The pace of social, economic, and technological change is astounding, yet few companies can take advantage of all of this new knowledge by acting alone. They must choose to collaborate either through one-on-one interactions or by participating in innovation-supporting networks (ISNs). The collaboration success depends on the partners having clear objectives and agreeing to adopt manageable and credible goals. It also requires clear processes for sharing investments and results, with sufficient flexibility in accepting unforeseen results. As in all innovation activities, there are risks to be managed when collaborating. Overall, collaboration depends on the organizational culture and quality of human interaction within each of the partner organizations, and between the people belonging to different organizations.
Our report analyzes the current environment of collaboration surrounding businesses in Canada. It shows how innovation-oriented companies interact among themselves and with ISNs, and how their collaborative interactions enhance the extent and effectiveness of innovation efforts in companies. The findings are intended to help corporate managers, and others responsible for business innovation development and support, enhance their ability to innovate—thereby helping to improve business performance.
Overview of Findings on Inter-Company Collaboration
Our findings clearly demonstrate that collaboration is key to innovation success. Yet, they also show that many businesses make no concerted effort to focus their collaboration activities on areas that can strengthen their overall performance in the market. The companies’ lack of effort costs them on the bottom line. On average, companies that collaborate primarily to shorten the time to market do remarkably well—an average of 80 per cent above the average performance of all companies. Companies that collaborate to improve sales also do significantly better (35 per cent above average), as do those searching for access to better technology (30 per cent above average).
This lack of focus may relate to several factors, including the fact that a high proportion of companies do not reward their employees’ involvement in collaboration. The proportion is notably greater in export-oriented companies—somewhat surprising, since collaboration is more important in this sector where exporters face tough competition and limited familiarity with markets abroad.
Companies that do collaborate prefer to work with partners they know from previous work experience.
Not-for-profit companies tend to have a higher appreciation for collaboration than do for-profit companies. Businesses, overall, place the highest value on collaboration related to technology development and scientific research, and product design and development. Commercially oriented collaborations for market research or sales and access to customers are not as prized, the exception being within small and very small businesses.
Companies that do collaborate prefer to work with partners they know from previous work experience. Outsider recommendations also play a strong role and, in fact, often trump recommendations from within. Getting to know a company through a wider innovation supporting-network or a respective industry association are good ways to find a desirable partner. Conferences and networks appear to play a stronger role than web searches and social networks in generating potential partners. In fact, even chance encounters are a more common source of new corporate connections than the web and social networks.
When it comes to the challenges to collaboration, the top two are the shortage of opportunities to know potential collaborators, and the cost and frustration of setting up collaborations. Other challenges range from a lack of tax incentives to concerns about protecting intellectual property (IP). A lack of knowledge about how to set up a formal collaboration is also at play.
Few Canadian companies that are oriented to export markets make use of collaborators located in their target markets. Exporters tend to collaborate less on commercial activities such as sales, accessing customers, marketing, and public relations. They place more emphasis on collaboration for scientific research and development, and related legal and administrative activities—the latter possibly related to IP protection. The seeming disregard for the value of partners providing market assistance in international markets helps to explain a recognized weakness in Canadian industry.
Interestingly, despite their mixed performance record, a majority of Canadian companies do not consider it necessary to train their employees to collaborate better. Our research finds that over half of Canadian companies do not provide any collaboration training. Firm size has only a marginal impact on the attitude toward training. Surprisingly, fewer export-oriented companies deliver collaboration training than do domestic-oriented ones, even though the complexities and significance of collaborating for success in international markets would suggest the reverse ought to be true.
About a third of Canadian companies do not reward any of their employees involved in collaborations, while about the same percentage do. Notably, a higher proportion of export-oriented companies than domestic-oriented ones do not reward their people involvement in collaboration despite the evident value of collaboration to exporters.
Lack of know-how about how to become involved is the number one reason for not joining an ISN.
Collaboration with a lead customer, described as a customer helping the company to define and develop a product or a service, is of high importance because it usually helps the company to better refine its solutions for general market consumption. In return, the lead customer benefits from early (and sometimes lower cost) purchases of the product or service, ahead of the rest of the market. Working with lead customers helps companies achieve—in general—a significantly better performance. As well, companies that act as lead customers show an average performance much higher than those that do not.
The most frequently cited reason for collaboration failure is unclear objectives and lack of focus. In addition, priorities that are more important, unclear responsibilities, and running out of money are mentioned as factors. Companies also list a shortage of executive attention and training, and a lack of incentives. The failure variables that impact companies the most vary by company size and whether or not the firm is domestic or export-oriented.
Overview of Findings on Innovation-Supporting Networks
Currently only about 40 per cent of service providers, manufacturers, and ITC companies (utilities, transportation, retail, etc.) belong to innovation-supporting networks. This is surprising given their competitive pressures and continual need to innovate. In comparison, 60 per cent of resource, life sciences, clean tech, and professional service companies participate in ISNs.
Lack of know-how about how to become involved is the number one reason for not joining an ISN, while the shortage of opportunities to learn about such networks is another major factor. These reasons have much to do with the company itself as well as with the ISNs’ inability to make themselves known and understood. Resource constraints and financial pressures are another impediment to involvement.
Given the tendency to collaborate close to home, it is not surprising that many Canadian companies prefer ISNs that are local or provincial. Other popular types include professional and Canadian industry associations.
The level of priority for joining an ISN varies with the size of the company. Large companies primarily look at ISNs as avenues for connecting with potential partners; mid-sized firms are looking for information on market activity. Small and very small companies are chiefly hoping to connect with potential partners. In a nutshell, companies look primarily for ISNs that help them develop specific market opportunities, business connections, and technology advances.
The preferred governance for ISNs is for networks based on informal alliances that are not time-limited and have dedicated management representing many members. Formal networks—initiated by a respected, major, private company or mixed private-government networks—rate second and third, respectively. Further, self-organizing informal networks are not as preferred as formal networks of equal members. In general, Canadian companies prefer older, more established networks to newer ones.
Many companies have difficulties justifying the expense of participating in ISNs without proof of value.
The most-often cited ISN challenge is lack of funding. Other major ISN challenges are poorly defined network objectives, a lack of incentives for collaboration, and a lack of performance metrics to show value. Companies are also concerned about a too-wide membership in some ISNs, ineffective bureaucratic management, a lack of regular interaction and activities outside annual events, and a lack of executive commitment from member companies.
A lack of performance metrics exacerbates the challenge of insufficient funding as many companies have difficulties justifying the expense of participating in ISNs without proof of value. Indeed, our data show that larger firms are very concerned about the lack of funding, lack of performance metrics, and the fact that there are too many members in some ISNs.
Businesses value government-initiated and -funded networks above those created by Canadian industry associations and professional associations. Companies most value ISNs for the business connections and technology advances they offer, followed at some distance by access to ideas on market opportunities and advances in processes. Advocacy and lobbying are also benefits of significance—especially for mid-size companies. Large companies put a much higher value on processes and environmental innovations than do smaller companies, which see higher benefits stemming from business connections and ideas about markets and their opportunities.
Impact and Implications for Policy and Action
The performance of companies that choose to collaborate is, on average, over 30 per cent better than that of companies that do not. On average, those that collaborate to shorten the time to market perform much better, as do companies that collaborate to improve sales or to access better technology.
Our research clearly shows that the success of collaboration depends on partners having clear objectives and processes and agreeing to manageable and credible goals. Strong collaboration also hinges on organizational culture and the quality of human interactions, not only between partner organizations but also within each organization.
We found that most companies tend to collaborate more with organizations at home—in either the same city or province. Canadian businesses also tend to collaborate on scientific research, technology development, and specific product or service development more than on other aspects of commercialization and market entry. Further, companies that collaborate in commerce-oriented areas prefer to collaborate with domestic partners rather than foreign ones. This reliance on domestic partners is very strong, even for exporting companies. Notably, this does not align with Canadian companies’ stated preference for collaboration with the best possible partners, even when they are far away—at more than a five-hour flight distance.
Success requires more and more collaboration among companies, and within ISNs.
The advantages of ISNs range from new connections, to technological advances, to new ideas about markets and opportunities. Similarly, disadvantages include a risk of losing proprietary data and exposure of weaknesses.
Ultimately, success in inter-corporate collaboration requires strong leadership and skilled people who can operate across corporate boundaries. They must be culturally savvy and have explicit processes for sharing knowledge. Collaboration success hinges upon management that:
- values expertise complementarity and cultural diversity;
- thinks competitively about the business and its customers
- in a market context;
- looks for better solutions;
- is faster to market and has easier access to ready-to-pay customers;
- is committed to shared goals and leadership;
- works on building trusted relationships.
Companies that collaborate through ISNs should also pay attention to performance metrics to show value. Companies identify a lack of such metrics as an ISN challenge. Currently over a third of Canadian companies use either no metrics or only one metric to manage their collaborations.
Success nowadays, especially in the knowledge economy, requires more and more collaboration among companies, and within ISNs, with particular emphasis on collaborations that enable better competitive performance in global markets. Canadian business executives, governments, and the academic establishment should consider collaboration in market success terms, not just in traditional R&D terms. To build collaboration capacity, companies should train employees on collaborating for high impact on business performance, selecting the right collaborators, and applying metrics-based management to collaborations. They should also create incentives for improved collaboration performance, including better results through innovation-supporting networks.