Collaboration is essential to the kinds of innovation that are required to meet the challenges posed by climate change. Collaboration can make commerce more efficient and more sustainable.
As Department of Energy Secretary Steven Chu said, “Open collaboration in energy innovation will be a key part of fighting climate change.”
A new report from the Brooking Institute views collaboration between America and China as essential to combating climate change:
“U.S.-China relations should now advance to a new stage that has the two countries consult and cooperate to address the most critical global issues of the 21st century. Climate change and clean energy, along with the global economic crisis, offer turning points. Cooperation on climate change can help move U.S.-China relations to a new stage; failure to cooperate can introduce significant new tensions.”
Collaboration is also essential in the business community. Collaboration may contradict traditional notions of competition, but it makes a great deal of sense from both a bottom line and an environmental point of view.
As Seth Godin writes in his blog, “Our economy is almost entirely based on a Darwinian competition–many products and services fighting for shelf space and market share and profits. It’s a wasteful process, because success is unpredictable and unevenly distributed.”
He notes that the Internet has mirrored and amplified this competition. In Godin’s view, the next frontier of the net is going to use the datastream to do the opposite of traditional competition, they will create value by making coordination easier.
Godin argues, rather than compete, it is better to coordinate. The key for businesses is becoming aware of buyer preferences in advance so that minimal assets go to waste. This can be accomplished by using technology to identify and coordinate buyers.
“Synchronizing buyers to improve efficiency and connection is a high-value endeavor, and it’s right around the corner. It will permit mesh products, better conferences, higher productivity and less waste, while giving significant new power to consumers and those that organize them,” Grodin says.
In an article titled Collaboration as an Intangible Asset, Robert J Thomas suggests that intangible assets, although not present on balance sheets, are an important part of a company’s true market value. The most important intangible asset is the ability to collaborate.
Collaboration is about the willingness of people to work together to solve problems. Although it is often hard to measure, there are tools that help assess intangibles like collaboration.
Robert J. Thomas is an author and the executive director of the Accenture Institute for High Performance and professor at Brandeis University International Business School. Thomas points to social network analysis (SNA), which has emerged as a powerful new way for managers to see the patterns of interaction. SNA makes it possible to depict the networks that underlie or exist in parallel to the formal organization charts and process diagrams.
In an article titled Collaborate to Grow the Pie Not Just Split It, Vicki Gardner (SVP of Product Innovation Services for The Nielsen Company), Dennis Moore (President of Advanced Analytics for The Nielsen Company) and Eddie Yoon (Principal with The Cambridge Group) argue that rather than splitting the pie, it makes more sense to grow the pie by innovating the product for the benefit of all.
Retailers and manufacturers almost always opt for pie-splitting instead of collaborating to come up with pie-growing strategies. However, these authors contend that pie splitting is terribly inefficient.
“Of the billions of dollars spent each year on trade promotion and innovation, only $1 in every $8 spent on trade promotion (13%) and $1 in every $20 (5%) generated from innovation actually grow their respective categories. The rest of the dollars just shift share from one retailer to another or one manufacturer to another. These pie-splitting strategies often just drive short-term, unsustainable results.”
Too much competition is actually bad for everyone and share stealing without category growth destroys long-term industry profitability.
The Nielsen Company conducted a macro study analyzing trade promotion across 30 grocery categories. They found that only 13% of trade dollars spent actually result in category growth, 15% of sales driven by trade promotions result in brand switching and 17% of sales driven by trade promotions result in store switching.
“The single largest result of trade promotion is subsidized volume at nearly 55% of all trade spend. This is trade spend where no new consumers or incremental units were purchased—instead, customers who would have purchased a product anyway are being given discounts, gutting profits. One might think that all consumers would be happy with lower prices, but The Cambridge Group analysis across dozens of categories shows that the truly price sensitive consumer tends to be only 10-30% of households. Most consumers actually want new benefits and innovation and are willing to pay for them.”
A great deal of innovation spits the pie and does not grow the market. In some cases, innovation inadvertently shrinks the pie.
“Nielsen also looked at sales from new products in every category within grocery in recent years. In one year $2.7 billion in sales was generated via new products in the grocery channel. But $3.2 billion was lost due to de-listing — meaning failed products that were pulled from shelves, or products pulled by manufacturers even though some consumers may have preferred the product — for a net negative of $500 million. Put another way: for every incremental $1.00 gained from a new product, $1.20 was lost due to de-listing.”
To grow the pie, manufacturers and retailers have to collaborate more upfront on shopper and innovation strategies. If growth comes from a competitor’s share or, cannibalizing a product in its own portfolio, it’s a less effective innovation. “Innovations that are truly differentiated and are appealing enough to command pricing power have a much greater chance of growing the category sales and margin.”
Pie-growing strategies require better innovation that drives category growth which in turn reduces the need to drive unhelpful trade promotion. To achieve pie growing strategies, it is better to collaborate across marketing and sales functions within their organizations and with retailers that focus on retail execution and category growth.
Effective collaboration that inspires growth requires greater honesty and accountability from both manufacturers and retailers about innovation. This means new products that are differentiated and worthy of the price premium.
Pie-splitting as a growth strategy is attractive to many businesses because it is more familiar and easier but it is not as productive as category growth.
Roberto Verganti is an author and a professor of management of innovation at Politecnico di Milano. In an article titled Quantity vs. Quality in Collaborations, Verganti asks the question, when it comes to collaboration, which is better, quantity or quality? While some are trying to leverage the power of crowdsourcing to look for ways to generate more ideas (for example innovation marketplaces such as Innocentive, makes it possible to rapidly build collaborations with a large number of contributors) others seek out higher quality collaborative processes.
Alberto Alessi is a CEO of home design products, he is well known for his collaborations with a network of more than 200 external designers. In the Verganti article, Alessi argues that the quality of collaborations is crucial. For Alessi quality means carefully identifying the most promising talented designers. Collaborations come first; ideas then follow.
Quality and quantity of collaborations serve different purposes. Initially, a large number of ideas may be useful, but as an organization drills down on these ideas, quality collaboration may prove more useful. Quantity is good for creating ideas and quality is good for setting a vision.
Our culture is rooted in competition, but if the business community is to succeed in developing innovative approaches to combat climate change, we will need to develop the courage to collaborate.
Richard Matthews is a consultant, eco-entrepreneur, green investor and author of numerous articles on sustainable positioning, eco-economics and enviro-politics. He is the owner of THE GREEN MARKET, a leading sustainable business blog and one of the Web’s most comprehensive resources on the business of the environment. Find The Green Market on Facebook and follow The Green Market’s twitter feed.