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BPO Journal

Wednesday, February 15, 2006

Complementarities between Internal and External Collaboration

I was reading an article in the Financial Times - "Why in-house collaboration is so difficult" on how managers often lament the lack of collaboration among internal business units and the loss of synergies that results.

The article points out that most research in this area presumes that collaboration is necessary. However, in some cases, presumed synergies are a mirage or the opportunity costs of developing synergies are too large. Problems may also arise if there are operating skill issues (when no manager has sufficient expertise to judge which unit has best practice), chemistry issues (when bad past experiences have poisoned relationships) or systems issues (when the IT system cannot provide the data needed for a collaboration).

In light of these reasons, the article suggests four steps to take when approaching problems in collaboration:

  • First, managers should put more effort into calculating the size of the prize, a cost-benefit analysis of a tightly defined synergy opportunity. Unless the benefits are a multiple of the costs, the collaboration is probably not worth the effort.
  • Second, once the prize is clear, managers can investigate why collaboration is not already happening. Typically, there are precise reasons connected with relationships, competing priorities, resource constraints, insufficient skills of a particular kind or other operational issues.
  • Third, once the reason for inaction is clear, managers can assess whether they have the skill and will to unblock the problem. Sometimes it requires hard choices in terms of restructuring or personnel changes, sometimes hands-on expertise on the part of managers.
  • The fourth step is to look out for the downside - distraction costs, contamination risks, loss of accountability, initiative and motivation. There is a dark side to collaboration that is all too apparent in some companies. In these organizations, it is politically correct to collaborate, regardless of the cost.

The above suggestions imply that internal collaboration involves attention to much the same issues as external collaboration. I had earlier posted results of my research on governance of BPO relationships - they emphasized that a one-size-fits-all approach to governance fails to establish appropriate baselines for governance, does not adequately prepare managers for the transition, and limits ways to create value and improve performance in the relationship. In other words, the governance solution must reflect the unique nature of the outsourced process to realize efficiency and service satisfaction gains in BPO.

So, if the outsourced process or function is complex, strategically important, and shares strong interdependencies with other business processes, the client firm might adopt a partnership approach to governance and make the shift from control to coordination and penalties to shared risks and rewards. If not, the shift may not merit the additional complexity of relationship management. An arms length contract that emphasizes penalties and control may be the most efficient means to leverage scale efficiencies and skill of the service provider.

Notably, this points to complementarities between internal and external collaboration. If an organization develops the capabilities that facilitate synergy and collaboration between business units, it can leverage such knowledge and capabilities to collaborate successfully with its external partners as well.

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