_x000C_How To Build Collaborative Advantage
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V O L . 4 6 N O. 1
Morten T. Hansen and Nitin Nohria
How To Build Collaborative Advantage
Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the article appears as originally published.
REPRINT NUMBER 46105
How To Build Collaborative Advantage
For multinationals, it is increasingly difficult to maintain competitive advantage on the basis of the traditional economies of scale and scope. Future advantage will go to those that can stimulate and support interunit collaboration to leverage their dispersed resources. or many years, multinational corporations could compete successfully by exploiting scale and scope economies or by taking advantage of imperfections in the world’s goods, labor and capital markets. But these ways of competing are no longer as profitable as they once were. In most industries, multinationals no longer compete primarily with companies whose boundaries are confined to a single nation. Rather, they go head-to-head with a handful of other giants that are comparable in size, in their access to international resources and in worldwide market position. Against such global competitors, it is hard to sustain an advantage based on traditional economies of scale and scope. Consider the oil industry. The industry is dominated by a handful of global players such as Exxon Mobil, BP, Shell and ChevronTexaco. They each have global exploration, refining and distribution operations, leaving little room for any company to gain competitive advantage with economies of scale. Similarly, they each have brands that are more or less equally well recognized the world over, reducing opportunities for a company to seize competitive advantage with an economy of scope based on its brand power. Such relative parity among multinational corporations can also be observed in consumer electronics, information technology, pharmaceuticals, banking, professional services and even retailing.
V O L . 4 6 N O. 1
Morten T. Hansen and Nitin Nohria
How To Build Collaborative Advantage
Please note that gray areas reflect artwork that has been intentionally removed. The substantive content of the article appears as originally published.
REPRINT NUMBER 46105
How To Build Collaborative Advantage
For multinationals, it is increasingly difficult to maintain competitive advantage on the basis of the traditional economies of scale and scope. Future advantage will go to those that can stimulate and support interunit collaboration to leverage their dispersed resources. or many years, multinational corporations could compete successfully by exploiting scale and scope economies or by taking advantage of imperfections in the world’s goods, labor and capital markets. But these ways of competing are no longer as profitable as they once were. In most industries, multinationals no longer compete primarily with companies whose boundaries are confined to a single nation. Rather, they go head-to-head with a handful of other giants that are comparable in size, in their access to international resources and in worldwide market position. Against such global competitors, it is hard to sustain an advantage based on traditional economies of scale and scope. Consider the oil industry. The industry is dominated by a handful of global players such as Exxon Mobil, BP, Shell and ChevronTexaco. They each have global exploration, refining and distribution operations, leaving little room for any company to gain competitive advantage with economies of scale. Similarly, they each have brands that are more or less equally well recognized the world over, reducing opportunities for a company to seize competitive advantage with an economy of scope based on its brand power. Such relative parity among multinational corporations can also be observed in consumer electronics, information technology, pharmaceuticals, banking, professional services and even retailing.
References: 1. See B. Kogut and U. Zander, “Knowledge of the Firm, Combinative Capabilities, and the Replication of Technology,” Organization Science 3, no. 3 (1992): 383-397; C. Hill, “Diversification and Economic Performance: Bringing Structure and Corporate Management Back Into the Picture,” in “Fundamental Issues in Strategy,” eds. R. Rumelt, D. Schendel and D. Teece (Boston: Harvard Business School Press, 1995), 297-322; and J. Nahapiet and S. Ghoshal, “Social Capital, Intellectual Capital and the Organizational Advantage,” Academy of Management Review 23, no. 2 (April 1998): 242-266. 2. For an in-depth look at BP on this issue, see S.E. Prokesch, “Unleashing the Power of Learning: An Interview With British Petroleum’s John Browne,” Harvard Business Review 75, no. 5 (September-October 1997): 146-168; and M.T. Hansen and B. Von Oetinger, “Introducing T-Shaped Managers: Knowledge Management’s Next Generation,” Harvard Business Review 79, no. 3 (March 2001): 106116. The section on BP in the text draws on the latter article. 3. See P.R. Lawrence and N. Nohria, “Driven: How Human Nature Shapes Our Choices” (San Francisco: Jossey-Bass, 2002). 4. This section draws on M. Hansen, “Turning the Lone Star Into a Real Team Player,” Financial Times, Aug. 7, 2002, 11-13. 5. See, for example, M.B. Brewer, “Ingroup Bias in the Minimal Intergroup Situation: A Cognitive Motivational Analysis,” Psychological Bulletin 86 (1979): 307-324; and H. Tajfel and J.C. Turner, “The Social Identity Theory of Intergroup Behavior,” in “Psychology of Intergroup Reprint 46105. For ordering information, see page 1. Copyright Massachusetts Institute of Technology, 2004. All rights reserved. 30 MIT SLOAN MANAGEMENT REVIEW FALL 2004 PDFs s Reprints s Permission to Copy s Back Issues Electronic copies of MIT Sloan Management Review articles as well as traditional reprints can be purchased on our Web site: www.sloanreview.mit.edu or you may order through our Business Service Center (9 a.m.-5 p.m. ET) at the phone numbers listed below. To reproduce or transmit one or more MIT Sloan Management Review articles by electronic or mechanical means (including photocopying or archiving in any information storage or retrieval system) requires written permission. To request permission, use our Web site (www.sloanreview.mit.edu), call or e-mail: Toll-free in U.S. and Canada: 877-727-7170 International: 617-253-7170 e-mail: smrpermissions@mit.edu To request a free copy of our reprint catalog or order a back issue of MIT Sloan Management Review, please contact: MIT Sloan Management Review 77 Massachusetts Ave., E60-100 Cambridge, MA 02139-4307 Toll-free in U.S. and Canada: 877-727-7170 International: 617-253-7170 Fax: 617-258-9739 e-mail: smr-orders@mit.edu Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.