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Ideas for Leaders #629

Choosing the Right Innovation Partners

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Key Concept

New research describes how the most effective collaborative behaviour (i.e. the type of technology partner firms you decide to pursue) can depend on whether your industry emphasizes R&D and innovation — or whether it is more technologically stable. 

Idea Summary

Companies in technologically dynamic industries — industries in which competitive advantage is built on innovation and R&D breakthroughs — seek out different types of partner firms than companies in technologically stable industries. This difference in collaborative behaviour results in different types of industry-wide networks: technologically dynamic industries have ‘clan’ networks that feature separate groups of interconnected firms. Technologically stable industries have ‘community’ networks in which network is more spread out across the entire industry.

These firm-level insights into how firms collaborate differently and the industry-level insights into the industry networks that emerge from that difference in collaborative behaviour emerged from two studies conducted by a team of international researchers.

To study the collaborative behaviour of firms, the researchers draw their conclusions from a dataset of interfirm R&D partnerships from 1983 to 1999. The industries in the data have varying emphasis on R&D, and included the automotive, biotechnology and pharmaceutical, chemical, microelectronic, new materials and telecommunications industries.

The researchers discovered two types of collaborative behaviours:

  • Open ego. Companies in technologically dynamic industry tend to pursue what the researchers call open ego networks, which refers to partnerships with companies that are not connected to each other.
  • Closed ego. Companies in technologically stable industries tend to pursue more closed ego networks, which are networks in which companies prefer new partners that are already connected to one or more of their partners.

The reason for the difference is that companies in technologically dynamic industries seek more partnerships that will support their innovation efforts — in other words, partnerships that offer diverse sources of information, knowledge and resources. Innovative companies are not interested in partnering with three closely related firms who offer similar information, knowledge and resources. Thus, they are more likely to pursue open ego networks.

Companies in technologically stable industries, on the other hand, are more interested in ensuring reliable collaboration and preserving their existing resources — two goals that are easier to achieve with closed ego networks. The transaction costs of finding a reliable new partner firm is lower if a current partner can help by offering information and recommendations about another firm it is already working with.

How does collaborative behaviour — open ego or closed ego — impact the development of networks in an industry? Combining the analysis of existing partnerships in the database with a simulation model of networking provides the answer.

First, through the simulation modelling, the researchers developed three typologies of industry-wide networks.

  • Clan networks feature clumps of firms called ‘communities’ that are connected with each other but not with other firms, in essence, creating independent clans of connected firms. Clan networks emerge when firms in the network are unlikely to pursue open ego collaborations.
  • Community networks also show communities of firms densely connected with each. At the same time, however, there is a greater ‘connectedness’ throughout the network; the communities are not isolated clans as in the clan networks. Community networks, the analysis shows, emerge when firms in the network are moderately likely to pursue open ego collaborations.
  • Convention networks don’t show communities of firms who are strongly connected to each other. Instead, all firms are equally connected to all or most other firms: a homogeneous spread of relationships. Convention networks, according to the modelling, emerge when firms in the network are strongly interested in pursuing open ego collaborations.

Applying these characteristics of the network archetypes to the partnership dataset, the researchers found that automotive, chemical and new materials industries had clan networks, which indicates that clan networks are more likely associated with technologically stable industries. The, microelectronic, telecommunications and biotechnology and pharmaceutical industries had community networks, which indicates that community networks are more likely associated with technologically dynamic industries. There was no evidence of convention networks in the real world data.

Business Application

This research links collaborative behaviour to network archetypes — with the differentiator being whether or not the industry is technologically dynamic.

Companies that find themselves stagnating in their industry may want to examine their collaborative strategies, and whether those strategies are the most effective for the type of industry in which they operate.

Behind the terminology in this research are real-world decisions. For example, if you are more comfortable dealing with partner firms that work with each other, you might not realize that the homogeneity of the knowledge and information you are acquiring from these ‘clans’ of partners may be one reason your firm is not as innovative as the industry demands. Is your collaborative behaviour aligned with the imperatives of your industry? The answer might lead to new strategies you’ve never considered.

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Authors

Institutions

Source

Idea conceived

  • June 2016

Idea posted

  • November 2016

DOI number

10.13007/629

Subject

Real Time Analytics