@ Supply Chain Management

How IBM makes radical collaboration work is a special report that BusinessWeek has up at its website. Since I work at the site that forms the ground zero of this radical collaborative venture at and through IBM, I am at the vantage of seeing this happen not so much in evaluating how each of these partners are actually collaborating and creating value but in ensuring that the chip designs and processes of the collaborators actually get executed in the best way possible.

First, Steve Hamm lays out the financial picture of IBM prior to embarking on this radical venture.

By late 2003, IBM’s decision three years earlier to pump $5 billion into its chip business wasn’t looking so smart. The division had lost more than $1 billion in 2002 and was on its way to losing $252 million more in 2003. Investors urged Big Blue to quit, but that wasn’t going to happen. IBM saw leading-edge chip technology as vital to keeping its lead in the highly profitable business of making powerful server computers. Still, clearly, something had to be done.

I must note two different actors in this drama, their respective actions and their reasons which are important to evaluate not so much because they can be pigeonholed as primary reactions but as a sort of chicken-egg dilemma. As reported, the financial fact is that IBM is bleeding money in its semiconductor division. In IBM’s view chip-making is a source of competitive advantage in its high-margin server business and so it views its chip-making (and perhaps chip design) as an important upstream activity. Investors on the other hand, privy as they are to a set of financial facts and numbers, will view a bleed as something that has to be fixed. There are scores of examples that one can find where unprofitable businesses are spun-off or shut down by parent companies that go on to find, fund, nurture and defend other sources of competitive advantage. So why not in this case? What bridges these two camps is the need for a new story, a new strategy, a set of steps that must not only staunch the bleeding but also refresh the bleeding patient. And that’s what IBM has done,

IBM has built what it calls an "open ecosystem" of chip R&D with nine partners, including Advanced Micro Devices, Sony, Toshiba, Freescale Semiconductor, and Albany Nanontech, a university research center. All told, in five separate alliances, IBM partners have contributed more than $1 billion to help expand the company’s facilities and buy the latest chipmaking equipment. But just as important, they’re providing brainpower, including more than 250 scientists and engineers who now work in East Fishkill. As a result, IBM’s chip operation boomed, and, even now, during a cyclical downturn in the chip industry, it’s still making a profit.

How far this sort of collaborative innovation will go is anyone’s guess but it is a stab at the future. What you will note is that there isn’t a magical software that is enabling this sort of a collaboration. If you read more of the article, you will note that this sort of collaboration involves actual engineering teams sitting down together and circumscribing the terms of the collaboration while being open to the road ahead. So mark this down as an important milestone in the collaboration journey:

1. Collaboration requires partners to get down to brass tacks and structure it or at the very least draw a few boundaries and open up a few channels – it also involves the commitment of resources.

Seven years ago, IBM’s chip fabrication plant in New York’s Hudson Valley was in mothballs. Today it’s humming with activity. That’s thanks in no small measure to the company’s alliance strategy.

The 200,000-square-foot factory cost $4.4 billion to rehabilitate and expand. IBM shared the huge cost with its partners. "By ourselves, we’d have to bear expenses that are just enormous-and well beyond our appetite," says William Zeitler, general manager of the company’s Systems & Technologies Group.

From the above, it must be quite easy to see the stakes in dollar values both current and expected involved in a collaboration – there is a compelling reason to try and get this right. Or to put it succinctly, "In a sinking boat, it’s easier to start working together." However, as all relationships, there are ups and downs as well.

Innovation networks do sometimes fail, most often because companies’ interests diverge. That’s what happened earlier this year when the three partners in the Crolles2 chip research alliance went their own ways. Netherlands-based nxp Semiconductors was the first to quit, followed by Freescale and STMicroelectronics. The three companies’ priorities became out of sync.

It’s telling that when Crolles2 fell apart, STMicro and Freescale quickly turned around and joined IBM’s alliances. Freescale, in fact, joined three of the five. The reason: The Austin (Tex.) company has seen IBM gradually hone its skills at managing such arrangements.

That is the second point to be noted when it comes to collaboration:

2. Collaboration requires compelling reasons for collaborators, compelling reasons at initiation and through the journey itself.

Lastly, about the nitty gritty of getting to working together. MOUs (Memorandum’s Of Understanding) are fine. Corporate cultures are bound to clash, information flows are bound to run into hurdles that can be scaled and those that cannot be (or even should be) and, management styles as varied as the one’s that are staffed to make such collaborations successful.

IBM’s success is hard-won. Some of its earlier collaborations didn’t go smoothly. In the 1990s, the Armonk (N.Y.) behemoth formed a venture to develop memory-chip technologies with Germany’s Infineon Technologies and Japan’s Toshiba, but their national and corporate cultures clashed. At one point, Toshiba engineers accused IBMers of withholding information from them. The problems got so bad that the companies sent 10 people each on a three-day team-building session.

Face-to-face with their differences, the engineers mapped out better ways to work together. At IBM, people typically reached decisions by discussing problems in open meetings. Toshiba’s engineers preferred to see presentations, read reports, and make decisions later. IBM’s dearth of reports made the Japanese engineers suspect they were being kept in the dark. The solution: assigning people to take notes on the meetings and issue reports later.

3. Collaboration requires working together but it is the nature of the work that determines how one works together.

That means that people actually meeting face to face and overcoming a common hurdle of sorts. The intangibles of human communication and perception are hard to hurdle but a controlled setting managed well is perhaps one of the important ways to steer clear of such stumbles.

As mentioned before, what I didn’t expect to see was a magical software or portal that made this possible. Of course, what does make this radical collaboration work is the fact that there are a lot of partner human capital at work together in the same maze of buildings (I assure you that it is a maze of corridors and staircases).

At this point, one can argue that working together doesn’t really require being onsite. Instant Messaging (IM), teleconferencing or even EDI etc are other ways of getting collaborative adventures to work. In the last few years, I’ve been part of two work related collaborative ventures – one in which I was part of the firm that was engineering the collaboration and one as a close enough spectator of how things work. In the former, there was a software (execution related – TMS, Transportation Management System) as well as numerous meeting and phone conferences involved while in the latter, I’ve not heard of anything other than manpower. Granted, that these are collaborative ventures, both in scale and scope, quite different but I think that one of the primary reasons for failure in the former venture was the feeling that the system was seamless enough to wow (or coerce – to use this word in the mildest form) the human element. I don’t think that we addressed the issue of shared resources and ownership of assets which finally killed what was at the very least a profitable proposition. That leads to my final point:

4. Collaboration is about human beings first and foremost.

I think that (4) is the most important point in the list as well.Whether or not, one ends up using MS Excel in your collaborative venture or not or some other sophisticated technology, collaboration is about whether human beings work well together, whether they appreciate the vision that is painted in front of them. I began this post appreciating (or trying to appreciate) the perspectives of investors and management – even they collaborate if a palatable vision is painted by those involved. Call it strategy, call it a conference call – the underlying purpose of all of this is to either create agreement or precipitate disagreement. (I’m intentionally leaving out the clueless collaborators and those who intend nothing but confusion.)

Tags: Radical Collaboration at IBM, Collaborative Ventures, BusinessWeek, The promises and perils of Collaboration