WHAT ARE THE GOALS OF YOUR COLLABORATION?
1. What are the shortcomings of the traditional business model? What are the needs that it leaves unfulfilled?
2. What is the prize a collaborative business model could deliver?
The “interdependence” of organizations is different than anything we ever meant before by this term.1
—Peter F. Drucker
I flew across the country to see the future in the form of the Myelin Repair Foundation (MRF)—a two-year-old research group that was redefining the way Americans did medical research. I had a hunch that this little-known nonprofit had invented a model of collaboration that exemplified Peter Drucker’s most important ideas. I was convinced that the foundation offered valuable, trail-blazing lessons that could help other nonprofits tackle social problems more effectively, and show businesses how to thrive and boost their profits. And after seeing the future, I would have a chance to share my observations with Peter, who would definitely challenge and perhaps confirm them.
Peter’s vision of collaboration remains immensely relevant today. He believed that to give your customers what they need, you must follow two rules: first, you must do only what you do best, that is, play to your strengths; and second, to meet the full range of customer needs beyond your strongest capabilities, you must collaborate with other players, sometimes those you consider competitors, who can complement your strengths with what they do best. A tall order indeed.
I arrived on a spring day in 2005 at a suburban office park in Saratoga, California, south of San Francisco. A small, discreet sign on the first-floor office door said Myelin Repair Foundation. Walking into the headquarters of this organization, which is devoted to scientific collaboration at the highest level, I expected to see Hollywood’s version of a high-tech lab, where men and women with furrowed brows and long white coats use PDAs to beam code to each other amid giant plasma screens and LED displays. Instead, I stepped into a maze of cubicles—some of them piled high with papers. Scott Johnson, Myelin’s founder and president, welcomed me and set about trying to find a spot where we could meet; the foundation was outgrowing its space and didn’t have a conference room. I started to wonder if stepping into the future might be more like stepping back to my graduate school days at MIT in the 1970s, when we had to scramble for space in exciting places like Building 18 or Building E-52.
To give your customers what they need,
you must follow two rules:
play to your strengths and collaborate
with other players.
As Johnson and I sat with Rusty Bromley, the foundation’s COO, in a cramped corner space, I felt that old sense of excitement return. Consumers don’t yet know what myelin is, but it’s likely to become a household word to the families of the 400,000 Americans with multiple sclerosis (MS).2 MS attacks myelin, a fat and protein compound wrapped around axons, the fibers that sprout out of nerve cells and carry nerve signals. Think of myelin as insulation. When explaining MS to children, adults talk about electric wires in the body and how frayed wires often spark or sputter or fail completely. And as scar tissue forms in the place of myelin insulation, nerve signals are slowed, distorted, or halted. These sputters and failures are the symptoms of MS.3
Years ago, I had a neighbor with MS, a gentle teacher who loved word games. It was tragic to watch her steady decline, from walking awkwardly to hobbling with a cane to needing nursing care. I soon learned that Scott Johnson, who had been a senior executive at FMC Corporation, a chemical company, and then president of a start-up company, knew all too well how critical myelin was. He had been diagnosed with MS 30 years before. His own investigation of the state of the art in MS research was the catalyst for the Myelin Repair Foundation.
The untold secret of R&D, including publicly funded medical research, is that the very research centers that are supposed to work for the common good are often too internally focused. They don’t want to cooperate with others, whom they perceive as competitors, because they fear losing their funding. Maddened by this inefficiency, Johnson set about creating the Myelin Repair Foundation, attracting top scientists with the enticement of pioneering a new model designed to harness their collective expertise to attack and solve complex medical problems that they couldn’t solve on their own, and guaranteed funding. Experts kept telling Johnson that curing MS would take decades. Despite funding from the august National Institutes of Health, which boasted of investing $50 million a year in MS research, most scientists said it would still be 30 to 50 years before a cure would be available. Having heard the exact same estimate 30 years earlier, Johnson wanted to see results in his lifetime. He challenged everyone by setting an ambitious goal: to have a solution for repairing myelin in just five years.
To make sure the scientists kept their goal in mind, Johnson also invited a handful of people with MS to attend a session where MRF brought the scientists together for face-to-face meetings three times a year. The experts were no longer dealing with an abstract problem of axons; they were dealing with fellow human beings suffering from an implacable disease. The foundation connected research centers at five universities to collectively find a way to repair myelin.
From Saratoga I drove to Stanford and met with people in one of the member labs. Their excitement was palpable. The scientists were amazed at how effective their monthly phone conference calls were with team members at the other four labs and the MRF staff. These calls enabled them to share information and procedures and to get frequent, objective, expert feedback on their research design and interpretation of results rapidly instead of at annual scientific conferences and during the actual experiments long after. The benefits of collaboration were immediately obvious to them and to me. The model adopted by the Myelin Repair Foundation—putting together the best that different entities have to offer and abandoning the notion that a company has to do everything itself—seemed to reflect much of what Drucker had written in The Post-Capitalist Society.
My visit with Scott Johnson and Rusty Bromley, and discussions with Peter, confirmed my hunch that the Myelin Repair Foundation is a truly excellent example of what collaboration can provide. The quality and commitment of this effort and the consequent multiplier and accelerator functions of highly focused collaboration among the principal investigators, outside contractors, and MRF staff dramatically increase the chance of a near-term breakthrough in a cure for MS.
The morning after my visit to the Myelin Repair Foundation, I was unusually nervous as I approached the Drucker house. I had visited a Starbucks in L.A. to clean up my notes on a laptop, and then I stopped at Kinkos to print out the notes and questions for Peter. As Peter read through my meeting notes with Johnson, he asked me a number of questions and uttered “magnificent” several times. Then we began discussing the critical questions that the Myelin Repair Foundation, as well as any organization that wants to tap into the power of collaboration, had to address. Peter asked three fundamental groups of questions:
1. What are the goals of your collaboration? What are the shortcomings of the traditional business model? What are the needs that it leaves unfulfilled? And what is the prize a collaborative business model could deliver?
2. How should the collaboration be structured? What will be your front room? What does your company do best? And what organizations or individuals are best at the other activities necessary to fulfill your customers’ needs? Who best complements your front room?
3. How do you orchestrate and operate a successful collaboration? What is the best way to set up your enterprise to be agile and cost-effective and to work with your backroom partners as one well-orchestrated whole? Can you manage down the risk that the partnership will backfire or be derailed by competitive issues?
As you consider these three groups of questions for your company, imagine you are just now leaving college and setting up your company from scratch. That’s Peter’s way of looking at the viability of a corporation—if you weren’t in this business, would you enter it today? And if so, what would it look like and where would you collaborate or draw on others’ capabilities?
If you weren’t in this business, would you enter it
today? And if so, what would it look like?
Some unmet needs are simply not possible without collaboration. For example, what if you could connect any service or gadget the way you really wanted wirelessly and plug and play? Imagine the possibilities. There would be only one fiber system into your home with multiple lanes. The wavelengths would be split much like radio frequencies, and the telephone, cable, Internet, video services, etc., would all flow through that single cable. You would have one easy-to-use remote device, with no unnecessary functions, for six different brands of electronic equipment. If you lost your remote device, you could pick-up another one at Radio Shack for $10, rather than the $1000 charged today for the high-end programmable remotes by the specialty stores. The spaghetti of wires behind your desk would disappear. It would be doable if companies collaborated and a third party or collaborator had the vision to connect the pieces. This is very much like what the Eisenhower government did when building the U.S. Highway system—states guaranteed companies that they would get their money back if they invested in the shared highway system and thereby created demand for automobiles.
I would like seamless wireless coverage while traveling on Interstate 95 around the New York City area. There are moments I wish I were in Siberia, where I expect the coverage is better—linking all those T-mobiles, Verizons, and Cingulars might be a beginning. My kids could pull out their laptops, send e-mail or play on-line games, download a movie, or access their homework while I drove. Google is testing this service model in San Francisco. If companies are willing to collaborate, as Peter constantly said, “it’s a great opportunity.” If they fail to do it together, they won’t be able to do it on their own.
As we discuss Peter’s three groups of questions, we begin by looking at how the Myelin Repair Foundation answered these three questions as it was set up initially, discuss Peter’s comments, look at how other companies have addressed these questions, and then consider the lessons we can learn from their collaborations.
WHAT ARE THE GOALS OF YOUR COLLABORATION?
1. What are the shortcomings of the traditional business model? What are the needs that it leaves unfulfilled?
2. What is the prize a collaborative business model could deliver?
Thirty years after being diagnosed with MS, Scott Johnson discovered that, by their own admission, scientists were no closer to finding a cure than when the diagnosis was first made, so he got proactive. He began searching the literature to assess the state of MS research, Johnson’s “aha” moment came when he read a Business Week article that talked about a repair—not a cure—for MS. He liked the notion of repairing the damage or simply treating the symptoms, the way that insulin is a treatment but not a cure for diabetics. Such repairs could radically slow the progress of the disease. “I just called the scientist who was mentioned in that article,” Johnson recalled. “He suggested that I talk to other scientists, and that led me on a trail.”4
Johnson’s outsider perspective and business background helped him quickly identify key barriers to the timely development of drug targets in the scientific community. He explained during our interview that the prevailing academic model was serving the wrong customer. Scientists and their universities were the immediate beneficiaries of their research. Success is measured in papers published, grant monies, and tenured research positions, not in enhancing the quality of life for those suffering from a disease. And the drive to be first in making a breakthrough discovery means that information is sequestered rather than shared—until it is time to “break the story” in a peer-reviewed journal. Not only is the academic model not geared to benefit patients, but it provides strong disincentives for the kind of collaborative knowledgesharing needed to achieve medical breakthroughs. The search for the next grant is never-ending, and the publication of original research in the best journals is the primary criterion for awarding grants. Thus, to be able to continue his or her work, the researcher cannot work with colleagues or share ideas ahead of publication. Critical time is lost because of the delay in making intermediate findings available to others, findings that might well accelerate the progress of their independent lines of research. One of the Myelin Repair Foundation scientists I spoke to put it this way: “Let’s face it; Tiger Woods doesn’t help Phil Mickelson improve his swing. Well, the same thing is true in science because it’s a competitive environment.”
The academic model does little to break down the natural silos that form around specialties. Nor is the private-sector approach much help either. Johnson met with leadership teams at several pharmaceutical companies to propose a joint project to develop and validate drug targets for MS. These companies had their own set of constraints. Under pressure to keep down costs and worried about lawsuits, they were cautious about MS research. Johnson found a wide cultural gulf between the very academics and private-sector researchers who should have been drawing on each other’s talents. He expressed it this way to me, “A large number of the Ph.D.’s have never been outside the academic world. I think a lot of them have a negative perception of the business world and really don’t want anything to do with it. They often view people who went to the commercial world as individuals who compromised their intellectual integrity.”
To Johnson, the need was the ability to connect labs with one another, as well as link the academic world to the pharmaceutical world. The prize was a treatment, not a cure. And the timeline for securing that prize—for finding and validating a myelin repair drug target—was 5 years, not the 15 to 20 years that the scientists estimated it would take under the current system. Recently at a meeting with Genetech, someone commented that “you have industrialized academic research.” The principal investigator there thought about it and responded, “Yes, that is exactly what we are doing.” Two years ago he would have gotten up and walked out.
Johnson and his team quickly set the target at five years. “I think they [the MRF scientists] are amazed at how rapidly results are coming out,” he said. There are no guarantees that the foundation will find a treatment, but they believe they have a much better shot at it if they address the shortcomings of the business and academic research models, define the prize, and pursue it relentlessly.
Another example of inventing a better business model comes from one of the pioneers of collaboration, Dell. As mentioned earlier, Michael Dell and his team discovered that users were eager to put together computer components themselves. The problem was that each computer company preferred selling customers its own brand and fully assembled computers. Dell’s initial prize was to get customers a PC, customized to their specifications, within one week. Dell made its front room the ability to plan and configure customized PCs, taking advantage of the vast components and capabilities available from other sources. This focused discipline plus stellar inventory management made rapid customized service possible.
Many of Dell’s 15,000 direct employees are also collaborating with the company’s corporate customers. For example, there are the 30 Dell employees who rarely see the inside of the home office because they work full time at one of Dell’s customers, Boeing. There they function, in the words of Michael Dell, not “like a supplier but more like Boeing’s PC department. We become intimately involved in planning their PC needs and the configuration of their network.”5
In developing countries, collaboration has helped subsistence farmers overcome the economic, political, logistical, and infrastructure limitations they face while also securing a high-quality, low-cost sustainable source of supply for their customers. Here is one example that will change and has changed millions of lives.
After almost 100 years of buying soy from local farmers in India, International Tobacco Company (ITC) is leading the eChoupal initiative—a radically different, collaborative approach to the purchasing relationship. Under the 100-year-old system, farmers sold soy in an ostensibly open auction process in local markets. But soy prices were artificially set by ITC by means of arrangements with certain local distributors. Farmers were so marginal that ITC’s supply was never really secure. To move beyond the subsistence level, the farmers desperately needed better information. They could not maximize their crops or yields or get the best price for a particular commodity without information on weather, agricultural conditions, the effectiveness of tools, and prices. Initially, the prize of the initiative was seen as giving farmers access to information to compete on an equal footing in the marketplace and enhancing ITC’s soy supply.
ITC gave every farmer access to the Chicago Board of Trade and to the outside world. Under the system, each village (or choupal) got a PC, an Internet connection, a power supply with solar backup, and a printer—all at a cost of under $4,000 per choupal. With this equipment, farmers could access the ITC-updated eChoupal site for information on weather, crops, markets, relevant news, and the ITC itself. The site’s frequently asked questions (FAQ) feature enabled the farmers to ask questions of ITC experts. The local operators of the Internet kiosks, known as sanchalaks, were farmers themselves. In return for operating the kiosks, they received commissions on all soybeans from their area sold to the ITC and commissions on ITC farming products sold in their area. The host farmer took a public oath to serve the community. Their homes became not only e-commerce hubs but also social gathering places for farmers and their families.
The system is no longer grossly lopsided. By 2006, 3.5 million farmers had gained access to the Internet and the outside world. Their total costs went down by almost 50 percent, as a result of better purchasing practices, better agricultural practices, and reduced administration costs. The old system provided farmers with an annual income equivalent to some $440 from their 8 to 12 acres of farmland. The new system increased price per ton by 25 percent and their overall tonnage yields. Not surprisingly, this program is extremely popular and continues to expand both geographically and across crops. Peter had no direct relationship with the ITC. Yet he is frequently quoted in its internal reports and the press about ITC, because his ideas resonate so deeply with the company and his approach to collaboration has worked so well for them.
The first step in structuring a collaboration is to identify your company’s “front room,” which Peter defined as your strengths, or the activity that is most important for you to do—that which stirs your passion and shows off your excellence. Everything else is your backroom, and it can be almost everything. One of Peter’s famous quotes is, “the only thing you have to do is marketing and innovation.”
In the traditional model, a business would add to its front room an array of ancillary activities needed to meet its customers’ needs. The quality of those activities might not be first rate, or the activities might be relatively high cost, but the company had to have them in place to meet customer needs. The level of communication and coordination needed to team up with another organization made any other approach impossible for most companies. In the new world, however, you can eliminate many of these ancillary activities and do a better job of meeting customer needs via collaboration. In the new world, collaboration is not just an option but an imperative. It is critical that you do only what you do best, that you eliminate or minimize your backroom by teaming up with another organization. With the greater transparency typical of the new world, the customer can see everything and knows your flaws and strengths. And you can connect to and use someone else’s front room, thereby better meeting customer needs and streamlining your operations in the process.
HOW SHOULD THE COLLABORATION BE STRUCTURED?
1. What will be your front room? What does your company do best?
2. What organizations or individuals are best at the other activities necessary to fulfill your customers’ needs? Who best complements your front room?
3. How can these capabilities be combined to fulfill your customers’ needs?
The Myelin Repair Foundation defined its front room as orchestrating and coordinating multiple elements of medical research that had never before been operationally linked. The foundation was the connective tissue joining the principal scientific investigators, the experts in the broader scientific and commercial communities, and the pharmaceutical industry. For the foundation, orchestrating meant seeking funding, helping plan the research, operationally linking the labs, providing resources, anticipating needs, and providing a healthy environment for a new, collaborative approach to research.
Research is the heart of the foundation and its reason for being; it is also its backroom. Johnson and Bromley worked together to assemble the best research team possible for this start-up venture. They asked neurobiology experts whom they considered to be the five best scientists in the field with firsthand experience in myelin research, and the same five names popped up every time: Ben Barres of Stanford, David Colman of McGill, Robert Miller of Case Western, Stephen Miller of Northwestern, and Brian Popko of the University of Chicago.
They approached each of these scientists with their unusual request: We would like you (and your university labs) to work collaboratively with us, rather than in the customary isolation; to work under firm and aggressive deadlines rather than in the customary open-ended world of grants; to work toward a goal of developing treatments for patients (who would be the customer) rather than publishing papers for your own academic advancement; to be part of a collective decision-making process with less individual freedom; and, ultimately, to work in concert with business for the eventual marketing of the drug. They became the foundation’s principal investigators despite its highly unconventional operational model.
In retrospect, Johnson understood just how lucky he and Bromley were, and how demographics had helped their quest. Luckily, all of the five scientists were in their late 40s or early 50s, and felt that they didn’t have anything to prove. Each had already been established as a success in the academic process. Each felt that this new model might provide a different kind of return or fulfillment—the possibility of more rapid progress, the opportunity to collaborate rather than compete with brilliant peers, the prospect of demonstrating an entirely new model of research with the potential to broadly transform critical research, and the rewards of being associated with actual treatment.
In the world of high technology, the classic example of collaboration is Linux, the open-source operating system. It has revolutionized the way software is made and has emerged as a powerful model of successful decentralized collaboration. Linus Torvalds wrote the beginning, or, as he called it, the “kernel,” of an operating system in 1991. He made it available to everyone and invited others to improve on it. His front room is the original kernel and the decision authority built into the software to accept changes. The backroom is executing all the changes.
The Linux operating system that resulted from this collaboration includes code written by thousands of volunteer programmers all over the world, united in their desire to make Linux a constantly improving product and an unstoppable force in computing. The Linux organization is a true meritocracy based on transparency. Any person can look at every bit of code and is free to participate, but only the best fixes are picked by Torvalds and make their way into the next version, which, in turn, will be probed by thousands of people for flaws and more opportunities for improvement. Despite its tremendous growth—Linux software is on more than one-third of the world’s servers—the operation has managed to remain both agile and effective. Torvalds remains the undisputed, highly respected leader of this virtual spider web of programmers, top tech companies, and Linux distributors.
As the collaboration has expanded, more of the review process has been delegated and automated, but the fundamental idea remains the same. Top tech competitors such as IBM and Hewlett-Packard work together and with distributors such as Red Hat on setting development priorities, offering their programmers’ time on projects, and protecting Linux from potential intellectual property claims. The tech companies, in turn, make money not from selling the operating system, which is available for free at linux.org, but from selling services and software around the system. Thus everyone (with the exception of Microsoft) benefits from this cooperative ecosystem of global technology talent.6
Electronics powerhouse Toshiba has also benefited from a collaborative business model. In 2004, Toshiba saw an opportunity to build customer loyalty in the highly competitive PC market by offering a significantly shortened turnaround time for laptop repairs—a clearly felt customer need. To do so, Toshiba had to recognize that making repairs was not its front room and to look outside its own walls for the capability to repair and return products rapidly.
It was not critical that Toshiba itself repair its customers’ laptops, as long as it could guarantee quality service to its customers. So Toshiba entered into a relationship with UPS. Toshiba provided the laptops and customers. UPS provided packaging and convenient drop-off shipping of laptops through The UPS Store retail network; it also set up a Toshiba-certified repair center at the UPS Supply Chain Solutions campus in Louisville, Kentucky, adjacent to the UPS World port global air hub. This center could receive and repair a laptop and ship it back to its owner in one day, with delivery as early as 8:30 a.m. the next morning. Customers could use other shipping services and other repair services as well. The bottom line: Toshiba customers could have their computers up and running within one to four days of returning them for service.
The customer cares much more about hassle-free, fast, and reliable service than about who performs the service. By eliminating service and shipping from its backroom and using UPS’s front room capabilities, Toshiba was able to meet this customer need far more effectively than it could have on its own.
HOW CAN YOU ORCHESTRATE YOUR COLLABORATION TO BE AGILE AND COST-EFFECTIVE AND TO WORK AS A COHERENT WHOLE?
1. What sort of living business plan is needed to delineate the path to the prize?
2. What structured communications will connect the players to the shared goals and plan and build agile decision making into daily operations?
3. What tracking and feedback mechanisms support your living plan and ensure continued attention to outside results?
As Peter described this challenge to me, he said it is about knowing what you know and what you don’t know, acting and learning, and then updating what you know. Getting more than one company to do this simultaneously—organizations that have never worked together before—is management’s challenge.
Once the collaboration has been structured—when participants and roles have been defined in pursuit of a collaborative prize—the management challenge begins: orchestrating the collaboration so that two or more different organizations can work together in unaccustomed ways in pursuit of that prize with ever-changing learning and shifting priorities. Like other effective collaborators, the Myelin Repair Foundation devised a living business plan, structured communications and decision making to connect the plan to daily operations, and designed tracking and feedback mechanisms to stay connected to outside results.
Scientists don’t have business plans. Their objective is to increase knowledge. But the research collaboration orchestrated by the Myelin Repair Foundation did need a business plan to articulate the commitment of all the players to sharing information, getting results, and achieving targeted milestones, as well as to provide a constant reminder that the foundation was challenging the open-ended academic model. Scott Johnson recognized that the foundation needed a living business plan, one that could be updated, modified, and accelerated—not a static plan meant to impress stakeholders and analysts. That way, the scientists would have the flexibility to build on advances and quickly bring a treatment to MS patients. The plan specified tangible goals, clear accountability, and explicit timelines. By its very nature, the plan was made to be flexible and grow organically alongside the foundation.
One of the scientists commented, “Once I saw the research plan, you couldn’t pry me out of this collaboration.” He could see how powerful and how useful it could be at attaining results. This plan defines as many paths of inquiry as needed to find the answers, but each year the principal investigators propose pilot projects that determine what investments will be made in the next year, and how to refocus resources.
The foundation’s living business plan delivered results. In the fourteenth month of the project, one of the principal investigators told the management team that he had a target ready for preclinical testing, but the foundation’s five affiliated university labs lacked the testing capacity. In the traditional academic research model, coming up with this capability would have required writing another grant or waiting until capacity became available in one of the labs. As Bromley told me, “In the academic world, if the scientists get a grant, they perform all associated activities in their own lab. They wouldn’t contract out for things outside their lab.” The foundation, however, quickly dealt with that bottleneck.
While the business plan had anticipated preclinical testing, it assumed testing would start in the third year. Even though this need arose well ahead of schedule, management was prepared to handle the unexpected. The foundation’s budget also allowed for research sponsored by other universities as well as commercial entities, and it was able to move ahead with preclinical testing in short order.
The designers of the Myelin Repair Foundation’s business plan also carefully thought through the endgame for incorporating the pharmaceutical industry into the initiative, guaranteeing results to donors, and ensuring future financial independence.
What makes collaboration tick day to day and move in step with shortened windows of opportunity?
1. Well-structured communications.
2. Rapid and effective decision making.
The foundation’s communications challenge was much greater than how best to connect people from different locations. With the melding of business and research, foundation participants had varying backgrounds and different expectations about pace, reporting procedures, and basic professional practices. The foundation needed a common vocabulary that would ensure immediate and consistent understanding among people unaccustomed to a businesslike operation. Initially, its business syntax and vernacular were foreign to the scientists. Management had to tread carefully so that the scientists understood what it was they were trying to accomplish, how they would achieve their goal, and why their experience base and language would be an integral part of the solution.
This new vocabulary has helped the scientists adopt a more businesslike, outcome-oriented mindset and create an environment that is open to new ideas and approaches. One of the greatest challenges is to get the scientists to either abandon or postpone projects—not because the projects are not worthwhile, but because they have to continually reprioritize to make sure they’re going after the things that have the greatest chance of success.
To ensure strong and regular communications among the geographically dispersed scientists, conference calls are scheduled monthly, along with face-to-face meetings every four months. The general agenda for these conferences (both telephone and in person) is to discuss research, share findings to date, reiterate a commitment to the prize (a treatment for MS) and the customer (the MS patient) rather than an individual’s research priorities, and establish new directions and priorities for research.
To keep the customer foremost in the scientists’ minds, at least one MS patient is present at almost all the foundation’s meetings. To keep the scientists focused on their common research priorities, the Scientific Advisory Board (SAB) attends two of these triennial meetings each year. And in its oversight and peer-review capacity, the board helps ensure that no unnecessary or unpromising work is being done or planned. The principal investigators (PIs) view the triennial meetings as milestones and seek to move toward results that they can share with colleagues there. To keep the decision process on track, the management team’s role is one of taking the principal investigators’ information, putting that information in the context of what the other scientists are doing, how it contributes to developing a treatment, and feed it back to them. Rusty Bromley elaborated on that interaction, “What we are doing is listening to them talk from our outside-in vantage point . . . and when discussion centers on ‘we really ought to be able to do this, but none of us really can,’ we assess the criticality of the activity and find resources.”
The PIs develop what they believe is the critical path. They then articulate the research priorities it implies and share their view with the SAB. This is also a dialogue, a real-time discussion, and the PIs go back and modify their plans based on that discussion. Ultimately, the SAB has to accept the plan and recommend to the board of directors that it be funded.
As a collaborative, rather than a solo, institute, the Myelin Repair Foundation is well positioned to ensure that its decisions are focused on the right issues. Johnson shared a story with me that very much illustrates this reality:
One of the PIs has been taking sections of brain tissue and spinal cord tissue to look at how the key genes change over time in a particular animal model of a demyelinating disease. After his second report, the group said, “We think the sections [of tissue] are too gross [no pun intended] and, consequently, the other tissues are muddling the genetic expression information.” So he’s gone back to the drawing board and is now looking at some very advanced laser dissection techniques that would enable him to take out very small groups of cells specifically associated with the lesions that form in the disease model. Had he been functioning independently, it probably would have taken two years to recognize the dissection problem, as he would have been so busy generating data that he wouldn’t have necessarily seen the forest for the trees. Not until he was getting ready to publish his findings would he have shared them with someone outside his lab, and maybe then the problem would have been raised, possibly as a critique from a reviewer at a medical journal.
So now, instead of spending two or more years working on an experiment before discovering its flaws, our PI was on track within three to six months. And the usefulness of his experiment was also expanded because of the MRF’s collaborative mode. Although he started by looking at the expression of a small group of genes, the other members of the team continually fed him other genes that they wanted him to study. So, what began as gene expression of about 6 genes expanded to about 15, enabling him to rapidly confirm in an animal what they might be seeing in a cellular model of some sort.
As Drucker said to me, whether you are a functional member or the orchestrator, the fastest way to undermine your collaboration is to mistake movement for progress. Because the collaboration brings together multiple parties to achieve a common goal, each party will have an explicit role, with explicit responsibilities and accountability—all of which is eminently trackable.
Because the collaboration is by definition a temporary relationship, you need a set of metrics for determining when its purpose has been achieved (whether by your organization or by some other entity), when its purpose needs to be adjusted in light of changing circumstances, or when it needs to be abandoned because it is no longer relevant to customer and market realities.
Once the foundation had been structured and launched, management tackled the issue of how best to measure progress and introduce accountability into the research process. The importance of accountability was underscored by the donors’ need to know how their money was being used. That the Myelin Repair Foundation has a tracking and measurement process is yet another characteristic that sets this young organization apart from the conventional research institute.
To help ensure meaningful progress, the foundation constantly reevaluates its path and its goals, with the regularly scheduled conference calls and face-to-face meetings natural forums for such reevaluation. This review begins at the start of each year when the PIs, the SAB, and the management team sit down together to look at what has been accomplished to date and compare it to the Myelin Repair Foundation’s road map. At that time, each principal investigator presents proposals for pilot projects to address as-yet-unsolved problems on that road map, with the objective of reaching consensus-based decisions on the best pilot investments for the new year and eliminating any pet projects that are less than relevant.
The foundation is also creating scorecards for evaluating work in progress. The foundation uses key metrics to evaluate progress, including results against plan, ability to react to and handle unexpected findings, benefits of the collaborative model (in terms of time saved/accelerated problem solving), and level of member enthusiasm for the effort. On all fronts, progress—not merely movement—is occurring.
Many of these practices resonate with us as customary business protocols. What is different for the Myelin Repair Foundation is its application of these protocols in a scientific/medical research context. What is new for those of us managing businesses is the fast-changing, collaborative world in which our protocols are applied.
For the past 50 years, the prevalent business model has assumed clearly defined boundaries between a company and its suppliers, customers, and competitors. These walls are now constraints, not advantages. And outsourcing to reduce cost is only a small piece of the new business model. In fact, many younger companies were trailblazers in the area of collaboration, and several mature companies have already taken large steps in this direction—some out of necessity and others to go after opportunities.
LM Ericsson is another example of a company that has achieved great adaptation and orchestration. It effectively collaborates, and then its collaborations collaborate. Ericsson, the 130-year-old Swedish telecom manufacturer, has quietly gone about adapting to the Lego world.
Admittedly, Ericsson’s collaborations were motivated out of necessity; they were survival tactics in the post-boom telecom industry, characterized by exceptionally rapid change and disappearing boundaries between media companies, consumer electronics competitors, Internet portals, fixed line and wireless telecoms, and cable companies. After the global telecom market collapsed in 2001, Ericsson had to recover from a near-death experience. For three years following the market collapse, Ericsson was swimming in red ink. (I can remember cruel market commentators saying that although the Ericsson logo resembled three little sausages, the downtrodden share value wouldn’t buy one hot dog in Stockholm.) Ericsson shed half its workforce and emerged from this crisis even more successful.
Yet its reduction in workforce and the selling off of noncore assets that accompanied its downsizing are not what’s significant about Ericsson’s recovery. Those actions are typical of companies in crisis. Rather, it is how quickly Ericsson adjusted, fundamentally rewiring itself to deal with the often disruptive market impact of new, constantly evolving technology, much of which the company itself had developed.
Ericsson’s management took a hard look at its industry, where technology advances, such as network architectures based on IP multimedia systems and turbo-charged 3G broadband, had enabled any player to become a one-stop shop for household communication, essentially “bridging that last mile.” This newly consumer-driven industry was faced with global demand for a Swiss army knife or a multifunction version of a handset capable of all types of communications and interactions—Internet, mobile communications, TV and video play, GPS, PDA, MP3 players, game consoles, camera and video recording, credit card transactions, and so on—all captured in a fresh-looking design.
Capitalizing on these changes by connecting the disparate pieces of the telecom industry, Ericsson began going after the prize: a world where 6.5 billion consumers can communicate regardless of their location and choice of technology. Guided by this vision, the company began rewiring itself. From its origins as a traditional developer and manufacturer of switches for fixed telephone land lines, Ericsson moved 180 degrees, emerging as a world leader in both manufacturing and service, making wireless telecom infrastructure equipment and managing operations for other telecom players.
Ericsson’s strategy of being a one-stop shop offering a full range of telecom services is not new. What is absolutely new, however, is how that strategy is being executed. Ericsson is no longer trying to house all of its value delivery activities under a single management roof. Rather, it is availing itself of the consumer expertise of other players. It has taken a hard look at what roles it is uniquely positioned to play, what its front room should be, and what parts of the value chain should be another player’s front room. Today, one-third of Ericsson’s employees are in R&D, and another third work in global services. As Drucker and I discussed Ericsson, he talked about its changing front room and the need to think about it every day.
Handsets are a case in point. In early 2001, following several years of brutal competition and an industrywide slowdown in handset sales, Ericsson, then the third-largest supplier of mobile phones globally, announced that it would outsource all manufacturing of handsets to Flextronics but that it would continue its R&D and marketing activities in-house. Within a few months, it became clear to Ericsson that the handset was becoming more and more of a fashion accessory and that its own design and marketing capabilities paled next to those of competitors, including its next-door neighbor in Finland, the design genius and market leader Nokia. By October 2001, Ericsson had entered into a joint venture with Sony to develop and market handsets for both companies. With Sony responsible for style and design, Ericsson was free to focus on its core competency in advanced radio and infrastructure R&D and technology platform development, while benefiting from Sony’s expertise in consumer products.
The Sony-Ericsson joint venture has proved to be a very successful collaboration. By 2006, its world market share had doubled to 15 percent, and it is aiming to recapture the number three spot. While not as profitable as Nokia, which has more than 30 percent of the market, the joint venture contributed $300 million to each of its owners in 2005—a sharp contrast to Ericsson’s $1.5+ billion in handset losses in 2000 and to the $300 million that Siemens had to shell out last year to get rid of its handset business.
Part of the joint venture’s success is its growing alliances with customers, content providers, and competitors. It outsources almost two-thirds of its manufacturing to lower-cost players. It has a music partnership with Orange (France Telecom’s mobile phone network) for the new Walkman phones. It is working with Google to incorporate Google Blogger and Web search features into the handset. And perhaps most indicative of Ericsson’s bold transition to the new world, the joint venture is working with archrival Nokia to develop mobile television.
Ericsson has also taken some bold steps on the service side, borrowing a page from its own playbook by helping customers shed activities that they are not the best at. The top 10 global operators are among Ericsson’s customers, and 40 to 50 percent of the world’s 2 billion mobile phone subscribers are connected via Ericsson networks. As consumers, we have come to expect seamless and speedy communications. However, most of us are probably unaware of the relentless pressure our service expectations place on operators. They have to upgrade constantly to next-generation networks and quickly devise low-cost packages of home phone, Internet access, cable, and wireless to fend off attacks from such nontraditional players as cable companies and Internet telephone companies—all the while protecting their legacy investments.
Ericsson saw the writing on the wall several years ago and knew that few if any operators could be experts at managing both the consumer end of the business and their own mobile and fixed networks; the divergent demands of the business increasingly necessitated different forms of unbundling and outsourcing. By 2005, Ericsson was managing networks for major national carriers in Europe, Asia, and Latin America, with two-thirds of its 18,000 global services employees working at customer sites in 140 different countries. U.S. operators continue to view network availability as a differentiator and have been reluctant as yet to turn their networks over to others. I suspect this attitude will change.
Meaningful collaboration goes far beyond
simply outsourcing a particular function because
someone else can do it more cheaply.
Those who have turned network management over to Ericsson have benefited in ways beyond being able to focus on what they do best. Specifically, Ericsson (and Nokia, which is never far behind) can provide operators with important weapons for penetrating developing markets, particularly India and China, which offer the most exciting growth potential for telecom players. For example, by offering “pay-as-you-grow” capacity and new antenna technology that provides better coverage with fewer sites, Ericsson gives its global service customers much more cost-effective coverage in remote, low-subscriber areas.
The Ericsson lesson: meaningful collaboration goes far beyond simply outsourcing a particular function because someone else can do it more cheaply. By combining best-in-class capabilities from across the industry, a joint effort can better meet customer needs, including the need to jettison activities that are not the customer’s strengths.
In one of our conversations, Bill Pollard, former CEO of ServiceMaster, recalled a trip he took to Japan. He and Peter were both speaking at a forum in Tokyo. Bill had invited ServiceMaster’s Japanese business partner, from Osaka, to come to the forum, but the partner chose not to come. Bill commented that it was quite a large business and that ServiceMaster was having difficulty with it at the time. It was sending him a message that even though he had come to Japan, he really didn’t want to see him, and he was irritated.
When Bill and Peter were catching up, Peter asked Bill if he was going to go down and see the partner in Osaka. Bill replied, “No, Peter. They didn’t want to bother to come up here to Tokyo, I’m not going to go down and see them in Osaka.” The evening the forum was over, Peter sat Bill down and gave him a lecture about interpersonal relationships. Bill recalled Peter telling him, “I should go the second mile, I should go down to Osaka, not only as a matter of just restoring a relationship with people that needed to be restored, but also to recognize the value, especially in that culture, of doing it in that particular way.” Bill sat for over an hour while Peter helped him understand some of the nuances of the way the Japanese mind works. As always, Peter complemented his specific advice with some type of knowledge or historical reference.
The next day Bill was on the train down to Osaka. The advice was not only helpful in restoring the relationship, but it helped in negotiating a solution to the business problem and establishing a longer-term relationship.
To succeed in the Lego world, you must collaborate. You must tap resources outside your organization. Just as no one person can be an island, no business can isolate itself. The examples I have shared with you here are not exceptions; similar stories abound in every industry and sector. In our conversations, Peter identified the following characteristics of successful collaborative organizations:
1. A reputation as the place to work that attracts the best and the brightest.
2. A flexible, easily adaptable infrastructure and a highly variable cost structure.
3. Pragmatic political and logistical solutions that convert potential adversaries into allies.
4. Influence that flows from setting industry standards that shape the expectations of end consumers.
5. Identification with their local communities through holistic branding.
It’s not just information that enables these alliances to be effective. For the past 100 years, the world has been building myriad international standards for both processes and products. Consequently, an engineering schematic created in France can be understood by engineers working in China and everywhere else around the world regardless of language. And a part built in Korea fits with a component built in Brazil and meets U.S. OSHA standards; standards that further international collaboration.
These confederations will facilitate the near-instant spread of and access to knowledge and will have the potential to move business ideas quickly across organizational boundaries.
Imagine yourself bringing together the best capabilities from across the globe to cost-effectively deliver maximum value to every customer. Envisioning the way to do it requires bringing unfettered creativity to the three basic collaboration questions: What is the unfulfilled customer need and the prize that collaboration seeks? What is your front room and what is your backroom? How do you structure and orchestrate the collaboration? Remember:
1. Defining the need is not bound by existing business practices. In fact, the most powerful collaborations target needs that cannot be met by traditional businesses.
2. Delineating your front room from your backroom. Decide what your company is best at and challenge whether you need to perform all other roles. You should be collaborating with someone else who can do those activities better.
3. Shared objectives and relationships of trust are often more important to a collaboration than is technology, and orchestration must be deliberate; it does not happen by itself.
Core to all of Drucker’s work was an absolute respect for relationships. In one of our conversations, he went so far as to say that it doesn’t matter what your discipline is or how sophisticated you are technically. If you can’t learn how to respect people and how to develop and nurture relationships, you can’t reach your potential as an individual or a company. Nobody works alone anymore at anything.
As usual, Peter hit the nail on the head. As he put it, “The corporation will survive—but not as we know it. Organizations are critically important as organizers, not as employers. Often the most productive and profitable way to organize is to disintegrate and partner.”7 The agile organization positions itself as a bundle of capabilities and resources. The next chapter focuses on people and knowledge—the resources that define your front room.