Diversity is an Opportunity to Create Value
Innovation takes many forms. We often focus on innovation as technological breakthroughs and indeed those are important to fuel new revenue streams and corporate growth. But there are other forms of innovation which can be just as powerful and just as disruptive to the status quo in creating strategic competitive advantage. Innovation in operations, in business processes and in business models can have transformational benefit for the companies that successfully implement these new ways of doing business.
Partnerships and alliances are among those transformational business model innovations. Partnerships are hardly new, but there are always interesting ways in which to combine two or more entities to spark innovation and new value. Think about that peanut butter and chocolate commercial. Innovation often springs up when you have differences in thinking, differences in business processes, differences in technology and difference in culture. Partnerships and alliances are a natural breeding ground for innovation in this way.
Differences often result in conflict and tension.
Yet, it is a mistake to assume that all conflict is bad. It is an insightful alliance manager that understands that diversity is an opportunity to create value. When members of an alliance are invited to contribute their knowledge, their perspectives, their unique expertise, some amazing innovation can happen through joint problem solving.
The Starfish Alliance is an example of business model and business process innovation. Starfish is a consortium of five logistics suppliers and Rolls Royce. Rolls Royce, jet engine division, took a radical approach to optimizing their global supply chain. They sought to partner. They invited their logistics suppliers to collaborate to increase value for the customer and to increase the value in their business relationship with not only Rolls but with each other. This was radical in that these suppliers had been locked into the traditional vendor/supplier relationship, where by the vendor relentlessly pressures suppliers for greater price concessions. They had also become locked into very hostile competition with each other, each hoping to gain a bigger piece of the logistics pie. But this model had become a game of inches. Pricing concessions could only yield incremental cost savings of a few percent a year.
What was needed was a different way of working together that would shift the focus of optimizing each silo of operation to optimizing the end result.
The Starfish Alliance was met with distrust at first. A key operating principle for the alliance was that there was no limit to profit. In other words, Rolls was not in this to transfer margin from their partners’ balance sheet to theirs but to create greater profitability for everyone, even the customer. They began to see results in their collaboration by optimizing and automating their end to end business processes. Customer delivery rose to 99% on time. Costs were reduced 20% across the operations. The value of the alliance became a competitive differentiator and other customers began to take interest in forming similar operating alliances.
By the way, this was an example of a digital transformation application, even though we didn’t call it that in those days. These six companies linked their operational IT systems together, so that they had a real-time, end-to-end view of materials moving through the logistic supply chain.
Here are some other ways collaborative innovation creates value through alliance relationships:
Solutions Integration is clearly the predominant source of innovation in the technology sector. Customers of technology tend to buy services, hardware, software, etc. from multiple vendors and expect that they will all work together. To the extent that technology vendors cooperate in ensuring their products and services work together, they reduce risk and cost to the customer and increase their attractiveness as a complete solution.
Creating new products and services is also a source of innovative capacity and often requires access to external expertise that other partners may have, providing fertile ground for innovation.
Accelerating Technology Adoption is an important aim for new emerging technologies. New technologies often get stuck in ‘chasm’ and having the right partner ecosystem promoting a new technology can support the crossing by providing services and additional value that mainstream buyers demand.
New business models are a disruptive force as traditional vendors and their resellers are adapting to the convergence of Social, Mobile, Analytics, AI and Cloud (SMAAC) technologies. In particular, the migration from capital purchases to the services model of the cloud is creating new alignments in the partner ecosystem and new go-to-market models.
The very premise of alliances is to create new value that could not be achieved independently. In this sense alliances are a powerful incubator for collaborative innovation. How are you working with partners to innovate and create new revenue streams, competitive differentiation, and strategic advantage?