Creativity in Organizations: Look at Your Network

Here is my recent video interview with Canadian Globe and Mail on creativity and networks in organizations

Philips' Alliances Will Save Your Health (and Money)

We all know that alliances with customers, competitors, and suppliers are important to any company’s ability to compete. As I write in my latest post for Harvard Business Review, that ability is compromised by the way we manage those relationships: all too often, each alliance is “owned” by one team or business unit. Thus, companies often miss out on opportunities for innovation that would result from transferring ideas and resources from small silos to other aspects of the business.

I set out in my book, Network Advantage: How to Unlock Value from Your Alliances and Partnerships, that a more holistic approach to managing alliances allows companies to create innovative new lines of business. A recent collaboration between customer relationship management and analytics company Salesforce.com and Dutch electronics giant Philips provides a case in point.

The collaboration between two companies began as a simple buyer-supplier deal: Philips used Salesforce software to enhance its customer relationships. But somewhere along the line, executives in these two companies started asking: if Salesforce knows how to manage CRM data, can it also manage the clinical data from some 190 million medical patients that are treated each year with Philips-made equipment?

The two partners have decided to build a platform to connect healthcare providers, insurance companies, and patients to deliver clinical monitoring solutions. The Philips Digital Healthsuite Platform, as it is called, will collect and analyze data drawn from medical devices to enhance clinical decision making by professionals and allow patients to take a more active role in managing their personal health.

As a first move, the partners have created two applications — “eCareCompanion” and “eCareCoordinator.” The eCareCompanion is installed on a patient’s smartphone (or tablet) and connects to their health monitoring equipment, such as weight scales, pill dispenser units, blood oxygen measurement devices, and thermometers. Imagine John, a patient with obstructive pulmonary disease, often caused by smoking. John lives at home. To monitor his condition, John’s weight, blood oxygen, and body temperature data are constantly uploaded to the platform. The eCareCoordinator then analyzes the data feed from the devices worn by the patients. If the data pattern from a particular patient becomes worrisome, the eCareCoordinator can inform a nurse, relative, or doctor.

How can Philips and Salesforce persuade hospitals to start using this platform? How can the hospitals be sure the system is reliable and can lead to tangible cost savings? This is where an alliance between Philips and Radboud University Medical Center in the Netherlands comes into play. The two partners work very closely to develop and test new equipment, including the wearable devices that can collect patent data for the Digital Healthsuite Platform. The use of these devices on Radboud’s patients helps Philips develop a business case for using them in other hospitals. Furthermore, in the process of building the wearable devices, developing the apps, and analyzing patient data, Philips, Salesforce.com, and Radboud develop valuable know-how to share with future partners who want to build their own apps or devices.

This innovation was made possible by the way Philips manages its alliances. Philips has created an Alliance Management office, made up of a small team of professionals who help Philips executives run individual alliances. The team helped negotiate the contracts with Salesforce and with Radboud Medical Center, obtained agreement on the key performance indicators, and developed tools to evaluate the partners’ perspectives on the evolution of the alliance. They also manage regular meetings in which the Philips executives in charge of the Salesforce.com alliance can learn about what is going on in the alliance with Radboud and vice versa. This helps build multi-billion market opportunities across the three partnerships.

There are two lessons here for your company. First, get more out of your alliances as drivers by thinking of them as a network. And second, build a team inside your company to manage this network, especially where knowledge and resources overlap. There is huge potential in collaborating with customers, suppliers, or even competitors.

Collaborate to Innovate: Learning to Unlock Value from Your Alliances and Partnerships

How can you achieve competitive advantage using your alliances and partnerships?

What is "Network Advantage" and how can your company benefit from its collaborations with customers, suppliers and competitors?

How do giants like Philips and Samsung achieve profitable growth using their alliances?

I recently gave a 7 min TEDx-style talk for INSEAD Alumni reunion to answer these questions.

Yves Carcelle--the former CEO of Louis Vuitton-- Has Died

I recently wrote a blog post and posted a video of my interview with Yves Carcelle, the former Chairman and CEO of Louis Vuitton. We discussed the talent strategy of LVMH, its foreign expansion and the experiences with top designers such as Marc Jacobs. Yves and I were planning to meet for a follow up in July.

Unfortunately, this was the last interview he gave.

Yves Carcelle passed away on Sunday August 31, 2014.

I knew Yves only briefly, but I was really surprised by his eyes. They were curious, interested and full of wisdom. These were not the eyes of a person in the last stages of battling with cancer. These were the eyes of a young man who was planning to go to the Middle East to prospect new markets for LVMH.

After the interview, Yves offered new ideas for INSEAD's development. He wanted to continue involvement with INSEAD's community.

INSEAD family just lost a great friend.

Our thoughts and prayers are with his family.

When to Partner and When to Acquire: Louis Vuitton Style

A few weeks ago, I was fortunate to sit down with Yves Carcelle, a former CEO of Louis Vuitton. He is a humble man with penetrating brown eyes. An INSEAD MBA, he is credited with transforming Louis Vuitton (LV) from an old trunk maker into a luxury powerhouse throughout his 23- year long tenure as CEO. Now he is a self-declared “fixer” for the top management team and Vice President of the LVMH Foundation. His own modest handyman-like image is in stark contrast to the venerable leader he is considered both inside and outside of LVMH.

When he became CEO in the early nineties, he knew that LV had grown very quickly across the world without having all the management resources it needed to maintain global leadership positions. This meant that LV had to form alliances with distributors in most of the countries it operated in. These distributors played an active role in the company’s business operations.

Yet, 100% reliance on global business partners was not Carcelle’s philosophy. One of his earliest initiatives at LV was to take control of 100 percent of the distribution of LV’s products in almost all geographies. “With 100 percent distribution, you can have a good database…every morning you see the sales product-by-product, store-by-store, clientele-by-clientele all over the world,” he told me in a recent interview.

Partnerships and alliances are valuable drivers of competitive advantage, but if everyone in your industry relies on partnerships, there might be opportunities for achieving competitive advantage in a different way, i.e. when you integrate everything under one roof.  Carcelle was willing to go against the grain, and now he remains surprised that no other luxury brand considered such a move. Even now most of LV’s competitors have a lot of distribution partnerships worldwide.

But why did LV decide to go against the industry’s majority opinion? During the 1990s, business revolved around the concept of outsourcing and many luxury goods companies moved many of their operations overseas. Carcelle argues that LV’s key source of competitive advantage was its know-how of product making. Success doesn’t always come from “manufacturing everything yourself, but from understanding and controlling the know-how and having your experts in-house,” he explains.

Does vertical integration always make sense?

Over time, LV bought out all of its partners, but there was one exception. “The only partners I decided to keep were our partners in the Middle East.  This was not only because their values were the same as ours. Friendship and value-sharing is not enough. [A big reason for keeping them was that] the Middle East is complicated, legally and culturally,” he said.

As I explain in the new book Network Advantage: How to Unlock Value From Your Alliances and Partnerships, LV decided to stick with a Middle Eastern partner - Chalhoub Group. As Yves Carcelle commented, “Decision-makers [in the Middle East] speak Arabic and I decided it was important for us to continue to work with partners that opened doors, be our advisers and we were the first one to organise a joint venture for the whole Middle East market”. However, to still ensure as much consistency across regions as possible, LV decided to work with Chalhoub Group across several Middle Eastern markets, and not to try and find a separate partner for each country.

The lesson from Yves Carcelle’s experience is clear. The more unique your assets are and the greater the control you need to exercise over the value chain to extract competitive advantage from these assets, the more vertical integration makes sense. However, the higher the uncertainty and complexity in your markets, the more you should think about partnerships. LV’s key assets were a unique brand and long term experience in luxury goods. By vertically integrating, LV has ensured a highly consistent image all around the world. If you face a situation when you have unique assets, control over the value chain helps you extract value from them. Yet when you are dealing with complex and uncertain markets, then you need to find a single partner with expertise in most of these markets.

You can watch this clip for more insights on networks, innovation and creativity from Yves Carcelle--  one of the most experienced executives in the world of luxury goods.

http://www.youtube.com/watch?v=72OrkXqYxQo

Make Wine with Me: How to Use Small Wins to Build Trust Between Partner Companies

Douro Boys is a group of five independent wineries in the Douro River Valley in Portugal that built an alliance network after realizing that they could not compete on their own. The partners act almost as a single firm, sharing knowledge about wine making and markets. Their wines, such as “Quinta do Vallado” or “Niepoort” now routinely get over 90 points by the Wine Spectator and sales have doubled over the last ten years.

As I write in a recent Harvard Business Review blog post, they achieved this through an unusual exercise: the CEOs of the five companies decided to pool a small amount of their best wine to make 500 bottles of a one-off premium wine they called the “Douro Boys Cuvee”. They auctioned the bottles off at Christie’s at an average price of 300 euros, a price that put the Portuguese wine on par with high-end Bordeaux. The success of this small joint project instilled a strong sense of collective achievement among the member companies, which helped them to work on other projects much more effectively.

Douro Boys solved the problem of trust building among alliance partners by achieving a small win, an initiative (or a small number of initiatives) that partners can accomplish within a maximum of twelve (or even six) months after starting collaboration. We are not talking about conquering a new geographical market or investing millions of dollars in joint R&D. A small win can be as simple as winning a new client together or modifying an existing product to serve a small new customer segment.

When I started working on my book Network Advantage: How to Unlock Value from Your Alliances and Partnerships, I was often struck by how little attention alliance partners pay to the importance of small wins.  They tend to focus instead on mobilizing their stakeholders around big, audacious goals.

Setting such goals is important, of course, but you first need to develop trust. Otherwise, a partner will not share their knowledge or resources with you. And the small win is the shortest way towards developing trust: it helps partners to learn about one another and develop informal rules of collaboration. This leads to familiarity, familiarity leads to trust, and trust leads to improved information and/or resource sharing.

Here’s another example. N2build is a startup that wants to disrupt the construction industry by using new composite materials. For example, some of the innovative fuselage material in a Boeing Dreamliner could also be used to make wall panels or roofs for houses. The new composites have higher insulation properties, are more resistant to the elements and, after substantial R&D, can cost much less to manufacture than conventional building materials.

N2Build has a large network of R&D alliances: it collaborates with researchers at the Fraunhofer Institute in Germany, Massachusetts Institute of Technology, and INEGI (National Institute of Mechanical Engineering and Industrial Management), the eminent Portuguese research institute.

But researchers are often not the best collaborators: they tend to prefer to work on solving problems within their academic disciplines without engaging in cross-department collaboration. What’s more, institutions like these are accustomed to working with multinational corporations or space agencies rather than startups. INEGI in particular was skeptical of N2build’s ambitious goals. The small, yet decisive win for N2Build was to organize seminars within INEGI that brought together scientists from INEGI’s different departments to discuss the idea of how composite materials can disrupt the construction industry. The researchers later commented that it was extremely unusual — as a matter of fact, a first in INEGI’s 25 years history — to have people from all around the institute together in the same room brainstorming towards a common goal. The event was a turning point for INEGI.  It is now an integral part of N2build’s R&D activities and has opened doors to other scientific collaborations.

Correos, the Spanish postal service operator, uses the same strategy to build partnerships in the e-commerce domain. It collaborated with Luis Krug, a Spanish Internet entrepreneur and now the CEO of Pixmania, to build an e-commerce platform Comandia.com. The goal is to become one of the largest online marketplaces in Spain to connect companies of any kind, including small or very large retailers, to their customers. But before the two companies joined forces to work on Comandia, they started with a small win: collaboration over the Oooferton.com website. This was a discount webshop started by Luis Krug in 2009 on which Correos worked as a logistics partner and had to adapt its logistics chain in order to handle a wide variety of products. The two partners learned a lot about each other and developed trust, which then lead to Comandia, a much more ambitious project in terms of the number of potential sellers and customers.

If your company is planning a strategic alliance, aim for a small win first — this strategy works just as well with customers, suppliers, and competitors.

Alliance Radar: Locate Competitive Advantage Outside of Your Firm’s Value Chain

PSA Peugeot Citroen, or Peugeot for short, is a former French industrial icon. In the past two years, it struggled to escape from € 7 billion losses. A €3 billion capital increase from the French state and Dongfeng, a Chinese carmaker, should help Peugeot secure its future[1]. Will it be bright?  

The alliance between Peugeot and Dongfeng is one of the thousands of alliances that companies formed around the world in the past 10 years. The classic frameworks of strategy analysis, however, don’t provide much guidance for how to extract value from alliances. Take for example a classic “value chain” tool popularized by Michael Porter:

* This figure is borrowed from http://www.insemble.com/software-value-chain.html

As a business educator and a consultant, I love this framework. It helps map activities of a firm and to think about how they relate to its competitive advantage. The weakness of the framework is that it is too much focused inside the firm and is not meant to help executives think about opportunities for value creation by collaborating with other companies.

I recently co-authored a book “Network Advantage: How to Unlock Value from Your Alliances and Partnerships”. In this book we offer advice on how companies can achieve competitive advantage by managing alliances and partnerships with customers, suppliers or competitors.

When I taught this book at INSEAD, a group of Executive Education participants[2] proposed a really cool way to integrate the logic behind the value chain with alliance thinking. This gave birth to a new framework which we call “Alliance Radar.”

The Radar can help you look outside of your firm.  It:

·       links alliances to specific parts of your value chain

·       helps visualize all of the alliances which your company has

·       identifies new opportunities for value creation across different alliances.

Let’s use this tool to compare alliances of Toyota and Peugeot. I picked these examples because I own cars from both car makers. Another reason is that lately Toyota has been much more innovative than Peugeot and this tool can help understand why.

Let’s start by identifying the key areas of two companies’ value chain. For simplicity, let’s assume that they are Production, R&D, Sales and After Sales.  You can draw a radar like this:

Now let’s take all of Toyota’s alliances and classify them into three categories: primarily aimed at cost reduction (red), aimed at innovation and differentiation (green) and those aimed at both cost reduction and differentiation (yellow)[3].

This approach helps us immediately see that most of production alliances are aimed at cost reduction (and efficiencies in general), whereas in other areas Toyota focuses on differentiation of its products.

We can also see areas in which Toyota can create value across different alliances. For example, let’s take three alliances and move them in the “bull’s eye”. Between 2008 and 2013, Toyota worked with Google to optimize search experience for Toyota’s products, collaborated with GM to make Prius in the U.S. and worked with Intel to integrate sensors inside the car with your smartphone. The tool tells us that Toyota can create value by integrating ideas across these three alliances and make a new product “Smart Social Prius”. I am not sure such car exists yet, but it is definitely in the works!

Because of Intel’s sensors, the car will feed information on your Prius driving habits to your social network. Some “friends” (like your parents or your insurance company) might actually want to know how well you are driving. In fact, an insurance company might even lower your premiums for good driving habits and make your insurance really “personal”! And you can even have a contest among your friends who is a safer (or environmentally friendlier) driver.

Now let’s compare Toyota’s Alliance Radar to that of Peugeot :

It is clear that Toyota has a lot more alliances than Peugeot, most of Peugeot's alliances are aimed at cost reduction and not much on differentiation. Peugeot has a lot fewer opportunities to innovate across alliances. For once, it can work with both Mitsubishi and Changan: make electric cars in Spain (with Mitsubishi) and outfit them with Chinese interiors. Not as exciting as a "Smart Social Prius"? Well, Peugeot's network of alliances doesn't allow it to do much better than that because most of the collaborations are focused on cost reduction anyway. If I were to consult to Peugeot, I would have suggested to take a hard look at their alliance network and see if they can collaborate with partners that can provide them with something better than just cost cutting. 

Does your company want to have a big space for innovations a la Toyota? The Alliance Radar tool can help you see the opportunities. Experiment with moving different circles into the bull's eye and challenge yourself whether you can create value by combining ideas or resources or market access across different partners. If you don't see exciting opportunities, then maybe you need new alliance partners!

Lately Peugeot has been on an upward swing financially. Sales are looking brighter as the European market recovers[4]. Hopefully the company builds more and varied alliances that will help it not only to cut costs, but also to create innovative solutions by integrating ideas, resources or market access across its customers, suppliers or even competitors.

If you find Alliance Radar tool to be useful for thinking about your company’s alliances or to identify new value creation opportunities (like a Smart Social Prius), share your story with me (shipilov@insead.edu).

If you want to discuss this tool, you can do so in the “Comments” section.

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[1] http://tinyurl.com/melxd2a

[2] Thomas Gudbjerg, Arvid Svenni, Haakon Fjeld-Hansen, Finn-Arne Lorentsen and Jarle Steen Stueflotten

[3] The data is on alliances which were formed between 2008 and 2013.

[4] http://tinyurl.com/melxd2a