Disciplined Collaboration Morten T. Hansen MIIC March 2, 2009

The Apple iPod story

iPod introduced in Cupertino, California, in October 2001 September 11 2001 October 23 2001

iPod a combination of existing pieces Apple as Masterful Collaborator External 1.8 inch drive (Toshiba) Hardware blueprint (PortalPlayer) MP3 decoder controller (PortalPlayer) Codec (Wolfson Lithium battery (Sony) Power management (Linear Technology) Basic software (Pixo) iTune software (Soundjam) Interface controller (Texas instrument) Internal Architecture Hardware engineering Display Design User interface Scroll wheel

iPod a combination of existing pieces Apple as Masterful Collaborator External 1.8 inch drive (Toshiba) Hardware blueprint (PortalPlayer) MP3 decoder controller (PortalPlayer) Codec (Wolfson Lithium battery (Sony) Power management (Linear Technology) Basic software (Pixo) iTune software (Soundjam) Interface controller (Texas instrument) Internal Architecture Hardware engineering Display Design User interface Scroll wheel “This was a highly leveraged product from the technologies we already had in place” Rubinstein, head of hardware at Apple

iPod had tight collaboration across three units inside Apple Steve Jobs Rubinstein Hardware Software Design

Fast: Time to market was 8 months! iPod Team Launched iPod Introduced March 2001 Nov 2001 Xmas 8 months from concept to introduction

Amazing success: iPod/iTunes a $10bn business in 6 years Growth of iPods sold … .. has become a $10bn business

Sony’s Connect Story

Sony had all the pieces in-house - How hard could it be?

Sony had all the pieces in-house - How hard could it be? “We can do this in nine months. We got the product, hardware, software.” Executive Philip Wiser telling Howard Stringer (U.S. head) in 2003

Hard! Rivalry among 5 groups in Sony in 2003 PC Japan Own music player Walkman Japan Own music player Sony Music Japan Own online music Sony Music US Own online music Sony Electronics US Own online music

Hard! Rivalry among 5 groups in Sony in 2003 “It’s impossible to communicate with everybody when you have that many silos.” Howard Stringer, Sony CEO “Sony has long thrived on a hyper-competitive culture, where engineers were encouraged to outdo each other, not working together” the Wall Street Journal PC Japan Own music player Walkman Japan Own music player Sony Music Japan Own online music Sony Music US Own online music Sony Electronics US Own online music

Connect launched 2004, a flop, taken off, re-launched, terminated 2007 A Long, painful decline in Sony audio Note: audio sales includes all audio products

Howard Stringer appointed CEO of Sony in June 2005 One of the first steps?

Howard Stringer appointed CEO of Sony in June 2005 One of the first steps? Sony United

Bad collaboration is worse than no collaboration ….. Collaboration Traps

Trap #1. Wrong organization set-up. Collaboration efforts run into a wall. Example: Sony Connect Decentralized structure hindering collaboration Competition among units Incentives skewed against working across the organization

Trap #2. Over-collaboration: Collaboration run amok. “Must be good to collaborate…..” Example: BP “People always had a good reason for meeting…You’re sharing best practice. You’re having good conversations with like-minded people. But increasingly, we found that people were flying around the world and simply sharing ideas without always having a strong focus on the bottom line.” John Leggate, CIO, British Petroleum

Trap #3. Over-shooting potential. Upside of Collaboration not as high Example: Sony buying Columbia Pictures Idea was to that Sony’s electronics division should collaborate with film-makers on cross-promotions etc. - Last Action Hero Movie: soundtrack by Sony Music, joint marketing of TVs, video recorders, and the film. - But upside was far smaller and never large. +

Trap # 4. Under-estimating costs of collaboration. Costs much higher Example: DNV food case For the IT consulting division, probably not the best project Lots of hassles working across business units (costing time and money)

Trap #5. Getting the organizational problem wrong. Mis-understanding why people don’t collaborate. Leaders mis-understand why employees don’t collaborate better “We thought the key problem was difficulty in finding knowledge and people in our company, when in reality the key problem is people’s unwillingness to collaborate.” IT manager, large U.S. company

Trap #6. Implementing the wrong solutions to organizational problems Leaders put in place the wrong solutions because they mis-understood the problem “Because we thought the key problem was search, we invested in an elaborate IT and knowledge management system to help people find things in the company. But the key problem wasn’t search.” IT manager, large U.S. company

Getting collaboration right You must put discipline in collaboration! …Provided you have the discipline Collaboration can get great results……

Disciplined Collaboration ECONOMIC OPPORTUNITY How much value—and where—from collaboration? BARRIERS TO COLLABORATION Find them, tear them down MANAGEMENT LEVERS Tailor solutions to specific barriers, and don’t overdo

How much value—and where—from collaboration? ECONOMIC OPPORTUNITY How much value—and where—from collaboration?

Executives need to articulate goals of collaboration in three areas Better Innovation Revenue Growth Improved Operations

Better Innovation Revenue Growth Improved Operations Cross-unit product innovation New businesses by combining

Procter & Gamble master at innovation through collaboration $ 34.99 “New study shows whiter teeth can lead to greater success in work and love” P & G website, 2007

Procter & Gamble master at innovation through collaboration $ 34.99 teeth whitening expertise novel film technology bleach expertise “New study shows whiter teeth can lead to greater success in work and love” P & G website, 2007

Procter & Gamble master at innovation through collaboration $ 34.99 teeth whitening expertise novel film technology bleach expertise “New study shows whiter teeth can lead to greater success in work and love” P & G website, 2007 Oral Care Division Corp. R&D Fabric & Home Division

Executives need to articulate goals of collaboration in three areas Better Innovation Revenue Growth Improved Operations Cross-selling, Re-package Customer service by coordinating

Wells Fargo: best in cross-selling products to banking customers Best in U.S. with 5.2 products per consumer Next goal to go from 5.2 to 8 products per consumer Avg. U.S. banking Customer has 16 financial products

Wells Fargo: best in cross-selling products to banking customers Best in U.S. with 5.2 products per consumer Next goal to go from 5.2 to 8 products per consumer Avg. U.S. banking Customer has 16 financial products One Wells Fargo 80 business units

Executives need to articulate goals of collaboration in three areas Better Innovation Revenue Growth Improved Operations Costs/investments savings by sharing Better decisions by getting input

BP: lots of best practice transfers - example: retail in gas stations BP UK Best practice transfer BP Atlanta Best practice transfer BP Netherlands

BP: lots of best practice transfers - example: retail in gas stations BP UK Best practice transfer BP Atlanta Best practice transfer Much improved: BP Netherlands +10% -20% -26% Working Capital # SKUs Retail Sales

Summary: assess opportunities for collaboration in three areas Better Innovation Revenue Growth Improved Operations Cross-unit product innovation Cross-selling, Re-package Costs/investments savings by sharing New businesses by combining Customer service by coordinating Better decisions by getting input

Assess opportunities: One high-tech company Costs & Decisions Customers Innovation Scale Scale: 100=very high; 1 = very low

DNV assessment of opportunity; large gaps Costs & Decisions Customers Innovation

Provider of competencies/services The Collaboration Matrix: DNV example Provider of competencies/services Business Unit Maritime Energy Industry IT Global Services Holder of customer relations 1. Sell Energy’s competencies in material and testing, fire and explosion, and asset risk., to Maritime customers (20 million) 2. Sell Industry’s leadership systems to Maritime’s customers (10m) 3. Sell IT risk management services to Maritime customers (100m). 4. Sell Maritime’s Mobile offshore platform classifications to Energy customers. (200m) 5. Sell Industry’s integrated leadership systems to Energy’s customers 6. Sell IT risk management services to Energy’s customers (100m) Low 7. Sell Energy’s competencies in material and testing, fire and explosion, and asset risk, to Industry customers (50m) 8. Sell IT risk management services to Industry’s customers (300m) IT Global Services 9. Sell Energy’s technology within risk and reliability To IT customers

BARRIERS TO COLLABORATION Find them, tear them down

Four barriers to collaboration #1. Not-invented here Do not want to reach out #3. Search Cannot find good help # 2. Hoarding Do not want to help # 4. Transfer Cannot work together “wrong chemistry” Motivation Ability

Barrier #1: Not-Invented-Here Insular culture: Interacting inside the group Status gap: Don’t want to cross status lines Not-Invented-Here: People are not willing to reach out to colleagues in other parts of the company to collaborate with them. Norm of self-reliance: Ought to fix your own problems Fear: Do not want to reveal problems or poor performance Motivation

Barrier #2: Hoarding Motivation Competition among units in a company leads to less cooperation Time famine: people do not have time to help and collaborate Hoarding: People are unwilling to help and share what they know Biased incentives: rewards for narrow goals means people do not help Fear: people think sharing what they know makes them less powerful Motivation

Barrier #2: Hoarding Motivation Competition among units in a company leads to less cooperation Too busy: people do not have time to help and collaborate Hoarding: People are unwilling to help and share what they know Biased incentives: rewards for narrow goals Fear: people think sharing what they know makes them less powerful Motivation

Barrier #3: Search Ability Size: Big and complex companies make searching across it harder Spread out: geographical distance makes search difficult Search: People who look for information and people cannot easily find them. Information overload: too much information makes search harder Poverty of networks: few Horizontal links undermine search Ability

Barrier #4: Transfer barrier No common frame: don’t know how to work together on a project Strangers: People are unable to transfer knowledge from one place to another Tacit knowledge: very difficult to transfer Weak ties: strangers do not transfer knowledge well Ability

Barriers vary by company - Example: DNV Good Bad Lowest quartile (lowest barriers) Second lowest quartile Median Second highest quartile Highest quartile (highest barriers) First Barrier: Not Invented Here Scores between 3 and 105 106 – 159 160 161 – 200 201 - 300 Second Barrier: Hoarding 3 – 60 61 - 99 100 101 - 140 141 - 300 Third Barrier: Search 3 – 90 91 - 134 135 136 - 180 181 - 300 Fourth Barrier: Transfer 3 – 110 111 – 167 168 169 – 210 211 - 300 Implication: Barrier not a problem Barrier might cause some problems Barrier might cause problems Barrier a problem Barrier a big problem 169 133 180 194 N=107 companies. “How to Build Collaborative Advantage.” SMR, 2004

Example: Large high-tech company Good Bad Lowest quartile (lowest barriers) Second lowest quartile Median Second highest quartile Highest quartile (highest barriers) First Barrier: Not Invented Here Scores between 3 and 105 106 – 159 160 161 – 200 201 - 300 Second Barrier: Hoarding 3 – 60 61 - 99 100 101 - 140 141 - 300 Third Barrier: Search 3 – 90 91 - 134 135 136 - 180 181 - 300 Fourth Barrier: Transfer 3 – 110 111 – 167 168 169 – 210 211 - 300 Implication: Barrier not a problem Barrier might cause some problems Barrier might cause problems Barrier a problem Barrier a big problem 137 72 184 169 N=107 companies. “How to Build Collaborative Advantage.” SMR, 2004

Tailor solutions to specific barriers, and don’t overdo MANAGEMENT LEVERS Tailor solutions to specific barriers, and don’t overdo

Tailor Three Levers Unification Lever Big Common Goal Teamwork Value Language

Collaborative leaders Tailor Three Levers Unification Lever People Lever Big Common Goal Teamwork Value Language Collaborative leaders Selecting: promotion, recruiting Development

Collaborative leaders Tailor Three Levers Unification Lever People Lever Network Lever Big Common Goal Teamwork Value Language Collaborative leaders Selecting: promotion, recruiting Development Internal Networks External Networks Knowledge Management

Summary of Disciplined Collaboration ECONOMIC OPPORTUNITY How much value—and where—from collaboration? BARRIERS TO COLLABORATION Find them, tear them down MANAGEMENT LEVERS Tailor solutions to specific barriers, and don’t overdo