Is collaboration the new innovation?

According to the traditional view, business is fundamentally about competition and the survival of the fittest. But recent years have shown the limitations of such thinking.

“Traditional business models relied on the ‘zero-sum’ game and an ‘us-versus-them’ competitive mentality,” says Jeff Wong, EY’s Global Chief Innovation Officer. “Most economic models and case studies were built around the concept of how a small competitor took away the market of the large one or how a large company crushed a smaller threat.

“While many companies still run this way, we believe that winning today means choosing to ask a different question: Can we win together?”

This is not a question of abandoning business basics. Rather, in a world of digital disruption and industry convergence, companies now often find they must collaborate to secure the skills, assets and support they need. Successful innovation, in particular, is difficult for any organization to achieve alone.

Of course, businesses seeking to work with others is nothing new. But in this accelerating business environment, how they go about doing so is changing, with many now finding new and increasingly creative and fluid ways to collaborate.

New kinds of collaboration for a new world

We’re at the dawn of a golden age of rapid business innovation. However, today’s ever-shortening innovation cycle can make traditional partnership structures like mergers and acquisitions (M&A) or joint ventures (JVs) too slow, costly, and cumbersome to innovate at the speed necessary to keep up with the market.

Mergers and acquisitions require one company to have enough resources to buy another, which entails diligent, time-consuming negotiation and documentation. Joint ventures, although less complex, also require a high degree of rigor around revenue and cost-sharing.

M&A and JVs will likely always exist and still remain good solutions to many business challenges. According to research on disruption conducted by the Economist Intelligence Unit (EIU) and supported by EY, nearly a quarter of organizations have used M&A and JVs as avenues to address or drive disruption.

Yet, in response to current business pressures and rapid changes, companies are increasingly gravitating toward more fluid and agile alliances:

• According to the EIU report, nearly one-third of the firms surveyed have formed a strategic alliance with a company in their industry, and one-quarter have partnered with a player in a different industry.
• The EIU report found that nearly a third of financial sector organizations have formed strategic alliances with their counterparts to address disruptive forces. And collaborating with FinTech firms can help banks to drive digital innovation.
• These findings are complemented by EY research into future intentions for alliances. EY’s Digital Deal Economy Study revealed that a third (32%) of non-technology executives plan on creating alliances and partnerships in the next two to three years to achieve their transformational goals.

These highly fluid alliances, which we’re calling “industrial mash-ups,” are on the rise and are helping organizations better adapt themselves to face and embrace disruption.

Collaboration in a digital marketplace

In an industrial mash-up, a company shares an asset or capability with one or more partners in a way that creates new possibilities for all – without infringing on the company’s ongoing use of the asset. Participants are able to develop new products and services rapidly by piecing together components from a network of collaborating partners.

Unlike mergers or JVs, mash-ups operate under simple collaboration agreements that may not specify financial terms. Aimed primarily at finding mutual benefits through effective sharing and utilization of resources, they don’t tie participants to synergy targets or require complex post-merger integration efforts. Such mash-ups replace the physical vertical integration of an M&A or JV with collaborators, which helps reduce the inherently large risk each faces from undertaking a new business venture.

According to the EY Digital Deal Economy Study, these collaborations will become ever more popular in a marketplace increasingly driven by the forces of digital disruption: 58% of companies with underleveraged data, intellectual property or other assets said they would enter into an alliance to enable the monetization of these resources.