Collaborating With the Right Partners

“Not invented here” has become an outdated mind-set in the modern corporation, as shrinking product life cycles and rapid technological evolution have opened corporate attitudes toward external research and development partners. Yet three business school professors conclude that companies should be careful when selecting the partners with whom they collaborate.

Collaborating with suppliers provides the biggest boost to product innovation, found C. Annique Un and Alvaro Cuervo-Cazurra, assistant professors of the University of South Carolina’s Moore School of Business, and Kazuhiro Asakawa, professor at Keio University’s Graduate School of Business Administration. Surprisingly, collaborating with customers didn’t seem to have an effect on product innovation. What’s more, working with competitors could actually slow innovation processes. The authors’ findings are detailed in “R&D Collaborations and Product Innovation,” a forthcoming paper in the Journal of Product Innovation Management. The paper looks at suppliers, universities, customers and competitors as four different types of potential collaborators. “If you’re [a manager] thinking about doing all these collaborations, given constraints on time, money and resources, which one is better? How do you choose? That was one of the motivations behind the paper,” explains Un.

The authors accessed a survey of manufacturing companies operating in Spain, conducted by the SEPI Foundation. In all, 781 companies from the years 1998 to 2002 were included. During that time period, just over one-quarter of all companies reported at least one product innovation, and about one-third of the companies reported at least one R&D collaboration. Collaborations with suppliers and universities were most popular, with about one-quarter of the companies reporting each type, while only 3% of companies collaborated with competitors.

The authors theorize that successful product innovation partnerships depend on two dimensions of knowledge brought to the table by collaborators: the breadth of knowledge and the ease of access to that knowledge. Companies seek to partner for R&D because they need a key piece of knowledge, so a broad knowledge base should provide a wealth of opportunities to combine ideas from different disciplines and diverse perspectives. Thus, universities and customers should make good partners, because their broad knowledge bases should be just the ticket to spark innovation.

On the other hand, that knowledge needs to be accessible in order for the research to bear fruit. So suppliers and universities, the authors hypothesized, should make for better partners — the former because the companies’ established product development relationship should make suppliers more amenable to sharing knowledge, and the latter because of the openness of their research labs.

It turns out that ease of knowledge access appears to be a stronger driver of success for R&D collaboration than breadth of knowledge. Suppliers, despite their narrow knowledge bases, had the strongest impact on product innovations, because of the ease of access to that knowledge. Think of automobile companies and their collaborations with suppliers for everything from seats to brake systems. Each supplier may know little outside of its product niches, but if a company works with a supplier in its area of expertise, the impact on product innovation could be significant.

Next were universities, which have wide breadths of knowledge and high ease of knowledge access. “We were surprised that universities did not come out first, ahead of suppliers,” says Un. “Universities produce all kinds of knowledge, and they make it available for free.” Yet those collaborations did not have as great an impact on product innovation as partnerships with suppliers did. “It’s still a positive to collaborate with universities,” says Un. “But it’s better to collaborate with suppliers because they know what you’re doing, and you already have mechanisms to transfer knowledge with your suppliers.”

By contrast, collaborations with customers, who represent a wide breadth of knowledge but low ease of knowledge access, had no influence on innovation in this study. “Even though customers potentially have lots of knowledge that could be useful for product innovation,” explains Un, “it’s very hard to get knowledge from them. If you can establish mechanisms to draw out their knowledge and ideas — what they want — that could be very useful for product innovation.” But the research findings suggest many companies aren’t doing a good job putting those mechanisms in place.

Competitors, who offer narrow knowledge bases and low access to that knowledge, had a negative impact on product innovation. That’s not a huge leap, of course; claims of “coopetition” notwithstanding, competitors seem unlikely partners for collaboration when it comes to product innovation. “One of the requirements [for R&D collaboration] is that your partner has to give you the knowledge that you lack,” explains Un. “Since competitors are serving similar customers, even though their production processes and the way they serve customers may be different, ultimately the kinds of products they make are not so different. On top of that, it’s very difficult to get knowledge out of your competitors; they will do things to block the sharing of that knowledge. So first of all the knowledge they could provide is not that useful. And second, it’s difficult to get it.”

To be sure, Un says, “Some things are OK to do with competitors,” such as partnering to enter new markets or to establish technology standards. “But with product innovation you have to be careful.”

In general, as the paper explains, “To achieve product innovation with the help of R&D collaborations, it appears that the collaboration must first have a mechanism in place to facilitate the transfer of knowledge.” This would hold true regardless of whom the company selects as a partner. “Once these are in place, it is better if the partner has a relatively narrow knowledge base.”

For more information, download a version of the paper from http://ssrn.com/abstract=1139170 or contact Un at annique_un@moore.sc.edu.

— Larry Yu