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Articles from The Business Forum Journal

WHAT IS ALL THE FUSS ABOUT COLLABORATION?
by Patricia Dodgen

The first in a Series on Joint Ventures and Collaborative Partnerships.

Anyone who browses the business section of their local mega-bookstore cum coffee shop can tell you that there’s a fad a second among the consultants and other so-called experts on business trends.  The shelves are literally crammed full of ideas and acronymic approaches to business and organizational performance.  Most of these models have some basis in reality and some usefulness.  But for the most part, they boil down to one set of principles:  reduce expenses or create/increase revenue streams.  The bottom line is the focus at the most elemental level of business performance management, whether that bottom line belongs to a commercial enterprise or a not-for-profit entity.

Yet, over and over again, managers and executives struggle with the limits of finite capacity.  The law of diminishing marginal returns tells us that you can only cut so far before you hit the bone, and you can only produce so much income with a fixed set of resources.  The most creative and efficient business has an optimal point of activity.  In other words, you can only get so much blood out of a turnip.

A few years back, much was said about paradigm shifts and “thinking outside of the box”.  It was this sort of thinking that resulted in the flash of insight that I call “waking up to the invisible obvious”.  Once you’ve determined you’re doing as much as possible and you’re doing it as efficiently as possible, (and we’ll talk about using a best practices approach for this kind of analysis in future installments) you should begin to ask, “What could I do with a partner or partners that I cannot do alone?”

I was working with a group of businesses a number of years ago that were pseudo-competitors.  They believed themselves to be sharing more market than the data actually supported, but they had also worked together to successfully lobby state government for a number of years.  Suddenly, this group found themselves facing a market crisis - because of factors completely outside of their control, somewhere from eighteen to sixty percent of their total revenue base was at risk.  They asked for assistance in developing a strategy to respond to this crisis.  Over the course of studying their operations, it became clear there were basically three categories of options: 1) things they could do to increase efficiency and cut costs, 2) things they could do to create new revenue streams or new lines of business individually, and 3) things they could do together that they could not do individually.

When evaluating the first category, the process was one of elimination.  They all had areas that could not be made more efficient or less costly, so the spectrum of available alternatives became a shrinking set with each iteration.  The same was mostly true for revenue opportunities, although some creative thinking could open up whole new avenues, albeit limited by resource constraints.  In asking the third question and posing the hypothesis that it was possible to create a framework for shared activity, we discovered that we could actually generate new alternatives, rather than eliminate them.  We suddenly discovered there was a growing pyramid of potential activities that could be developed, as opposed to a shrinking set of areas for improvement.

For example, we examined the question of what was the core business of each of these enterprises, and what activities within their business models were necessary, but resource consuming and not part of the core business.  What emerged was a disturbing picture of investment in activities that were not completely inconsistent with the core business, but in some cases, consuming resources desperately needed by the core business.  Functions that are completely outside of your core business can obviously be outsourced, but what do you do about activities that are critical, but usurping the core of your enterprise?   If you are a single entity that has already determined you are at the optimal balance, you do nothing.  But if you have access to a group of entities and resources, the possibilities expand.

In this case, the enterprises took the bold step of asking the question, “Can we do something together we could never do alone?”  And even more importantly, “Can we make this work?  Can we protect our uniqueness and individual competitive advantage and still collaborate with the others?”  They determined that they were willing to move cautiously through a thorough analysis and feasibility study of a co-owned and governed outsourcing enterprise.  This new business would exist simply to offload non-core business activities (in this case, back-office administrative and database management functions).  The analysis revealed a number of interesting facts.  They learned that by consolidating their database management activities along with their marketing material printing and distribution efforts - in fact, all of their direct mail activities - they could take advantage of economies of scale driving their profit margins to levels they could not have otherwise attained.

Surprisingly, they also discovered that once these activities were moved completely outside of their individual operations, the “invisible overhead” factor, i.e., the time and energy of middle and upper level management consumed in overseeing and troubleshooting these activities, was reduced to near zero.  The result was an unexpected, measurable positive contribution to the bottom line.

So, does this mean that collaboration is the panacea of the new century?  Well, while I wouldn’t go so far as to make that claim, I would say that with careful planning and thoughtful progression, there are many potential collaborations available to almost any business or organization.  What are the key steps in collaborating with a potential partner?  

At the most basic level, there must be a mutual need.  While the need doesn’t necessarily have to be identical, there should be some significant impetus for all of the potential collaborators to be at the table.  It becomes increasingly important for all of the collaborators to have “skin in the game” or some real investment in the outcome of the collaboration.  If you’ve partnered with someone who is just at the table to be a good egg, you may be dumped flat when the going gets tough.

You should ensure your potential collaborators’ basic ethical orientations are compatible with your own organization’s.  Don’t skip down the path of courtship with a management team and/or board who defines “integrity” and “honesty” differently than you do.  Obviously, this can be a tricky step.  I’ll expand on this process in a later installment, as well.  

Be thorough.  Do take a “due diligence” approach.  I’ve said in my previous articles that traditional due diligence isn’t enough.  This is true, but you should still incorporate some of those standard actions and safeguards if you plan a complex, or a long-term, or potentially problematic alliance.  

Be explicit.  This is different from being thorough.  You may feel that if your management team is explicit in collaboration discussions that they require “open disclosure” and the collaborator(s) agree, you’re covered.  In fact, unless you discuss and document specifically what you mean by “open disclosure” you could be in for a bumpy ride.  Just make sure that the parameters of openness are defined in objective, observable, measurable terms.  This is the same as defining that “respect” means showing up to meetings on time, versus simply agreeing you will “respect” me in terms that are totally subjective to you.  Being explicit also means you should document exactly what is being committed from all parties.  Create “Level of Service Agreements” whenever one entity is providing services to one or more others.

Use an objective facilitator.  There are many alternatives to choose from, ranging from consultants who specialize in facilitating these kinds of relationships, to certified mediators, to SCORE (the SBA Corps of Retired Executives) resources who can provide a measured and objective perspective.  Having an unbiased, experienced listener and facilitator is an important factor to reaching an implementable agreement.  The “referee” can navigate numerous discussions that would be difficult or impossible to reconcile among the invested participants.

Do your homework.  First, quantify the potential benefits.  Then quantify the business plan.  Create fully researched financial plans for the collaborative activity, as if it were a completely separate business (sometimes it will end up being one).  Do contingency planning.  If you’re creating a real, separate entity, have an asset liquidation methodology.  If you’re creating a project, or a venture only, create contingencies that define what happens in the event of poor performance, unforeseen issues, etc.  Who invests incrementally?  Under what specific terms?  

Finally, believe that collaborations can actually create avenues to new gains at the bottom line, sometimes dramatically.  In a few occasions, I’ve witnessed collaborative ventures taking flight and expanding markets not only to their owner-collaborative-partners, but to the open market, as well.  In those situations, the issue becomes dividing the dividends among the partners.  What a happy problem.  And once the business planning I’ve mentioned above has been done, it’s a really easy problem to resolve.

So, what’s all the fuss?  Well, for many, many enterprises, collaborative projects and ventures open doors to financial and operational performance improvements that would be completely unavailable otherwise.  While collaborative partnerships require a clear eye and an explicit process, they can create significant improvements, even at their most basic level.  Finally, they create something that the lingo of contemporary culture describes as “synergy”.  Overused, be assured, but the essence of that concept is powerful and available to the senior executive who is ready to tap into completely new potential.

Next month, I’ll cover more about using a benchmarking or “best practices” approach to improving overall operational effectiveness, as well as for determining when the time might be appropriate to consider collaboration.  Meanwhile, enjoy early autumn, the 2000 Olympics, and the turning of the seasons.

About the Author:

Patricia Dodgen is a Fellow of The Business Forum Association.  Patti holds a BS, Financial Management (Cum Laude), Clemson University, 1977 and has broad experience as a senior executive in financial, technical, and operational management for various industries. She has specialized consulting experience in the telecommunications, broadcasting, print media, and computer technology fields. Currently, Patti is working on a national project to redesign the fundraising activities of a major non-profit client. Within the scope of this project she has literally created a completely new approach for fundraising for this industry. She conceived of and built the business plan and financial models for a revolutionary joint venture in fundraising. Additionally, she is further evolving her methods and tools to create a system of applied benchmarks for an entire industry sector. 

Since co-founding Transformations Consulting Group in 1993, she has utilized her knowledge to develop the tools and methods to help organizations effectively manage the complex process of change for her clients. By utilizing her approaches, TCG's clients in the profit and non-profit sectors have learned how to navigate these changes by applying Transformations' techniques as the rudder. Working with clients including PBS (the Public Broadcasting Service), Gannett Publishing, the US Department of Justice, and the Corporation for Public Broadcasting, Patti used her extensive knowledge to create initiatives and programs to solve complex business problems. Her solutions mitigate conflicting organizational needs to creatively find "win-win-win" solutions for her clients. By utilizing sensitive, yet objective measurement techniques with customized and strategic criteria for success, Patti's solutions have yielded positive financial results in the millions of dollars for her clients. 

Her approach to business strategy and development evolved during her years with Dun & Bradstreet as a senior business analyst and with Digital Equipment Corporation (DEC), where she was a senior financial manager. At Dun & Bradstreet, Patti had the opportunity to closely examine and analyze the financial and operational successes and failures of a vast assortment of businesses of varying size within many industries. As a key senior analyst, she investigated, analyzed and developed conclusive responses to business questions for firms such as RJ Reynolds, Belk Store Services, Nucor and Bernhardt Industries. 

While with DEC, Patti's primary focus was on designing financial systems and tools to provide critical and time sensitive information to field management. This information was fundamentally important in allowing management to make key competitive and tactical decisions quickly and accurately. Through this experience in the highly volatile computer industry, Patti developed the financial methodologies and models that are the foundation of Transformations' consulting approach. 

Patti is a frequent speaker at national conferences on the topics of complex change management, strategic positioning and "managing by the numbers". 

Previous articles by Patti Dodgen:

Traditional Due Diligence is not enough - Part I
Traditional Due Diligence is not enough - Part II

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