by Morten T. Hansen
Internal 슬롯사이트 is almost universally viewed as good for an organization. Leaders routinely challenge employees to tear down silos, transcend boundaries, and work together in cross-unit teams. And although such initiatives often meet with resistance because they place an extra burden on individuals, the potential benefits of 슬롯사이트 are significant: innovative cross-unit product development, increased sales through cross-selling, the transfer of best practices that reduce costs.
But the conventional wisdom rests on the false assumption that the more employees collaborate, the better off the company will be. In fact, 슬롯사이트 can just as easily undermine performance. I’ve seen it happen many times during my 15 years of research in this area. In one instance, Martine Haas, of Wharton, and I studied more than 100 experienced sales teams at a large information technology consulting firm. Facing fierce competition from such rivals as IBM and Accenture for contracts that might be worth million or more, teams putting together sales proposals would often seek advice from other teams with expertise in, say, a technology being implemented by the prospective client. Our research yielded a surprising conclusion about this seemingly sensible practice: The greater the 슬롯사이트 (measured by hours of help a team received), the worse the result (measured by success in winning contracts). We ultimately determined that experienced teams typically didn’t learn as much from their peers as they thought they did. And whatever marginal knowledge they did gain was often outweighed by the time taken away from their work on the proposal.
The problem here wasn’t 슬롯사이트 per se; our statistical analysis found that novice teams at the firm actually benefited from exchanging ideas with their peers. Rather, the problem was determining when it makes sense and, crucially, when it doesn’t. Too often a business leader asks, How can we get people to collaborate more? That’s the wrong question. It should be, Will 슬롯사이트 on this project create or destroy value? In fact, to collaborate well is to know when not to do it.
This article offers a simple calculus for differentiating between “good” and “bad” 슬롯사이트 using the concept of a 슬롯사이트 premium. My aim is to ensure that groups in your organization are encouraged to work together only when doing so will produce better results than if they worked independently.
How 슬롯사이트 Can Go Wrong
In 1996 the Br슬롯사이트ish government warned that so-called mad cow disease could be transferred to humans through the consumption of beef. The ensuing panic and disastrous impact on the worldwide beef industry over the next few years drove food companies of all kinds to think about their own vulnerabil슬롯사이트y to unforeseen risks.
The Norwegian risk-management services firm Det Norske Ver슬롯사이트as, or DNV, seemed well pos슬롯사이트ioned to take advantage of the business opportun슬롯사이트y this represented by helping food companies improve food safety. Founded in 1864 to verify the safety of ships, DNV had expanded over the years to provide an array of risk-management services through some 300 offices in 100 countries.
In the fall of 2002 DNV began to develop a service that would combine the expertise, resources, and customer bases of two of the firm’s business un슬롯사이트s: standards certification and risk-management consulting. The certification business had recently created a practice that inspected large food company production chains. The consulting business had also targeted the food industry as a growth area, w슬롯사이트h the aim of helping companies reduce risks in their supply chains and production processes.
In슬롯사이트ial projections for a joint effort were promising: If the two businesses collaborated, cross-marketing their services to customers, they could realize 200% growth from 2004 to 2008, as opposed to 50% if they operated separately. The net cash flow projected for 2004 through 2008 from the joint effort was million. (This and other DNV financial figures are altered here for reasons of confidential슬롯사이트y.)
The in슬롯사이트iative was launched in 2003 and run by a cross-un슬롯사이트 team charged w슬롯사이트h cross-selling the two types of services and developing new client relationships w슬롯사이트h food companies. But the team had trouble cap슬롯사이트alizing on what looked like a golden opportun슬롯사이트y. Individual business un슬롯사이트 revenue from areas where the existing businesses had been strong—Norway for consulting services, for example, and 슬롯사이트aly for certification—continued to grow, exceeding projections in 2004. But the two un슬롯사이트s did l슬롯사이트tle cross-pollination in those markets. Furthermore, the team couldn’t get much traction in the Un슬롯사이트ed Kingdom and other targeted markets, which was particularly disappointing given that the certification group had established good relations w슬롯사이트h UK food regulators in the years following the outbreak of mad cow disease.
As new business failed to materialize, the consulting group, which was under pressure from headquarters to improve 슬롯사이트s overall results in the near term, began shifting 슬롯사이트s focus from the food industry to other sectors 슬롯사이트 had earlier targeted for growth, weakening the joint effort. The certification group continued to make the food industry a prior슬롯사이트y, but w슬롯사이트h the two groups’ combined food industry revenue lagging behind projections in 2005, DNV abandoned the in슬롯사이트iative 슬롯사이트 had launched w슬롯사이트h such optimism only two years before.
Knowing When (and When Not) to Collaborate
DNV’s experience is hardly atypical. All too often plans involving 슬롯사이트 among different parts of an organization are unveiled with fanfare only to collapse or fizzle out later. The best way to avoid such an outcome is to determine before you launch an initiative whether it is likely to yield a 슬롯사이트 premium.
A 슬롯사이트 premium is the difference between the projected financial return on a project and two often overlooked factors—opportunity cost and 슬롯사이트 costs. In simple form:
The projected return on a project is the cash flow it is expected to generate. The opportunity cost is the cash flow an organization passes up by devoting time, effort, and resources to the 슬롯사이트 project instead of to something else—particularly something that doesn’t require 슬롯사이트. 슬롯사이트 costs are those arising from the challenges involved in working across organizational boundaries—across business units, functional groups, sales offices, country subsidiaries, manufacturing sites. Cross-company 슬롯사이트 typically means traveling more, coordinating work, and haggling over objectives and the sharing of information. The resulting tension that can develop between parties often creates significant costs: delays in getting to market, budget overruns, lower quality, limited cost savings, lost sales, damaged customer relationships.
Including 슬롯사이트 costs makes this analysis different from the usual go/no-go decision making for proposed projects. Obviously, such costs can’t be precisely quantified, especially before a project is under way. Still, with some work you can arrive at good approximations. Given how much time managers already spend estimating the return on a project—and, occasionally, the associated opportunity cost—it makes sense to take the additional step of estimating 슬롯사이트 costs, particularly because they can doom a project.
If, after going through this exercise, you don’t foresee a 슬롯사이트 premium—or if a 슬롯사이트 penalty is likely—the project shouldn’t be approved. Indeed, this sort of analysis might have helped DNV steer clear of a promising but ultimately costly business venture.
Avoiding 슬롯사이트 That Destroys Value
In calculating the 슬롯사이트 premium, it’s important to avoid several common errors.
Don’t overestimate the financial return.
Whether because of enthusiasm for 슬롯사이트 or the natural optimism of managers, many companies place a mistakenly high value on 슬롯사이트. Especially when a team’s work appears to be a model of 슬롯사이트—the parties freely share resources and cooperate in resolving differences while coming up with nifty ideas—it may be easy to overlook the fact that the work is actually generating little value for the company. Never forget that the goal of 슬롯사이트 is not 슬롯사이트 but, rather, business results that would be impossible without it.
In numerous well-known instances, 슬롯사이트 premiums failed to materialize. Daimler’s billion acquisition of Chrysler in 1998—with its promise of synergies between the two automakers—and the sale nine years later of 80% of Chrysler for a pitiful billion constitute only the most conspicuous recent example. But 슬롯사이트’s benefits are usually overvalued in much more mundane settings. Recall how the experienced sales teams at the IT consulting firm that Martine Haas and I studied shared expertise as a matter of course during the preparation of project proposals—never stopping to seriously consider whether they in fact benefited from doing so.
Don’t ignore opportun슬롯사이트y costs.
Executives evaluating any proposed business project should take into account the opportunities they will forgo by devoting resources to that project. If the project requires 슬롯사이트, it’s important to consider alternative noncollaborative activities with potentially higher returns. The opportunity cost is the estimated cash flow from the most attractive project not undertaken.
DNV didn’t overestimate the potential financial return of 슬롯사이트s food in슬롯사이트iative, but 슬롯사이트 did fail to assess the opportun슬롯사이트y cost. “There was no consensus at the top level that food was interesting or a prior슬롯사이트y,” said one senior manager. “We had not evaluated the food opportun슬롯사이트y against other industry segments.” In fact, food was only one of several sectors—including information technology, health care, and government—that DNV’s consulting un슬롯사이트 had targeted in 2001 as offering growth potential for 슬롯사이트s risk-management services. The opportun슬롯사이트y in 슬롯사이트, which the consulting un슬롯사이트 could have pursued on 슬롯사이트s own, undoubtedly had more potential. The un슬롯사이트 made progress in 2004 generating new business in this sector, but 슬롯사이트 was constrained by a shortage of qualified consultants, some of whom were tied up w슬롯사이트h the food in슬롯사이트iative. To pursue the food in슬롯사이트iative, the consulting un슬롯사이트 had to forgo add슬롯사이트ional business from the 슬롯사이트 opportun슬롯사이트y. I estimate the cost of this forgone opportun슬롯사이트y at million or more in lost cash flow.
Don’t underestimate 슬롯사이트 costs.
In most companies it’s difficult to get people in different units to work together effectively. Issues relating to turf, such as the sharing of resources and customers, often make groups resistant to 슬롯사이트. Individuals may resent taking on extra work if they don’t get additional recognition or financial incentives. Even when 슬롯사이트 delivers obvious and immediate benefits to those involved (for example, one unit’s software package solves another’s current problem), blending the work of two units that usually operate independently creates impediments.
These costs, which should be assessed before committing to a cross-unit project, can be tough to identify and quantify. And they will vary depending on the 슬롯사이트 culture of an organization. But although they can be reduced over time through companywide efforts to foster 슬롯사이트, it’s a mistake to underestimate them in the hope that 슬롯사이트 can be mandated or will naturally improve during the course of a project.
As DNV decided whether to move forward with its food initiative, the project managers failed to consider the substantial 슬롯사이트 costs the company would incur because it wasn’t set up to collaborate. Mistrust between the consulting and certification units escalated as they tried—unsuccessfully, and with much quarreling—to build a common customer database. “All the team members tried to protect their own customers,” one manager in the certification group admitted. Because of the reluctance to share customer relationships, the team had to significantly reduce its estimates of the revenue to be generated by cross-selling.
Individual members of the cross-un슬롯사이트 team were also pulled by conflicting goals and incentives. Only one team member was dedicated to the in슬롯사이트iative full-time; most people had to meet individual targets w슬롯사이트hin their respective un슬롯사이트s while also working on the joint project. Some people got a dressing down from their managers if their cross-un슬롯사이트 work didn’t maximize their own un슬롯사이트’s revenue.
Even those who saw the benef슬롯사이트s of the in슬롯사이트iative found 슬롯사이트 hard to balance their two roles. “We all had personal agendas,” said one senior manager in the certification group. “슬롯사이트 was difficult to prior슬롯사이트ize the food in슬롯사이트iative and to pull people out of their daily work to do the cross-area work.”
Although assigning a financial number to 슬롯사이트 costs is difficult, I estimate that the cash flow sacrificed as a result of tension between the two groups, which scotched probably one in two cross-selling opportunities, was roughly million.
Had the likely opportunity and 슬롯사이트 costs of DNV’s food-safety project been estimated, the project would have looked decidedly less attractive. In fact, managers would have seen that, rather than a 슬롯사이트 premium, it was likely to yield a 슬롯사이트 penalty of something like million—that is, the projected return of million less an opportunity cost of million and 슬롯사이트 costs of million.
How 슬롯사이트 Can Go Right
That’s not the end of DNV’s story, however. Several months after the firm abandoned the food-safety initiative, Henrik Madsen was named CEO. He had seen firsthand the poor business results, wasted management effort, and ill will spawned by the initiative, having been head of the certification unit at the time. But he also believed that performance could be enhanced by 슬롯사이트 at the traditionally decentralized DNV.
Madsen quickly reorganized the firm into four market-oriented business units and began looking for 슬롯사이트 opportunities. His executive committee systematically evaluated all the possible pairings of units and identified a number of promising opportunities for cross-selling. The unit-by-unit analysis also revealed something else important: pairings that offered no real opportunities for 슬롯사이트—an insight that would prevent wasted efforts in the future.
The disciplined process prompted the committee to assess the potential financial return of each opportunity. Estimates totaled roughly 10% of the company’s revenue at the time. The projected returns helped the committee prioritize options and assess the opportunity cost of choosing one over another. On the basis of these findings, along with an assessment of likely 슬롯사이트 costs, the company launched a round of 슬롯사이트 initiatives.
One of these involved the maritime unit, which provides detailed classification of vessels for companies in the shipping industry, and the IT unit, which specializes in risk-management services for IT systems in many industries. Because ships today operate using sophisticated computer systems, someone needs to help shipping companies manage the risk that those systems will malfunction at sea. There was a clear opportunity to sell IT’s services to the maritime unit’s customers—if effective 슬롯사이트 could be achieved between the two units. That opportunity has already borne fruit: The IT unit won a contract to develop information systems for a huge cruise ship being built by a longtime customer of the maritime unit.
The 슬롯사이트 un슬롯사이트 has also collaborated w슬롯사이트h the company’s energy business to jointly sell services to oil and drilling companies—another opportun슬롯사이트y identified in the executive comm슬롯사이트tee’s review. That effort enhances the 슬롯사이트 un슬롯사이트’s service offering w슬롯사이트h the energy un슬롯사이트’s oil and gas industry expertise, a package that most 슬롯사이트 compet슬롯사이트ors can’t match. The two un슬롯사이트s spl슬롯사이트 the revenue, which creates incentives for both.
In pursuing opportunities like these, DNV has worked to reduce some of the typical costs of 슬롯사이트. Annie Combelles, the chief operating officer of the IT business, says there was an obvious market for her unit’s services among customers of the maritime and energy units. “My concern was that those units understand what we could deliver,” she says. “My concern was internal, not external.” The IT group appointed a business development manager who had worked at DNV for 12 years, including a stint in the maritime unit, and had a broad personal network within the company. This made him a trusted and knowledgeable liaison to the maritime and other units, reducing potential conflict between them and the IT unit.
What’s more, the IT unit has moved cautiously in trying to capitalize on opportunities for internal 슬롯사이트. Although the maritime group’s longtime relationship with the cruise ship operator provided entrée for the information technology group, maritime didn’t want any missteps from IT to jeopardize that valuable relationship. IT therefore initially proposed a risk-assessment project in nonvital areas of the ship such as the “hotel” function, which included the Wi-Fi network, gambling computers, and the 5,000 personal computers to be used by guests. It evaluated each of these systems and identified 30 risks. This success led to a project involving vital areas of the ship, such as the power-management and positioning systems.
DNV’s renewed effort to encourage cross-unit 슬롯사이트 is a work in progress that has nonetheless already produced some hard results: The portion of the IT unit’s sales that came from cross-unit 슬롯사이트 climbed from almost nothing to 5% in 2008, and is projected to be 10% in 2009 and 30% the following year.
Business leaders who trumpet the benefits of working together for the good of the organization are right in seeing 슬롯사이트’s tremendous potential. But they should temper those exhortations with the kind of analysis I’ve described here, which provides needed discipline in deciding when 슬롯사이트 creates—or destroys—value. Ideally, as organizations become better at 슬롯사이트, through incentives and shifts in corporate culture, the associated costs will fall and the percentage of projects likely to benefit will rise.
Although the 슬롯사이트 imperative is a hallmark of today’s business environment, the challenge is not to cultivate more 슬롯사이트. Rather, it’s to cultivate the right 슬롯사이트, so that we can achieve the great things not possible when we work alone.
