Thursday, August 4, 2016

Keeping Threesomes Stable and Creative

Just to halt any false expectation you may have, this is a blog post about how sets of three (or more) firms can collaborate for innovating over time. It is a very interesting and important topic because the approach for doing innovations has changed a lot recently, and especially in fast-moving industries involving information technology: apps, smartphones, internet servers, automotive computer controls for example. We have long done research on firms being innovative (on their own), and we are beginning to know a lot about firms pairing up to make innovations. Unfortunately, the new approach is to do innovations in groups of three or more, and to keep working in different configurations of firms. That is something we know little about.

Fortunately, a forthcoming paper in Administrative Science Quarterly by Jason Davis has important insights. He looks at the central problem of how these groups of firms can stay together and maintain the high trust and low conflict needed to be innovative over time. Using data on collaborative projects from firms in the computing industry, he found a key insight that is only possible by understanding how different interfirm collaboration is from interpersonal collaboration.

People can form stable collaborative relations if one of them acts as a leader and is recognized as such, or if they form a cohesive team with all members staying close. That’s not what makes firm collaborations stable and innovative. Firms cannot have one leader over time because repeated projects typically involve different configurations of interests and capabilities. They cannot be cohesive because each project typically has greater complementarities between one pairing (dyad) of firms than between the other two. As a result, the configurations that work for people fall apart in conflict or in distrust when firms try to repeat collaborative innovations.

Instead, what is special about firm is recognition that firms are interdependent and that they need to work together in the future, even if they do not collaborate closely at a specific time point. This leads to a form of collaboration called group cycling: each pair of firms that are most interdependent works together closely, with the third at a distance, but they remain in touch and aware of the need to reconfigure with a different focal pair later on. Conflict is avoided because the most complementary firms work together. Trust is kept because all partners see current collaborations as preparations for future collaborations.

Interfirm collaborations is a special kind of network among organizations. Part of its special status comes from the realization that, unlike many other networks, what works for firms is different from what works for people. This is a good insight in management because we often think that intuition carries over from one level to the next.

Davis, Jason P. 2016. The Group Dynamics of Interorganizational Relationships: Collaborating with Multiple Partners in Innovation Ecosystems. Administrative Science Quarterly, forthcoming. 

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