- Boeing partnered with HCL Technologies to co-develop software to help design navigation systems, landing gear and cockpit controls.
- GlaxoSmithKline and Eli Lilly are partnering with Asian biotech research companies to reduce the average half-billion dollar cost of introducing a new drug.
- Even Procter & Gamble — the much admired product innovator — is looking to outside partners for new product ideas. By 2010, the company plans on having 50 percent of its new product ideas generated from outside firms.
Forming Collaborative Business Models to Win
With domestic enterprises having to accept fierce competition from foreign competitors, creating a sustainable advantage has never been harder. Companies are at risk of losing customers who have more choices and are looking — and often finding — alternative providers they think can do better. Clearly, better service will ensure repeat business and strong customer loyalty as seen by the billions of dollars that are won or lost because of a company's ability to respond quickly to customer needs.
But globalization has made it more difficult to anticipate demand. In fact, demand continues to be less predictable and much more perishable. The concept of "perishability" says that if a company does not have what the customer wants when they want it at the right price, customers will not wait. Companies that respond with the greatest flexibility to customer demand will be the market leaders of tomorrow.
Executives across different industries are asking many of the same questions:
- How do I expand business in high-growth and emerging markets around the globe?
- Should I build manufacturing centers close to end markets or partner with companies that have existing infrastructure?
- How do I factor in fast-changing customer expectations by region, by country and create an effective supply chain to meet customer needs?
- How do I optimize my supply chain to achieve the lowest total landed costs?
- How do I quickly respond to changes in the competitive landscape to thwart the threat of losing market share in a given sector or part of the globe?
- How do established international companies compete against fast, nimble, smaller competitors, not to mention aggressive multinationals?
Essentially, they are asking: In this business environment, what does it take to win?
The answer is as complex as it is simple. At the most fundamental level, it comes down to laser-like focus — determining what is core to your business and creating an effective network of strategic partnerships to manage what is non-core. It's an issue of determining how your company creates value for your customers. To create differentiation, companies are pursuing product innovation to enhance brands while building strong customer relationships by delivering improved service.
Companies need to rethink the structure of the modern corporation to determine what, specifically, has to be done in-house and what tasks should be outsourced to a global network of partners. Depending on the industry and products, this model might include U.S. chipmakers, Taiwanese engineers, Indian software developers and Chinese manufacturing sites.
Companies will profit from the power of their supply chain, leveraging extended strategic partners to bridge product and operational innovation to create and capture market opportunities. Jonathan Schwartz, CEO of Sun Microsystems, discussed this in an editorial on innovation in the September 16, 2006, issue of the Financial Times. Schwartz explained that collaboration — creating communities with partners, customers and business groups — is a core principle of innovation. When the entire chain is synchronized, there are dramatic improvements in the speed and efficiency of product development, delivery and service that creates true differentiation and helps OEMs build market share across products and regions.
Let's look at some examples.
High Performance Supply Chain In Practice: Collaborating at the Design Stage
In 2003 Redbox Automated Retail, a provider of DVD rentals through kiosks located in grocery stores, select McDonald's restaurants and other locations nationwide, had launched in just 12 locations. Furthermore, the kiosks in these locations had a limited capacity of 100 disks and initial tests proved that this DVD inventory of 100 was not large enough to satisfy growing interest in Redbox.
Redbox selected a partner to help re-design a new system that expanded capacity, which would in turn enhance its value proposition.