IDEA
IN BRIEF
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Are you promoting cross-unit
collaboration for collaboration’s
sake? If so, you may be putting your
company at risk. Collaboration can
deliver tremendous benefits (innova-
tive offerings, new sales). But it can
also backfire if its costs (including
delays stemming from turf battles)
prove larger than you expected.
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To distinguish good collaboration
from bad, estimate three factors:
Return.“What cash flow would
this collaboration generate if executed effectively?”
Opportunity cost. “What cash
flow would we pass up by investing
in this project instead of a noncollaborative one?”
Collaboration costs. “What cash
flow would we lose owing to problems associated with cross-unit
work?”
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Would the return exceed the
combined opportunity and collaboration costs? Initiate a collaboration
project only if the answer is yes.
performance. I’ve seen it happen many
times during my 15 years of research
in this area. In one instance, Martine
Haas, of Wharton, and I studied more
than 100 experienced sales teams at a
large information technology consulting firm. Facing fierce competition from
such rivals as IBM and Accenture for
contracts that might be worth $50 million or more, teams putting together
sales proposals would often seek advice
from other teams with expertise in, say,
a technology being implemented by the
prospective client. Our research yielded
a surprising conclusion about this seemingly sensible practice: The greater the
collaboration (measured by hours of
help a team received), the worse the
result (measured by success in winning
contracts). We ultimately determined
that experienced teams typically didn’t
learn as much from their peers as they
thought they did. And whatever marginal knowledge they did gain was often outweighed by the time taken away
from their work on the proposal.
The problem here wasn’t collaboration per se; our statistical analysis found
that novice teams at the firm actually
benefited from exchanging ideas with
their peers. Rather, the problem was
determining when it makes sense and,
crucially, when it doesn’t. Too often a business leader asks,
How can we get people to collaborate more? That’s the wrong
question. It should be, Will collaboration on this project create
or destroy value? In fact, to collaborate well is to know when
not to do it.
This article offers a simple calculus for differentiating between “good” and “bad” collaboration using the concept of
a collaboration premium. My aim is to ensure that groups
in your organization are encouraged to work together only
when doing so will produce better results than if they worked
independently.
How Collaboration Can Go Wrong
In 1996 the British government warned that so-called mad cow
disease could be transferred to humans through the consumption of beef. The ensuing panic and disastrous impact on the
worldwide beef industry over the next few years drove food
companies of all kinds to think about their own vulnerability
to unforeseen risks.
The Norwegian risk-management services firm Det Norske
Veritas, or DNV, seemed well positioned to take advantage
of the business opportunity this represented by helping food companies improve food safety. Founded in 1864 to
verify the safety of ships, DNV had expanded over the years to provide an array of risk-management services through
some 300 offices in 100 countries.
In the fall of 2002 DNV began to
develop a service that would combine
the expertise, resources, and customer
bases of two of the firm’s business units:
standards certification and risk-management consulting. The certification
business had recently created a practice
that inspected large food company production chains. The consulting business
had also targeted the food industry as
a growth area, with the aim of helping
companies reduce risks in their supply
chains and production processes.
Initial projections for a joint effort
were promising: If the two businesses
collaborated, cross-marketing their
services to customers, they could realize 200% growth from 2004 to 2008, as
opposed to 50% if they operated separately. The net cash flow projected for
2004 through 2008 from the joint effort
was $40 million. (This and other DNV
financial figures are altered here for reasons of confidentiality.)
The initiative was launched in 2003
and run by a cross-unit team charged with cross-selling the
two types of services and developing new client relationships
with food companies. But the team had trouble capitalizing
on what looked like a golden opportunity. Individual business
unit revenue from areas where the existing businesses had
been strong – Norway for consulting services, for example,
and Italy for certification – continued to grow, exceeding projections in 2004. But the two units did little cross-pollination
in those markets. Furthermore, the team couldn’t get much
traction in the United Kingdom and other targeted markets,
which was particularly disappointing given that the certification group had established good relations with UK food
regulators in the years following the outbreak of mad cow
disease.
As new business failed to materialize, the consulting group,
which was under pressure from headquarters to improve its
overall results in the near term, began shifting its focus from
the food industry to other sectors it had earlier targeted for
growth, weakening the joint effort. The certification group
continued to make the food industry a priority, but with the
two groups’ combined food industry revenue lagging behind
