at Brightcove. For Time’s Mr Colie, Brightcove fits the profile of a partner in a collaborative relationship: “What I’m looking for in any partner is the willingness to invest time to understand our business, and meet our management team. The partner must not only understand the types of technical skills we’re looking for but the kinds of individuals that will fit in very well with our organisation.”

channels or provide market intelligence. Some companies are not only using the capabilities of the companies in their business network to serve their customers better, but are also working directly with their partners’ customers. This trend is still emerging, but collaborative relationships are more likely to explore this opportunity to get closer to customers. According to the survey, 18% of the “collaboration” respondents enable the business partners in their network to have direct contact with their customers, compared with 8% of the “transaction” respondents.

One industry that relies on flexible supply chains is apparel, where tastes are fickle and producers must react quickly to changes in demand. An exponent of close collaboration in fashion wear is Li & Fung, a US$��.9bn Hong Kong-based consumer goods exporter that supplies customers such as Calvin Klein and Anne Taylor. Li & Fung has assembled a network of over 10,000 companies around the world, many of which are in the textile industry. For a given project, Li & Fung matches specialised providers, from sources of yarn to processors of raw materials and fabrics. Every step of the process is co-ordinated, Mr Hagel says, “to get the product of the right quality to the right distribution centres at the right time and the right price”.

How has IT security been handled in your most important business relationship?(%)

We each manage our own IT security.

We are responsible for IT security.

Our partner is responsible for IT security.

51

38

11


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Li & Fung has larger operating profit margins (3.4% in 2007) than most of its competitors in part because the company has built a network of partnerships, according to Mr Hagel. “The more participants they can mobilise and continue to add to their network, the more value they can provide to their customers through a broader range of best-in-class capabilities”, he says.


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The most significant obstacle in creating a collaborative partnership is building trust among the companies involved. One-half of the respondents to the survey—the largest proportion—said that

having enough trust to be able to share information is the most challenging part of the development of new business relationships. A lack of trust is felt particularly strongly in the area of IT. Only a small proportion of respondents are prepared to share the following with a partner: security technology (11%), process technology (11%) and software applications (17%).

In order to develop trust, a collaborative relationship must be an investment between partners committed to growing the network. “The real power and value in collaborative networks is not so much connecting to existing resources as finding ways we can push each other and help each other get better faster”, Mr Hagel says. “To do that, I have to have real respect for the partners I’m dealing with and I have to build genuine long-term, trust-based relationships, because if we’re going to learn, we have to trust each other enough to share what we know.”

The simplest and most direct way of building trust is to develop a close rapport between business partners—two-thirds of respondents said this—but it is something that cannot be hurried. “The personal element is critical, and is always built up over time”, says Coca-Cola’s Mr van der Hoek. In the case of larger suppliers and customers, those relationships need to be constantly renewed, thanks to a high turnover rate in several important functions, such as vendor sales, customer analytics and procurement. New entrants to such fields as these often want to make an impression on their bosses by trying to score points at their counterparts’ expense. But wiser counsel must prevail. “Having the institutions behind them, with long-standing relationships and a degree of calmness, helps the companies’ relationships over time and helps them to continue to partner collaboratively”, Mr van der Hoek says.

To accelerate building trust, Mr Hagel suggests focusing on the future (rather than current) capabilities of the company, and creating a structured plan by which companies can demonstrate their

Overcoming the challenges of partnering


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In the last five years, what have been the most challenging aspects of developing new business relationships? Select up to three. (%)

Developing trust to share information

Conflicting corporate cultures

Agreeing to contractual terms

Ambiguous process ownership responsibility

Different performance assessment/metrics

Incompatible business processes

Information systems incompatibility

Risk management issues

Security issues

Restrictive intellectual property issues

Mismatched accounting practices


Don’t know

50

38

36

26

24

18

18

13

12

12

3

2

2

contribution to the partnership. This involves scheduling meetings to determine how each partner can contribute to future opportunities and creating incentives to encourage partners to achieve the objectives. For example, Mr Hagel notes that US sports equipment company, Nike, has established regular tutelage programmes designed to help its production partners more rapidly reach and demonstrate their capabilities in the relationship, thus building trust across the network.

Of course, trust (or the lack of it) is not the only challenge. Conflicting corporate cultures is a key obstacle highlighted by 38% of survey respondents. To move beyond conflicting cultures to establish trust, almost one-half of the respondents said gaining an understanding of each other’s business is critical for the venture.

“A key success factor in establishing a relationship with a customer is to only listen and not speak at the first meetings in order to understand what he needs. If you have a foundation of trust you are a step ahead”, says Michael Kirchsteiger, managing director at voestalpine Anarbeitung GmbH, a member of the voestalpine Group, a leading Austrian steel maker with US$�.4bn in annual revenue. Mr Kirchsteiger’s unit provides custom processing solutions for steel makers.

When voestalpine Anarbeitung approaches a potential customer, the first response of the sales target tends to be wariness: the fear that if it hands over processing tasks to a supplier—and a subsidiary of another steel maker no less—the operating risks will increase. With such would-be customers Mr Kirchsteiger seeks to establish trust through personal interaction with the client and by demonstrating his company’s record of success with other steel makers.

If he succeeds in establishing a business relationship, the initial foundation of trust is then strengthened by close collaboration with the customer and by providing technology-supported planning


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and inventory control. In order to understand the needs of voestalpine Anarbeitung’s customers, his firm not only talks to the procurement officers, but also to the managers on the production line. “We are very open with our customers as well as our suppliers, bringing them into our planning process in order to secure an optimised process, whether for buying, producing or selling.”

By developing trusting relationships with a range of fellow partners, including raw materials suppliers, consultants, IT companies and universities, voestalpine Anarbeitung has increased its opportunities to reach more customers and provide services that it may not have offered in the past. “Our partners enable us to be faster, more flexible and to employ processes that are leaner and therefore more market-driven”, Mr Kirchsteiger says. “Our company was founded to serve customers who are willing to pay a better price for more flexible services than a classic steel mill can provide.”

Trust is more important for collaborative relationships than transactional ones, as they require companies to share information and processes to operate effectively. One way to establish trust in collaborative relationships is to share in the risks and rewards of the partnership, a point borne out by the survey. The “collaboration” group tends to shape business agreements in order to enable partners to share in the rewards (59% of the group) and the risks (45%). For “transaction” executives, only 38% enable their partners to share in the rewards and only 33% make them share in the risks. By contrast, the “transaction” group of respondents tended to resort more often to penalties if services levels were not met.

Tapping into new talent through collaboration

When it comes to building strong business relationships, the survey results reveal a clear, universal challenge: overcoming a shortage of qualified staff. Regardless of company size, region or industry—and irrespective of how well respondents think their companies partner with third-party businesses—the struggle to find talented workers has had the most significant detrimental effect on business partnerships. In fact, more than one-half of all respondents say that the shortage of qualified workers has affected their company’s most important business relationships in a damaging or very damaging way.

It’s true that demand for skilled workers rises in a competitive market, and that finding qualified workers will become more and more challenging over the next few years. But the shortage is just as much an opportunity as an obstacle. One of the greatest benefits of partnering with outside firms, for example, is to tap the expertise of a third party. When carefully planned, partnerships can be a valuable way to gain capabilities that could not otherwise be found in-house. As US-based Sun Microsystems founder Bill Joy once noted, “there are always more smart people outside your company than within it”.

Naturally, small companies have a harder time gaining access to expertise than big ones. “We don’t have the luxury of larger companies that can hire expertise if they need it”, says Dick Dell, executive director of the Advanced Vehicle Research Center (AVRC), a firm based in North

Carolina that develops alternative fuels and other advanced technologies for the automotive industry. Instead, “we look for other organisations to partner with, not just companies but also academic institutions”.

For example, the AVRC recently completed a design-and-build document with plans to construct a small portable hydrogen refuelling station, Mr Dell says. Funded by the US Department of Energy, AVRC brought together US-based Air Products in Pennsylvania, US-based Ford Motor Company and the North Carolina State University (NCSU) Solar Center. “In this case, the AVRC and NCSU Solar Center were paid researchers under the federal contract, and we gained a lot of knowledge that will be put to use in future projects”, Mr Dell says. Ford and Air Products donated their consulting time to the project, and “gained some positive public relations”, he says.

“Increasingly, companies are realising that while they need to try to attract talent to their own firm, that’s not always possible”, says Mr Hagel. And it may not even be advisable: with unexpected fluctuations in demand, shifting economic stability and ever-increasing market pressure from competitors, “there is an increasing premium on flexibility, being able to connect quickly to the resources that are most advantageous at that point in time. It’s hard to do that if all you’re relying on are the resources within your own enterprise”. In this way, partnering with outside firms not only provides access to expertise, but creates greater business agility as well. “The challenge is how to connect to those people and take advantage of the capabilities, intelligence and skills they offer.”


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Regional differences and similarities

A review of the survey results by region reveals differences and similarities in how geographically dispersed companies approach the establishment of business partnerships. Most notable among the similarities is that all regions place tremendous strategic importance on building relationships with customers. When asked with which entities their companies formed new or significantly enhanced business relationships over the past five years, “customers (for example, forming customer communities or direct-to-consumer channels)” was the top response in North America (61%) and Asia-Pacific (67%) and, at 60%, ranked only slightly behind “suppliers” (63%) in Europe. To exploit these business relationships, companies across the board will focus primarily on sales and distribution channels (46%), followed by marketing (34%) and research and development (R&D; 33%). The top goal, agree all companies, is to enhance customer centricity (41%).

The differences lay in how these companies are focusing their efforts to achieve a more customer-oriented business approach. In Europe and Asia-Pacific, respondents are more likely than their North American-based counterparts to report that their companies are changing their organisational structure (71% and 70%, respectively) to improve their most important business relationships. Although

this was also the top response among North American respondents, the response was much lower, at only 4�%, indicating that North American firms are undertaking a wider variety of approaches to strengthen their customer relationships, including elevating the role of the relationship manager (35%) and creating new distribution channels (33%). Meanwhile, European and Asia-Pacific firms are more likely to consider outsourcing non-core functions as a solution than companies in North America. However, this could merely indicate that North American firms have already outsourced many activities, compared with firms in other regions.

Another key difference across the regions is the approach companies take to sharing data and processes with business partners. In Asia-Pacific, a region that is already highly regarded for delivering quality customer service, respondents report a higher tendency to regard their relationships with third-party stakeholders as partnerships (67%, compared with 57% in Europe and 52% in North America) rather than transaction-based agreements. Asian and European firms are also more likely to share processes and data with partners (41% for Asia, 39% for Europe and 24% for North America) than other regions. Finally, when asked what respondents would emphasise in forming new relationships over the next five years, respondents in Asia-Pacific were more likely to cite visibility and transparency on data and processes (53%) than companies in Europe (38%) and North America (30%).

If the risks and rewards are shared among corporate partners, even competitors can sometimes work together to serve the customer. According to the survey, “collaboration” executives were more likely to partner with peers or competitors than were the “transaction” respondents. Co-operation with competitors is particularly common in the high-tech industries. UK-based Innovation Group has partnered directly with US-based IT giant, IBM, since 200� to provide software solutions to insurance carriers. The partnership has yielded more than US$2�0m in revenue for the participants.

In 2006 the two companies started working with other vendors to deliver customised solutions for insurers. “We believe the next step is composite business services”, Andrew Labrot, chief technology officer (CTO) of Innovation Group, says. “Our customers need business services that are choreographed to support business processes, such as issuing new policies.”

The partner network consists of IBM, Innovation Group and three other competing software companies, Kana, Chordiant and SEEC. Other vendors are called upon as needed. The partners evaluate customer needs and then provide solutions by building software applications in co-ordination with IBM. “No single vendor provides the needed depth in any given stage of the process, so we are assembling them according to each customer’s specific needs,” Mr Labrot adds. Innovation Group, a firm with US$220m in annual revenue, has enjoyed a seven-fold increase in operating profit between 2003 and 2007.

However deep the level of trust, companies will insist that their partners install strong security systems and processes to prevent information leaking out. K. Dinesh, a co-founder of India-based Infosys


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and head of its Quality, Information Systems and Communication Design Group, stresses the importance of security at his company which has US$4.2bn in annual sales: “We have a close relationship [with our partners], but each one of us has to protect our intellectual property”, he says. “It is very important and we honour that. One of the ways you build trust is by honouring the rights of each of the partners in their own territory, which includes the intellectual property of each of them.”


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Over the next five years, which of the following communications technologies will be most essential to support your most important business relationship? Select up to three.(%)

E-mail

Portals (supplier/customer)

Web conferencing

Telephone conferencing

Video conferencing

Instant messaging

Social networking sites

Wikis


Don’t know

63

40

36

35

31

21

12

8

2

2

One would be hard-pressed to find a company today that successfully partners with outside vendors without the aid of some kind of collaborative tool. Indeed, nearly �0% of survey respondents agree

that the adoption of new technologies has positively affected their most important business relationships. When it comes to creating stronger partnerships, technology is perhaps the greatest enabler.

This has certainly been the case at Locher Evers International, a Vancouver-based freight forwarding company. Locher Evers exports and imports goods to nearly every country across the globe, and has branch offices in London, Germany and South Korea. But its inward-facing systems made connecting with third parties a challenge. “In response to a customer inquiry”, says Peter

The task of technology: a common platform for people and systems


20

Broerken, director and chief financial officer (CFO) of the US$254m firm, “we would say, ‘Let me send an email or fax to my overseas agent and get back to you tomorrow’”. Because of time differences, it could take several days to find answers. Company officials knew there had to be a better way to get customer queries answered quickly.

In the past, Locher Evers managed its data through a private network that could only be seen by company employees. But in January 2008 the firm launched a new platform using extensible markup language (XML). That made it possible for Locher Evers and its partners to set basic standards and nomenclatures for data, allowing for secure data sharing with other shipping partners over the Web. “Every time there is a shipment milestone, we will send an XML file to our partner, and they will do something similar”, Mr Broerken says. Most importantly, the data are updated regularly and made accessible to customers through a Web portal. The customer response has been very positive, says Mr Broerken.

Getting business partners to change their business processes was not an easy task, Mr Broerken admits. In the future, when considering new partners, Locher Evers will require a certain level of technological sophistication, according to Mr Broerken. “Five years ago in some developing countries, we were just happy if they had reliable email”, he says. “Today they now have to have better data exchange capabilities.”

Locher Evers is not the only firm to recognise the value of the Internet in co-ordinating business operations and facilitating greater communication between business partners. When asked which IT changes their company has made to facilitate its most important business relationships, respondents cited a move to Web-based systems as their top response. Furthermore, 40% of surveyed executives believe that Web portals will be essential to their most important business relationships. Not surprisingly, email is expected to remain a critical communications tool for connecting with business partners over the next five years, according to 63% of respondents. Web conferencing (36%) and telephone conferencing (35%) are also expected to be key communication methods.

“Clearly, communications technologies have been the enabler of the business process outsourcing on a global scale”, asserts Scott McKay, senior vice-president of operations and quality, and CTO of Genworth Financial, a US-based financial services company with annual revenue over US$10bn. “Better communications technologies help deepen relationships and make people more effective. On an infrastructure level, as processes and tools become easier to share and integrate, the speed at which we can improve and build global processes is getting faster.”

How fast is fast? In the rapidly evolving field of Internet television and video publishing, US-based Brightcove has created a network of content creators and publishers to deliver plug-and-play solutions to meet the demands of specific online audiences, says Eric Elia, vice-president for creative services. To do this, Brightcove has developed tightly-woven relationships with its own business partners, such as Visible Measures, a US-based provider of Internet video usage analytics, and DoubleClick, a US-based digital marketing solutions provider. “If a customer wants to add analytics tools to Brightcove, or make use of DoubleClick’s ad serving system, it takes us just a few minutes to have that up and running”, Mr Elia says.

Unfortunately, few companies have reached this point. Although the survey’s findings indicate that companies are investing in technology to drive more sophisticated and intimate partnerships, the relevant technology is rarely shared across corporate boundaries. For example, when asked how application ownership has been handled with respect to their firm’s most important business


2�

relationships, 61% of respondents said “we each use our own applications”. Only 17% said they use their partner’s applications. Similarly, only �8% of respondents share business processes.

This is particularly interesting considering the importance survey respondents place on transparency. When asked which areas they would place the greatest emphasis on when forming new relationships over the next five years, “visibility and transparency of data and processes” was surpassed only by “personal relationships and expectation setting” as the most critical effort. It seems clear that companies recognise the need to be more open with their partners, but have not yet taken action.

The challenge is to share enough to optimise collaboration without undermining privacy, security and competitive intelligence, and this is where technology can help. To address this issue, Qualcomm, a US-based manufacturer of wireless chipsets for mobile phones and provider of wireless data services, has created an open yet secure environment to help developers and publishers of content more easily build applications for use on a range of mobile devices. The development programme stands at the centre of a network of thousands of developers, from leading content publisher/developers such as Disney, Major League Baseball and Electronic Arts to small companies and individual developers.

The company provides developers with a software platform that includes the blueprint of the microchip technology that Qualcomm sells to 4� different mobile phone manufacturers, including US-based

In your company, which IT capabilities do you think need to be enhanced in order to improve your most important business relationship? Select all that apply.(%)

Customer relationship management (CRM)

Business process management (BPM)

Business intelligence/reporting/predictive analytics

Enterprise resource planning (ERP)

Supply chain management (SCM)

Supplier relationship management (SRM)

Workflow and/or document/content management

IT security

Web portal technology

Service-oriented architecture (SOA)

Systems integration

Database/storage

Product lifecycle management (PLM)

Network infrastructure

Server technology

Desktop hardware

Desktop support/help desk

47

40

32

31

31

27

25

25

22

22

21

20

18

17

11

7

6


22

Sizing up collaboration: the approach of small to medium-sized enterprises

Small to medium-sized enterprises (SMEs), like their large enterprise counterparts, are increasingly adopting collaborative relationships with business partners. While larger businesses have worked collaboratively with partners for many years, smaller companies, based on the survey findings, are increasingly forming collaborative relationships in a network of large and small companies. Here are some key approaches of SMEs as they join these partnerships:

l Focus of collaboration. Smaller companies are more focused on

product and service differentiation (42%) than big companies (30%),

whereas large firms are slightly more focused on customer centricity

(44%) than smaller firms (37%).

l Nature of collaboration. Smaller companies are more likely to share ownership of business processes with partners. By contrast, large companies tend to take a more formal approach to managing relationships with business partners, holding regularly scheduled meetings and more frequently turning to service level agreements than their smaller counterparts. l Adoption of new technology. Small companies see greater opportunities arising from the adoption of new technologies: �6% see it as beneficial or very beneficial, compared with 63% for large companies. l Strategic change for improving collaboration. Big and small companies are focusing primarily on changes to their organisational structure in order to improve relations with their most important stakeholders. Smaller firms are more likely to seek new distribution channels, whereas large companies are more likely to outsource non-core functions and elevate the role of the relationship manager.

Motorola and South Korea-based Samsung. Through the software, content developers have access only to their specific initiative, so that mobile phone manufacturers’ competitive advantages are protected. Qualcomm serves as a gateway for these developers to submit applications to work within telephone networks, such as US-based Verizon or US-based Alltel, and pays each developer 80% of the revenue it collects from network operators.

In the five years since the platform was launched, Qualcomm has paid developers over US$1bn, and now supports approximately 80m transactions per month. Benefits are seen by all parties involved: Qualcomm earns revenue by distributing developers’ content and applications, developers benefit from Qualcomm’s extensive distribution network, and telephony operators satisfy consumer demand with the applications and content they receive through the network.

Unfortunately for most companies, there is still considerable work to be done with regard to internal IT systems before they can begin to think about connecting with external partners. When asked which capabilities need the greatest enhancement to improve firms’ most important business relationships, customer relationship management ranked at the top of the list, indicating a clearly understood lack of sophistication when it comes to sharing, interpreting and acting on customer information across the corporate landscape and between business partners. Business process management and business intelligence also rank high, further underscoring the need for companies to think more holistically about sharing data and processes with third-party vendors.

At the other end of the spectrum, when asked which communications technologies will be most essential to support companies’ most important business relationships in the future, respondents were least likely to cite instant messaging (21%), social networks (12%) and wikis (8%), indicating that most companies have yet to understand the value of these interactive tools. Although Mr Hagel of the Deloitte LLP Center for Edge Innovation agrees that adoption of these technologies is still at a very early stage, he believes that many of these tools are particularly appropriate for the challenges of supporting and enhancing collaboration, and will be formally adopted in the future. “One of the key values of business networks is not just co-ordinating


2�

routine activity”, he says, “it is connecting the right people to each other—across not just distributed geographies but also distributed entities—to address the problem that needs to be solved”.

Some companies are beginning to see the light. In July 2008, as a result of a meeting between Sun Microsystems executives—including Sun CEO Jonathan Schwartz—and roughly ��0 of Sun’s partners from 2� countries, the computer manufacturing company launched an invitation-only social networking platform called ExecConnect. The forum, an extension of the company’s Partner Advantage Program for third-party software vendors, provides a secure venue where Sun’s business partners can meet to discuss new ideas and opportunities to work with one another.

But technology alone cannot strengthen corporate partnerships, bring companies closer to their customers, or re-engineer business processes. Ultimately, IT systems will fail unless they are fully supported and adopted by employees and cross-functional teams. “There will never be a computer system in the world that comes out with what the next innovative product, process or strategy needs to be”, says Mr van der Hoek of Coca-Cola. “It will always be a human being.”


24

Conclusion

The collaboration advantage: Customer-focused partnerships in a global market

Economist Intelligence Unit 2008

I t seems clear from the survey data that companies want to improve their strategic business partnerships. When asked to reflect on the lessons learned from past business relationships, two-

thirds of survey respondents say that in future they will place greater emphasis on developing personal relationships and setting expectations with business partners. Strengthening these ties is a much higher priority than setting service level agreements (36%) or managing intellectual property rights (23%), indicating that companies are becoming more willing to be open and collaborative with other firms.

The aim, however, is to create a collaborative network that not only includes business partners but end-consumers as well. In doing so, companies can gain insights from all points along the value chain, and think more creatively about how to improve products, make processes more efficient, and conceive innovative new business approaches to deliver greater value to end-consumers.

Many forward-thinking companies, such as Disney, Apple, Nike, P&G and others, have seen great competitive success by adopting this mode of thinking. But for most companies, this goal is still beyond the horizon. When asked what main objectives their companies will seek in improving business relationships over the next five years, “enhanced customer centricity” ranked highest, at 41%, followed by product and service differentiation (35%) and improved speed to market (34%). Again, the thinking is on the right track, but there is much work to be done before companies can reap the benefits of a truly integrated business network.

Companies of all sizes around the world looking to re-engineer their relationships with suppliers, customers, alliance groups, competitors and other third-party stakeholders should consider the following action points:

l Look beyond cost control. For critical business relationships, companies must think of ways to enhance revenue and foster innovation with their partners while simultaneously controlling costs. By sharing the rewards and the risks of collaboration, business relationships are likely to last longer and be more valuable to both sides.


2�

l Find ways to build trust. As the adage goes, trust takes a lifetime to build and just one moment to destroy. True partnership entails a high degree of visibility and transparency between companies. To build confidence more quickly, partners should create a plan to reveal small amounts of key information, progressively offering more and more insights to the point where each side fully understands the others’ strengths and weaknesses.

l Build a skills network. Select partners that can provide expertise in areas that are lacking at your company, or significantly enhance existing capabilities. At the same time, look for partners that need your know-how, and encourage employees to assist partners in achieving mutually shared business goals. Doing this will reinforce mutual dependency, as well as enable corporate partners to act smarter than if they were on their own.

l Share technology. Use technology to connect people and systems to share information quickly and securely in a more collaborative business environment. The more that technology facilitates communication between partners, strengthening personal relationships and trust, the more valuable it will become for business networks in delivering superior products and services to customers.

l Invest and invite. A collaborative network is a long-term process, built on investing in personal relationships, trust and technology. The best networks are the ones that continually grow by attracting additional business partners that have access to more markets.

26

Economist Intelligence Unit Limited 2008AppendixSurvey results


Appendix: Survey results

In the past five years, with which entities has your company formed new or significantly enhanced business relationships(either as a paid service or as a strategic collaboration)? Select all that apply. (% of respondents)

Customers (eg, forming customer communities or direct-to-consumer channels)

Suppliers

Consultants and specialists

Logistics and distribution partners

Individual industry competitors/ peers

Educational institutions

Industry consortia

Government agencies (eg, trade development agencies)

Design partners


Don’t know

62

55

40

31

28

27

24

21

16

2

1

In March 2008, the Economist Intelligence Unit conducted a global online survey of ��6 senior executives from various industries. Please note that not all answers add up to �00% because of rounding or because respondents were able to provide multiple answers to some questions.

Economist Intelligence Unit Limited 2008 AppendixSurvey results


2�

Over the next five years, what are the main objectives your company seeks in improving business relationships? Select up to three. (%)

Enhanced customer centricity

Product and/or service differentiation

Improved speed-to-market

Expansion into new geographies

Lower production costs

Enhanced market visibility/reputation

Higher sales volume

Expansion into new distribution channels

Lower risk profile


Don’t know

41

35

34

31

31

28

27

25

12

1

2

In which of the following functions will your company focus on leveraging business relationships over the next five years? Select up to three.(%)

Sales & distribution channels

Marketing

R&D

Customer service

Manufacturing

IT

Finance

Human resources

Risk management

Logistics

Security

Legal


Don’t know

46

34

33

31

22

19

16

15

15

14

6

3

2

1

28



What strategic changes has your company implemented to improve the way that it manages its most important business relationships? Select all that apply.(%)

Organisation structure changes

Outsourcing non-core functions

Elevating the role of the relationship manager

Realignment of financial incentives

New distribution channels

Acquisitions

Alternative financing

Divestures


Don’t know/Not applicable

62

39

36

33

33

27

16

12

2

4

What best describes how your company prepares to embark on new business relationships? (%)

We adapt to each occasion when the need arises.

We typically develop ad hoc joint committees to support the relationship.

We have a standing organisation prepared to engage with potential partners and manage the relationship as opportunities emerge.

56

21

22

5 In a very damaging way4321 In a very beneficial way

Changing customer demands

Shortage of qualified staff

Commoditisation of products and services

Rapid introduction of new products and services

Growth in new channels/mediums for revenue

Growth of non-traditional competition

Increased regulatory restrictions

Decreased regulatory restrictions

Increased speed-to-market

Adoption of new technologies

Influence of offshoring or outsourcing

How have the following trends affected your company’s most important business relationships?Rate on a scale of 1 to 5, where 1=In a very beneficial way and 5=In a very damaging way. (% respondents)

14 43 27 13 2

12 31 46 6

20 46 24 5

37 39 14 1

43 38 8 1

20 47 26 2

17 40 33 6

23 64 7 1

43 32 12 2

20 22 8

31 46 9 2

5

5

9

11

5

3

5

11

49

12



29

In five years’ time, what do you think will be the most challenging aspects of developing new business relationships?Select up to three(%)








Security issues





Don’t know

41

39

26

22

20

20

19

19

18

18

5

2

3

In the last five years, what have been the most challenging aspects of developing new business relationships? Select up to three. (%)









Security issues




Don’t know

50

38

36

26

24

18

18

13

12

12

3

2

2

�0



What incentives, beyond payment and contract renewal, does your company offer to ensure effective performance within your most important business relationship? Select all that apply. (%)

We structure the agreement so that our partner shares significantly in the rewards of a successful engagement

We participate in joint process improvement efforts with our partner

We structure the agreement so that our partner shares significantly in the risks

We perform reference and marketing activities on behalf of our key partner to help them grow

We levy penalties for failure to meet service levels


Don’t know

50

50

40

27

20

2

5

Which description better illustrates your most important business relationship? (%)

Our partner works in close contact with us not only as a specific need arises, but in a strategic collaboration to assess potential opportunities.

Our partner is more of a contractor who can perform work for us according to specifications.59

41

Does the nature of your most important business relationship allow your partner to interact with your company’s end customers? (%)

Our partner has no access to our end customers

Our partner has limited visibility to our end customers

We share business processes and information with our partner to better serve our customers

We allow our partner to directly interact with our customers (eg, bring its innovations to customers)

21

30

35

14



��

In your company, which IT capabilities do you think need to be enhanced in order to improve your most important business relationship? Select all that apply.(%)

Customer relationship management (CRM)

Business process management (BPM)

Business intelligence/reporting/predictive analytics

Enterprise resource planning (ERP)

Supply chain management (SCM)

Supplier relationship management (SRM)

Workflow and/or document/content management

IT security

Web portal technology

Service-oriented architecture (SOA)

Systems integration

Database/storage

Product lifecycle management (PLM)

Network infrastructure

Server technology

Desktop hardware

Desktop support/help desk

47

40

32

31

31

27

25

25

22

22

21

20

18

17

11

7

6

Which factors will be most essential in establishing trust in your most important business relationship over the next five years? Select up to three. (%)

Personal relationships

Understanding each other’s business

Flexibility and adaptability

Shared financial goals and rewards

Frequent communications

Contract language

Cultural similarities

Shared language

Common partners

64

49

48

47

27

17

15

6

3

What best describes how your company typically addresses performance issues in your most important business relationship?(%)

Regularly scheduled meetings

Ad hoc meetings according to need

Informal partner discussions

Appeal to service level agreements (SLAs)

Quarterly or annual supplier reviews

37

25

21

10

6

#

#

#

#

�2



Over the next five years, which of the following communications technologies will be most essential to support your most important business relationship? Select up to three.(%)

E-mail

Portals (supplier/customer)

Web conferencing

Telephone conferencing

Video conferencing

Instant messaging

Social networking sites

Wikis


Don’t know

63

40

36

35

31

21

12

8

2

2

What changes has your company made to its core technology environment to facilitate its most important business relationship? Select all that apply.(%)

Move to web-based systems

Network upgrade

Security upgrade

Storage upgrade

Establishment of common data model

Adoption of open standards

Architectural reorientation/SOA

Major platform change (eg, from .NET to Java)


Don’t know

38

34

32

24

24

22

20

16

3

12



��

On average, how successful have your company’s business relationships been in achieving the projected results?(%)

Very successful

Moderately successful

Satisfactory

Moderately unsuccessful

Very unsuccessful

16

51

26

6

1

How would you rate your company’s ability to form effective business relationships, compared to that of your competitors?(%)

Much better

Better

About the same

Worse

Much worse

12

45

35

7

1

#

#

#

#

How has IT security been handled in your most important business relationship?(%)

We each manage our own IT security.

We are responsible for IT security.

Our partner is responsible for IT security.

51

38

11

How has application ownership been handled in your most important business relationship?(%)

We each use our own applications.

Our partner uses our applications.

We use our partner’s applications.

61

22

17

How has process ownership been handled in your most important business relationship?(%)

We own the relevant processes.

We share ownership or do not strictly demark processes.

Our partner owns the relevant processes.

51

38

11

�4



In which region are you personally located? (%)

Asia-Pacific

North America

Western Europe

Eastern Europe

Middle East and Africa

Latin America

32

28

27

6

3

3

Where is your company’s headquarters located? (%)

North America

Western Europe

Asia-Pacific

Eastern Europe


Latin America

36

33

22

4

3

2

#

#

#

Reflecting on the lessons of your most important business relationship, which of the following areas would you place greater emphasis on in forming new relationships over the next five years? Select up to three. (%)

Personal relationships and expectation setting

Visibility and transparency on data and processes

Shared financial risks and distribution of rewards (eg, profit)

Service level agreements

Communications technology

Management of intellectual property rights

Open and secure IT infrastructure

Shared market risk and fair distribution of non-financial rewards (eg, access to new markets and partners)

66

40

37

36

23

23

18

15



��

What are your organisation's global annual revenues in US dollars? (%)

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more

44

13

20

6

17

#

#

#

#

Which of the following best describes your title? (%)

Board member

CEO/President/Managing director

CFO/Treasurer/Comptroller

CIO/Technology director

Other C-level executive, please specify

10

33

27

14

15

#

#

#

#

Where are your key partners’ operations located?(%)

North America

Asia-Pacific

Western Europe

Eastern Europe


Latin America

47

47

46

13

8

7

#

#

#

What is your primary industry? (%)

Manufacturing

Financial services

Professional services

IT and technology

Healthcare, pharmaceuticals and biotechnology

Consumer goods

Energy and natural resources

Chemicals

Construction and real estate

Entertainment, media and publishing

Transportation, travel and tourism

Government/Public sector

Telecommunications

Automotive

Retailing

Logistics and distribution

Agriculture and agribusiness

Education

Aerospace/Defence

14

12

11

10

9

8

4

4

4

4

3

3

3

3

3

2

2

2

1

�6



What are your main functional roles? Select up to three. (%)

General management

Finance

Strategy and business development

IT

Marketing and sales

Risk

Operations and production

Customer service

R&D

Human resources

Information and research

Supply-chain management

Legal

Procurement

Other

45

43

36

20

16

12

10

10

8

7

7

4

4

3

2

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsor of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in the white paper.

Cover image - © Photodisc/Getty Images

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