Information and communications technology is always one of the first industries to blame for an excessive energy consumption and emissions. However, recent studies have shown that ICT can be used to reduce emissions if the necessary technical standards are implemented...
Computing Sustainability
June 19th 2008
From The Economist print edition
How computers can help to cut carbon emissions
HOW much computing can mankind afford? That is a question the computer and telecoms industries hate to hear. They do not see themselves in the same dirty league as airlines or carmakers, sources of huge amounts of carbon dioxide, but instead as part of the solution. In a pre-emptive strike, a group of technology firms calling itself the Global eSustainability Initiative (GeSI) has joined the Climate Group, a non-profit environmental club, to examine how information and communications technologies (ICT) affect climate change. Their research, released on June 20th, confirms that ICT could in fact do much to reduce greenhouse-gas emissions—but not in the way you might think.
When it comes to emissions, ICT is on a par with aviation. In 2007, according to the report, the world's electronic gear (including PCs, their peripherals, telecoms networks and devices, and the warehouses of corporate machines known as data centres) produced 830m tonnes of CO2—about 2% of total emissions from human activity. Even with technology that uses energy more sparingly, this is expected to grow to 1.4 billion tonnes by 2020. Although PCs, mobile phones and networks will account for most (56%) of this, emissions from data centres will grow the fastest.
Yet these numbers look much less frightening if, in the words of the study, ICT's “enabling effect” is taken into account. The study calculates that ICT could help to reduce emissions in other industries by 7.8 billion tonnes by 2020, or five times ICT's own footprint. Perhaps the best-known of these enabling effects is to replace face-to-face meetings, which require carbon-belching air travel, with low-emission alternatives such as videoconferencing. John Chambers, the boss of Cisco, a big maker of network equipment, says his company has reduced its carbon footprint by 11% by using its own “telepresence” gear. It also means higher productivity and reduced “wear and tear” on executives, he adds.
But reducing transport emissions using technologies such as videoconferencing and teleworking turn out to be some of the smaller enabling effects—saving a potential 140m and 220m tonnes of CO2 a year in 2020 respectively (see chart). Using computers to improve logistics (for example, by planning the routes of delivery vehicles more efficiently) could save 1.5 billion tonnes; using data networking inside a “smart” electrical grid to manage demand and reduce unnecessary energy consumption could save 2 billion tonnes; and computer-enabled “smart buildings”, in which lighting and ventilation systems turn themselves off if nobody is around, could save 1.7 billion tonnes.
None of this will be easy. The industry can supply the hardware and software, but the bigger problem is the “wetware”—people, economics and politics. The right skills are often scarce. Incentives are lacking for businesses to invest in carbon-reducing technology. There need to be new technical standards. For transport, power grids and buildings to become more efficient, there must be rules on how, for instance, refrigerators should talk to electricity meters, and thermostats to heating systems. But the internet shows that when common standards are agreed on in an industry, great things can happen. The technology industry's contribution to tackling climate change may come from its standards bodies as much as its clever gizmos.
Friday, June 5, 2009
A Guide to Business Continuity Planning
Risk management has become extremely important and mission-critical in the business world. Business Continuity planning has emerged as a proactive initiative across all business sectors. We came across this article at the Public Safety Canada web site. It outlines the benefits as well as the critical steps involved in the process of business continuity planning.
A Guide to Business Continuity Planning
This publication provides a summary and general guidelines for business continuity planning (BCP).
While governments, not-for-profit institutions, and non-governmental organizations also deliver critical services, private organizations must continuously deliver products and services to satisfy shareholders and to survive. Although they differ in goals and functions, BCP can be applied by all organizations.
Changes in the world of business continuity planning
Business continuity planning versus business resumption planning and disaster recovery planning
A Business Resumption Plan describes how to resume business after a disruption. A Disaster Recovery Plan deals with recovering Information Technology (IT) assets after a disastrous interruption. Both imply a stoppage in critical operations and are reactive.
Recognizing that some services or products must be continuously delivered without interruption, there has been a shift from Business Resumption Planning to Business Continuity Planning.
A business continuity plan enables critical services or products to be continually delivered to clients. Instead of focusing on resuming a business after critical operations have ceased, or recovering after a disaster, a business continuity plan endeavors to ensure that critical operations continue to be available.
The effects of September 11, 2001
September 11, 2001 demonstrated that although high impact, low probability events could occur, recovery is possible. Even though buildings were destroyed and blocks of Manhattan were affected, businesses and institutions with good continuity plans survived.
The lessons learned include:
- plans must be updated and tested frequently;
- all types of threats must be considered;
- dependencies and interdependencies should be carefully analyzed;
- key personnel may be unavailable;
- telecommunications are essential;
- alternate sites for IT backup should not be situated close to the primary site;
- employee support (counselling) is important;
- copies of plans should be stored at a secure off-site location;
- sizable security perimeters may surround the scene of incidents involving national security or law enforcement, and can impede personnel from returning to buildings;
- despite shortcomings, Business Continuity Plans in place pre September 11 were indispensable to the continuity effort; and
- increased uncertainty (following a high impact disruption such as terrorism) may lengthen time until operations are normalized.
Emerging issues
Continuous Service Delivery Assurance (CSDA) is a commitment to continuous delivery of critical services that avoids immediate severe disruption to an organization. A BCP includes both risk evaluation, management and control and effective plans, measures and arrangements for business continuity.
Continuous risk management lowers the risk of disruption and assesses the potential impacts of disruptions when they occur. An example would be the business impact analysis component of a BCP program.
What is business continuity planning?
Critical services or products are those that must be delivered to ensure survival, avoid causing injury, and meet legal or other obligations of an organization. Business Continuity Planning is a proactive planning process that ensures critical services or products are delivered during a disruption.
A Business Continuity Plan includes:
- Plans, measures and arrangements to ensure the continuous delivery of critical services and products, which permits the organization to recover its facility, data and assets.
- Identification of necessary resources to support business continuity, including personnel, information, equipment, financial allocations, legal counsel, infrastructure protection and accommodations.
Having a BCP enhances an organization's image with employees, shareholders and customers by demonstrating a proactive attitude. Additional benefits include improvement in overall organizational efficiency and identifying the relationship of assets and human and financial resources to critical services and deliverables.
Why is business continuity planning important
Every organization is at risk from potential disasters that include:
- Natural disasters such as tornadoes, floods, blizzards, earthquakes and fire
- Accidents
- Sabotage
- Power and energy disruptions
- Communications, transportation, safety and service sector failure
- Environmental disasters such as pollution and hazardous materials spills
- Cyber attacks and hacker activity.
- Creating and maintaining a BCP helps ensure that an institution has the resources and information needed to deal with these emergencies.
Creating a business continuity plan
A BCP typically includes five sections:
1. BCP Governance
2. Business Impact Analysis (BIA)
3. Plans, measures, and arrangements for business continuity
4. Readiness procedures
5. Quality assurance techniques (exercises, maintenance and auditing)
Establish control
A BCP contains a governance structure often in the form of a committee that will ensure senior management commitments and define senior management roles and responsibilities.
The BCP senior management committee is responsible for the oversight, initiation, planning, approval, testing and audit of the BCP. It also implements the BCP, coordinates activities, approves the BIA survey, oversees the creation of continuity plans and reviews the results of quality assurance activities.
Senior managers or a BCP Committee would normally:
- approve the governance structure;
- clarify their roles, and those of participants in the program;
- oversee the creation of a list of appropriate committees, working groups and teams to develop and execute the plan;
- provide strategic direction and communicate essential messages;
- approve the results of the BIA;
- review the critical services and products that have been identified;
- approve the continuity plans and arrangement;
- monitor quality assurance activities; and
- resolve conflicting interests and priorities.
This BCP committee is normally comprised of the following members:
- Executive sponsor has overall responsibility for the BCP committee; elicits senior management's support and direction; and ensures that adequate funding is available for the BCP program.
- BCP Coordinator secures senior management's support; estimates funding requirements; develops BCP policy; coordinates and oversees the BIA process; ensures effective participant input; coordinates and oversees the development of plans and arrangements for business continuity; establishes working groups and teams and defines their responsibilities; coordinates appropriate training; and provides for regular review, testing and audit of the BCP.
- Security Officer works with the coordinator to ensure that all aspects of the BCP meet the security requirements of the organization.
- Chief Information Officer (CIO) cooperates closely with the BCP coordinator and IT specialists to plan for effective and harmonized continuity.
- Business unit representatives provide input, and assist in performing and analyzing the results of the business impact analysis.
The BCP committee is commonly co-chaired by the executive sponsor and the coordinator.
Business impact analysis
The purpose of the BIA is to identify the organization's mandate and critical services or products; rank the order of priority of services or products for continuous delivery or rapid recovery; and identify internal and external impacts of disruptions.
Identify the mandate and critical aspects of an organization
This step determines what goods or services it must be delivered. Information can be obtained from the mission statement of the organization, and legal requirements for delivering specific services and products.
Prioritize critical services or products
Once the critical services or products are identified, they must be prioritized based on minimum acceptable delivery levels and the maximum period of time the service can be down before severe damage to the organization results. To determine the ranking of critical services, information is required to determine impact of a disruption to service delivery, loss of revenue, additional expenses and intangible losses.
Identify impacts of disruptions
The impact of a disruption to a critical service or business product determines how long the organization could function without the service or product, and how long clients would accept its unavailability. It will be necessary to determine the time period that a service or product could be unavailable before severe impact is felt.
Identify areas of potential revenue loss
To determine the loss of revenue, it is necessary to determine which processes and functions that support service or product delivery are involved with the creation of revenue. If these processes and functions are not performed, is revenue lost? How much? If services or goods cannot be provided, would the organization lose revenue? If so, how much revenue, and for what length of time? If clients cannot access certain services or products would they then to go to another provider, resulting in further loss of revenue?
Identify additional expenses
If a business function or process is inoperable, how long would it take before additional expenses would start to add up? How long could the function be unavailable before extra personnel would have to be hired? Would fines or penalties from breaches of legal responsibilities, agreements, or governmental regulations be an issue, and if so, what are the penalties?
Identify intangible losses
Estimates are required to determine the approximate cost of the loss of consumer and investor confidence, damage to reputation, loss of competitiveness, reduced market share, and violation of laws and regulations. Loss of image or reputation is especially important for public institutions as they are often perceived as having higher standards.
Insurance requirements
Since few organizations can afford to pay the full costs of a recovery; having insurance ensures that recovery is fully or partially financed.
When considering insurance options, decide what threats to cover. It is important to use the BIA to help decide both what needs insurance coverage, and the corresponding level of coverage. Some aspects of an operation may be overinsured, or underinsured. Minimize the possibility of overlooking a scenario, and to ensure coverage for all eventualities.
Document the level of coverage of your institutional policy, and examine the policy for uninsured areas and non specified levels of coverage. Property insurance may not cover all perils (steam explosion, water damage, and damage from excessive ice and snow not removed by the owner). Coverage for such eventualities is available as an extension in the policy.
When submitting a claim, or talking to an adjustor, clear communication and understanding is important. Ensure that the adjustor understands the expected full recovery time when documenting losses. The burden of proof when making claims lies with the policyholder and requires valid and accurate documentation.
Include an expert or an insurance team when developing the response plan.
Ranking
Once all relevant information has been collected and assembled, rankings for the critical business services or products can be produced. Ranking is based on the potential loss of revenue, time of recovery and severity of impact a disruption would cause. Minimum service levels and maximum allowable downtimes are then determined.
Identify dependencies
It is important to identify the internal and external dependencies of critical services or products, since service delivery relies on those dependencies.
Internal dependencies include employee availability, corporate assets such as equipment, facilities, computer applications, data, tools, vehicles, and support services such as finance, human resources, security and information technology support.
External dependencies include suppliers, any external corporate assets such as equipment, facilities, computer applications, data, tools, vehicles, and any external support services such as facility management, utilities, communications, transportation, finance institutions, insurance providers, government services, legal services, and health and safety service.
Plans for business continuity
This step consists of the preparation of detailed response/recovery plans and arrangements to ensure continuity. These plans and arrangements detail the ways and means to ensure critical services and products are delivered at a minimum service levels within tolerable down times. Continuity plans should be made for each critical service or product.
Mitigating threats and risks
Threats and risks are identified in the BIA or in a full-threat-and-risk assessment. Moderating risk is an ongoing process, and should be performed even when the BCP is not activated. For example, if an organization requires electricity for production, the risk of a short term power outage can be mitigated by installing stand-by generators.
Another example would be an organization that relies on internal and external telecommunications to function effectively. Communications failures can be minimized by using alternate communications networks, or installing redundant systems.
Analyze current recovery capabilities
Consider recovery arrangements the organization already has in place, and their continued applicability. Include them in the BCP if they are relevant.
Create continuity plans
Plans for the continuity of services and products are based on the results of the BIA. Ensure that plans are made for increasing levels of severity of impact from a disruption. For example, if limited flooding occurs beside an organization's building, sand bagging may be used in response. If water rises to the first floor, work could be moved to another company building or higher in the same building. If the flooding is severe, the relocation of critical parts of the business to another area until flooding subsides may be the best option.
Another example would be a company that uses paper forms to keep track of inventory until computers or servers are repaired, or electrical service is restored. For other institutions, such as large financial firms, any computer disruptions may be unacceptable, and an alternate site and data replication technology must be used.
The risks and benefits of each possible option for the plan should be considered, keeping cost, flexibility and probable disruption scenarios in mind. For each critical service or product, choose the most realistic and effective options when creating the overall plan.
Response preparation
Proper response to a crisis for the organization requires teams to lead and support recovery and response operations. Team members should be selected from trained and experienced personnel who are knowledgeable about their responsibilities.
The number and scope of teams will vary depending on organization's size, function and structure, and can include:
- Command and Control Teams that include a Crisis Management Team, and a Response, Continuation or Recovery Management Team.
- Task Oriented Teams that include an Alternate Site Coordination Team, Contracting and Procurement Team, Damage Assessment and Salvage Team, Finance and Accounting Team, Hazardous Materials Team, Insurance Team, Legal Issues Team, Telecommunications/ Alternate Communications Team, Mechanical Equipment Team, Mainframe/ Midrange Team, Notification Team, Personal Computer/ Local area Network Team, Public and Media Relations Team, Transport Coordination Team and Vital Records Management Team.
The duties and responsibilities for each team must be defined, and include identifying the team members and authority structure, identifying the specific team tasks, member's roles and responsibilities, creation of contact lists and identifying possible alternate members.
For the teams to function in spite of personnel loss or availability, it may be necessary to multitask teams and provide cross-team training.
Alternate facilities
If an organization's main facility or Information Technology assets, networks and applications are lost, an alternate facility should be available. There are three types of alternate facility:
1. Cold site is an alternate facility that is not furnished and equipped for operation. Proper equipment and furnishings must be installed before operations can begin, and a substantial time and effort is required to make a cold site fully operational. Cold sites are the least expensive option.
2. Warm site is an alternate facility that is electronically prepared and almost completely equipped and furnished for operation. It can be fully operational within several hours. Warm sites are more expensive than cold sites.
3. Hot site is fully equipped, furnished, and often even fully staffed. Hot sites can be activated within minutes or seconds. Hot sites are the most expensive option.
When considering the type of alternate facility, consider all factors, including threats and risks, maximum allowable downtime and cost.
For security reasons, some organizations employ hardened alternate sites. Hardened sites contain security features that minimize disruptions. Hardened sites may have alternate power supplies; back-up generation capability; high levels of physical security; and protection from electronic surveillance or intrusion.
Readiness procedures
Training
Business continuity plans can be smoothly and effectively implemented by:
- Having all employees and staff briefed on the contents of the BCP and aware of their individual responsibilities
- Having employees with direct responsibilities trained for tasks they will be required to perform, and be aware of other teams' functions
Exercises
After training, exercises should be developed and scheduled in order to achieve and maintain high levels of competence and readiness. While exercises are time and resource consuming, they are the best method for validating a plan. The following items should be incorporated when planning an exercise:
- Goal: The part of the BCP to be tested.
- Objectives: The anticipated results. Objectives should be challenging, specific, measurable, achievable, realistic and timely.
- Scope: Identifies the departments or organizations involved, the geographical area, and the test conditions and presentation.
- Artificial aspects and assumptions: Defines which exercise aspects are artificial or assumed, such as background information, procedures to be followed, and equipment availability.
- Participant Instructions: Explains that the exercise provides an opportunity to test procedures before an actual disaster.
- Exercise Narrative: Gives participants the necessary background information, sets the environment and prepares participants for action. It is important to include factors such as time, location, method of discovery and sequence of events, whether events are finished or still in progress, initial damage reports and any external conditions.
- Communications for Participants: Enhanced realism can be achieved by giving participants access to emergency contact personnel who share in the exercise. Messages can also be passed to participants during an exercise to alter or create new conditions.
- Testing and Post-Exercise Evaluation: The exercise should be monitored impartially to determine whether objectives were achieved. Participants' performance, including attitude, decisiveness, command, coordination, communication, and control should be assessed. Debriefing should be short, yet comprehensive, explaining what did and did not work, emphasizing successes and opportunities for improvement. Participant feedback should also be incorporated in the exercise evaluation.
Exercise complexity level can also be enhanced by focusing the exercise on one part of the BCP instead of involving the entire organization.
Quality assurance techniques
Review of the BCP should assess the plan's accuracy, relevance and effectiveness. It should also uncover which aspects of a BCP need improvement. Continuous appraisal of the BCP is essential to maintaining its effectiveness. The appraisal can be performed by an internal review, or by an external audit.
Internal review
It is recommended that organizations review their BCP:
- On a scheduled basis (annually or bi-annually)
- when changes to the threat environment occur;
- when substantive changes to the organization take place; and
- after an exercise to incorporate findings.
External audit
When auditing the BCP, consultants nominally verify:
- Procedures used to determine critical services and processes
- Methodology, accuracy, and comprehensiveness of continuity plans
What to do when a disruption occurs
Disruptions are handled in three steps:
1. Response
2. Continuation of critical services
3. Recovery and restoration
Response
Incident response involves the deployment of teams, plans, measures and arrangements. The following tasks are accomplished during the response phase:
- Incident management
- Communications management
- Operations management
Incident management
Incident management includes the following measures:
- notifying management, employees, and other stakeholders;
- assuming control of the situation;
- identifying the range and scope of damage;
- implementing plans;
- identifying infrastructure outages; and
- coordinating support from internal and external sources.
Communications management
Communications management is essential to control rumors, maintain contact with the media, emergency services and vendors, and assure employees, the public and other affected stakeholders. Communications management requirements may necessitate building redundancies into communications systems and creating a communications plan to adequately address all requirements.
Operations management
An Emergency Operations Center (EOC) can be used to manage operations in the event of a disruption. Having a centralized EOC where information and resources can be coordinated, managed and documented helps ensure effective and efficient response.
Continuation
Ensure that all time-sensitive critical services or products are continuously delivered or not disrupted for longer than is permissible.
Recovery and restoration
The goal of recovery and restoration operations is to, recover the facility or operation and maintain critical service or product delivery. Recovery and restoration includes:
- Re-deploying personnel
- Deciding whether to repair the facility, relocate to an alternate site or build a new facility
- Acquiring the additional resources necessary for restoring business operations
- Re-establishing normal operations
- Resuming operations at pre-disruption levels
Conclusion
When critical services and products cannot be delivered, consequences can be severe. All organizations are at risk and face potential disaster if unprepared. A Business Continuity Plan is a tool that allows institutions to not only to moderate risk, but also continuously deliver products and services despite disruption.
Additional resources
Business continuity organizations
Disaster Recovery Information Exchange (DRIE)
An organization dedicated to the exchange of ideas within the business continuity and disaster recovery industry
Disaster Recovery Institute Canada (DRI)
Provides valuable services, certification and international standards for contingency planning and business continuity planning professionals.
Provincial/territorial emergency management organizations (EMOs)
Consult your local or provincial emergency management for information specific to your region.
To view this article at its source, please visit
http://www.publicsafety.gc.ca/prg/em/gds/bcp-eng.aspx#a03
A Guide to Business Continuity Planning
This publication provides a summary and general guidelines for business continuity planning (BCP).
While governments, not-for-profit institutions, and non-governmental organizations also deliver critical services, private organizations must continuously deliver products and services to satisfy shareholders and to survive. Although they differ in goals and functions, BCP can be applied by all organizations.
Changes in the world of business continuity planning
Business continuity planning versus business resumption planning and disaster recovery planning
A Business Resumption Plan describes how to resume business after a disruption. A Disaster Recovery Plan deals with recovering Information Technology (IT) assets after a disastrous interruption. Both imply a stoppage in critical operations and are reactive.
Recognizing that some services or products must be continuously delivered without interruption, there has been a shift from Business Resumption Planning to Business Continuity Planning.
A business continuity plan enables critical services or products to be continually delivered to clients. Instead of focusing on resuming a business after critical operations have ceased, or recovering after a disaster, a business continuity plan endeavors to ensure that critical operations continue to be available.
The effects of September 11, 2001
September 11, 2001 demonstrated that although high impact, low probability events could occur, recovery is possible. Even though buildings were destroyed and blocks of Manhattan were affected, businesses and institutions with good continuity plans survived.
The lessons learned include:
- plans must be updated and tested frequently;
- all types of threats must be considered;
- dependencies and interdependencies should be carefully analyzed;
- key personnel may be unavailable;
- telecommunications are essential;
- alternate sites for IT backup should not be situated close to the primary site;
- employee support (counselling) is important;
- copies of plans should be stored at a secure off-site location;
- sizable security perimeters may surround the scene of incidents involving national security or law enforcement, and can impede personnel from returning to buildings;
- despite shortcomings, Business Continuity Plans in place pre September 11 were indispensable to the continuity effort; and
- increased uncertainty (following a high impact disruption such as terrorism) may lengthen time until operations are normalized.
Emerging issues
Continuous Service Delivery Assurance (CSDA) is a commitment to continuous delivery of critical services that avoids immediate severe disruption to an organization. A BCP includes both risk evaluation, management and control and effective plans, measures and arrangements for business continuity.
Continuous risk management lowers the risk of disruption and assesses the potential impacts of disruptions when they occur. An example would be the business impact analysis component of a BCP program.
What is business continuity planning?
Critical services or products are those that must be delivered to ensure survival, avoid causing injury, and meet legal or other obligations of an organization. Business Continuity Planning is a proactive planning process that ensures critical services or products are delivered during a disruption.
A Business Continuity Plan includes:
- Plans, measures and arrangements to ensure the continuous delivery of critical services and products, which permits the organization to recover its facility, data and assets.
- Identification of necessary resources to support business continuity, including personnel, information, equipment, financial allocations, legal counsel, infrastructure protection and accommodations.
Having a BCP enhances an organization's image with employees, shareholders and customers by demonstrating a proactive attitude. Additional benefits include improvement in overall organizational efficiency and identifying the relationship of assets and human and financial resources to critical services and deliverables.
Why is business continuity planning important
Every organization is at risk from potential disasters that include:
- Natural disasters such as tornadoes, floods, blizzards, earthquakes and fire
- Accidents
- Sabotage
- Power and energy disruptions
- Communications, transportation, safety and service sector failure
- Environmental disasters such as pollution and hazardous materials spills
- Cyber attacks and hacker activity.
- Creating and maintaining a BCP helps ensure that an institution has the resources and information needed to deal with these emergencies.
Creating a business continuity plan
A BCP typically includes five sections:
1. BCP Governance
2. Business Impact Analysis (BIA)
3. Plans, measures, and arrangements for business continuity
4. Readiness procedures
5. Quality assurance techniques (exercises, maintenance and auditing)
Establish control
A BCP contains a governance structure often in the form of a committee that will ensure senior management commitments and define senior management roles and responsibilities.
The BCP senior management committee is responsible for the oversight, initiation, planning, approval, testing and audit of the BCP. It also implements the BCP, coordinates activities, approves the BIA survey, oversees the creation of continuity plans and reviews the results of quality assurance activities.
Senior managers or a BCP Committee would normally:
- approve the governance structure;
- clarify their roles, and those of participants in the program;
- oversee the creation of a list of appropriate committees, working groups and teams to develop and execute the plan;
- provide strategic direction and communicate essential messages;
- approve the results of the BIA;
- review the critical services and products that have been identified;
- approve the continuity plans and arrangement;
- monitor quality assurance activities; and
- resolve conflicting interests and priorities.
This BCP committee is normally comprised of the following members:
- Executive sponsor has overall responsibility for the BCP committee; elicits senior management's support and direction; and ensures that adequate funding is available for the BCP program.
- BCP Coordinator secures senior management's support; estimates funding requirements; develops BCP policy; coordinates and oversees the BIA process; ensures effective participant input; coordinates and oversees the development of plans and arrangements for business continuity; establishes working groups and teams and defines their responsibilities; coordinates appropriate training; and provides for regular review, testing and audit of the BCP.
- Security Officer works with the coordinator to ensure that all aspects of the BCP meet the security requirements of the organization.
- Chief Information Officer (CIO) cooperates closely with the BCP coordinator and IT specialists to plan for effective and harmonized continuity.
- Business unit representatives provide input, and assist in performing and analyzing the results of the business impact analysis.
The BCP committee is commonly co-chaired by the executive sponsor and the coordinator.
Business impact analysis
The purpose of the BIA is to identify the organization's mandate and critical services or products; rank the order of priority of services or products for continuous delivery or rapid recovery; and identify internal and external impacts of disruptions.
Identify the mandate and critical aspects of an organization
This step determines what goods or services it must be delivered. Information can be obtained from the mission statement of the organization, and legal requirements for delivering specific services and products.
Prioritize critical services or products
Once the critical services or products are identified, they must be prioritized based on minimum acceptable delivery levels and the maximum period of time the service can be down before severe damage to the organization results. To determine the ranking of critical services, information is required to determine impact of a disruption to service delivery, loss of revenue, additional expenses and intangible losses.
Identify impacts of disruptions
The impact of a disruption to a critical service or business product determines how long the organization could function without the service or product, and how long clients would accept its unavailability. It will be necessary to determine the time period that a service or product could be unavailable before severe impact is felt.
Identify areas of potential revenue loss
To determine the loss of revenue, it is necessary to determine which processes and functions that support service or product delivery are involved with the creation of revenue. If these processes and functions are not performed, is revenue lost? How much? If services or goods cannot be provided, would the organization lose revenue? If so, how much revenue, and for what length of time? If clients cannot access certain services or products would they then to go to another provider, resulting in further loss of revenue?
Identify additional expenses
If a business function or process is inoperable, how long would it take before additional expenses would start to add up? How long could the function be unavailable before extra personnel would have to be hired? Would fines or penalties from breaches of legal responsibilities, agreements, or governmental regulations be an issue, and if so, what are the penalties?
Identify intangible losses
Estimates are required to determine the approximate cost of the loss of consumer and investor confidence, damage to reputation, loss of competitiveness, reduced market share, and violation of laws and regulations. Loss of image or reputation is especially important for public institutions as they are often perceived as having higher standards.
Insurance requirements
Since few organizations can afford to pay the full costs of a recovery; having insurance ensures that recovery is fully or partially financed.
When considering insurance options, decide what threats to cover. It is important to use the BIA to help decide both what needs insurance coverage, and the corresponding level of coverage. Some aspects of an operation may be overinsured, or underinsured. Minimize the possibility of overlooking a scenario, and to ensure coverage for all eventualities.
Document the level of coverage of your institutional policy, and examine the policy for uninsured areas and non specified levels of coverage. Property insurance may not cover all perils (steam explosion, water damage, and damage from excessive ice and snow not removed by the owner). Coverage for such eventualities is available as an extension in the policy.
When submitting a claim, or talking to an adjustor, clear communication and understanding is important. Ensure that the adjustor understands the expected full recovery time when documenting losses. The burden of proof when making claims lies with the policyholder and requires valid and accurate documentation.
Include an expert or an insurance team when developing the response plan.
Ranking
Once all relevant information has been collected and assembled, rankings for the critical business services or products can be produced. Ranking is based on the potential loss of revenue, time of recovery and severity of impact a disruption would cause. Minimum service levels and maximum allowable downtimes are then determined.
Identify dependencies
It is important to identify the internal and external dependencies of critical services or products, since service delivery relies on those dependencies.
Internal dependencies include employee availability, corporate assets such as equipment, facilities, computer applications, data, tools, vehicles, and support services such as finance, human resources, security and information technology support.
External dependencies include suppliers, any external corporate assets such as equipment, facilities, computer applications, data, tools, vehicles, and any external support services such as facility management, utilities, communications, transportation, finance institutions, insurance providers, government services, legal services, and health and safety service.
Plans for business continuity
This step consists of the preparation of detailed response/recovery plans and arrangements to ensure continuity. These plans and arrangements detail the ways and means to ensure critical services and products are delivered at a minimum service levels within tolerable down times. Continuity plans should be made for each critical service or product.
Mitigating threats and risks
Threats and risks are identified in the BIA or in a full-threat-and-risk assessment. Moderating risk is an ongoing process, and should be performed even when the BCP is not activated. For example, if an organization requires electricity for production, the risk of a short term power outage can be mitigated by installing stand-by generators.
Another example would be an organization that relies on internal and external telecommunications to function effectively. Communications failures can be minimized by using alternate communications networks, or installing redundant systems.
Analyze current recovery capabilities
Consider recovery arrangements the organization already has in place, and their continued applicability. Include them in the BCP if they are relevant.
Create continuity plans
Plans for the continuity of services and products are based on the results of the BIA. Ensure that plans are made for increasing levels of severity of impact from a disruption. For example, if limited flooding occurs beside an organization's building, sand bagging may be used in response. If water rises to the first floor, work could be moved to another company building or higher in the same building. If the flooding is severe, the relocation of critical parts of the business to another area until flooding subsides may be the best option.
Another example would be a company that uses paper forms to keep track of inventory until computers or servers are repaired, or electrical service is restored. For other institutions, such as large financial firms, any computer disruptions may be unacceptable, and an alternate site and data replication technology must be used.
The risks and benefits of each possible option for the plan should be considered, keeping cost, flexibility and probable disruption scenarios in mind. For each critical service or product, choose the most realistic and effective options when creating the overall plan.
Response preparation
Proper response to a crisis for the organization requires teams to lead and support recovery and response operations. Team members should be selected from trained and experienced personnel who are knowledgeable about their responsibilities.
The number and scope of teams will vary depending on organization's size, function and structure, and can include:
- Command and Control Teams that include a Crisis Management Team, and a Response, Continuation or Recovery Management Team.
- Task Oriented Teams that include an Alternate Site Coordination Team, Contracting and Procurement Team, Damage Assessment and Salvage Team, Finance and Accounting Team, Hazardous Materials Team, Insurance Team, Legal Issues Team, Telecommunications/ Alternate Communications Team, Mechanical Equipment Team, Mainframe/ Midrange Team, Notification Team, Personal Computer/ Local area Network Team, Public and Media Relations Team, Transport Coordination Team and Vital Records Management Team.
The duties and responsibilities for each team must be defined, and include identifying the team members and authority structure, identifying the specific team tasks, member's roles and responsibilities, creation of contact lists and identifying possible alternate members.
For the teams to function in spite of personnel loss or availability, it may be necessary to multitask teams and provide cross-team training.
Alternate facilities
If an organization's main facility or Information Technology assets, networks and applications are lost, an alternate facility should be available. There are three types of alternate facility:
1. Cold site is an alternate facility that is not furnished and equipped for operation. Proper equipment and furnishings must be installed before operations can begin, and a substantial time and effort is required to make a cold site fully operational. Cold sites are the least expensive option.
2. Warm site is an alternate facility that is electronically prepared and almost completely equipped and furnished for operation. It can be fully operational within several hours. Warm sites are more expensive than cold sites.
3. Hot site is fully equipped, furnished, and often even fully staffed. Hot sites can be activated within minutes or seconds. Hot sites are the most expensive option.
When considering the type of alternate facility, consider all factors, including threats and risks, maximum allowable downtime and cost.
For security reasons, some organizations employ hardened alternate sites. Hardened sites contain security features that minimize disruptions. Hardened sites may have alternate power supplies; back-up generation capability; high levels of physical security; and protection from electronic surveillance or intrusion.
Readiness procedures
Training
Business continuity plans can be smoothly and effectively implemented by:
- Having all employees and staff briefed on the contents of the BCP and aware of their individual responsibilities
- Having employees with direct responsibilities trained for tasks they will be required to perform, and be aware of other teams' functions
Exercises
After training, exercises should be developed and scheduled in order to achieve and maintain high levels of competence and readiness. While exercises are time and resource consuming, they are the best method for validating a plan. The following items should be incorporated when planning an exercise:
- Goal: The part of the BCP to be tested.
- Objectives: The anticipated results. Objectives should be challenging, specific, measurable, achievable, realistic and timely.
- Scope: Identifies the departments or organizations involved, the geographical area, and the test conditions and presentation.
- Artificial aspects and assumptions: Defines which exercise aspects are artificial or assumed, such as background information, procedures to be followed, and equipment availability.
- Participant Instructions: Explains that the exercise provides an opportunity to test procedures before an actual disaster.
- Exercise Narrative: Gives participants the necessary background information, sets the environment and prepares participants for action. It is important to include factors such as time, location, method of discovery and sequence of events, whether events are finished or still in progress, initial damage reports and any external conditions.
- Communications for Participants: Enhanced realism can be achieved by giving participants access to emergency contact personnel who share in the exercise. Messages can also be passed to participants during an exercise to alter or create new conditions.
- Testing and Post-Exercise Evaluation: The exercise should be monitored impartially to determine whether objectives were achieved. Participants' performance, including attitude, decisiveness, command, coordination, communication, and control should be assessed. Debriefing should be short, yet comprehensive, explaining what did and did not work, emphasizing successes and opportunities for improvement. Participant feedback should also be incorporated in the exercise evaluation.
Exercise complexity level can also be enhanced by focusing the exercise on one part of the BCP instead of involving the entire organization.
Quality assurance techniques
Review of the BCP should assess the plan's accuracy, relevance and effectiveness. It should also uncover which aspects of a BCP need improvement. Continuous appraisal of the BCP is essential to maintaining its effectiveness. The appraisal can be performed by an internal review, or by an external audit.
Internal review
It is recommended that organizations review their BCP:
- On a scheduled basis (annually or bi-annually)
- when changes to the threat environment occur;
- when substantive changes to the organization take place; and
- after an exercise to incorporate findings.
External audit
When auditing the BCP, consultants nominally verify:
- Procedures used to determine critical services and processes
- Methodology, accuracy, and comprehensiveness of continuity plans
What to do when a disruption occurs
Disruptions are handled in three steps:
1. Response
2. Continuation of critical services
3. Recovery and restoration
Response
Incident response involves the deployment of teams, plans, measures and arrangements. The following tasks are accomplished during the response phase:
- Incident management
- Communications management
- Operations management
Incident management
Incident management includes the following measures:
- notifying management, employees, and other stakeholders;
- assuming control of the situation;
- identifying the range and scope of damage;
- implementing plans;
- identifying infrastructure outages; and
- coordinating support from internal and external sources.
Communications management
Communications management is essential to control rumors, maintain contact with the media, emergency services and vendors, and assure employees, the public and other affected stakeholders. Communications management requirements may necessitate building redundancies into communications systems and creating a communications plan to adequately address all requirements.
Operations management
An Emergency Operations Center (EOC) can be used to manage operations in the event of a disruption. Having a centralized EOC where information and resources can be coordinated, managed and documented helps ensure effective and efficient response.
Continuation
Ensure that all time-sensitive critical services or products are continuously delivered or not disrupted for longer than is permissible.
Recovery and restoration
The goal of recovery and restoration operations is to, recover the facility or operation and maintain critical service or product delivery. Recovery and restoration includes:
- Re-deploying personnel
- Deciding whether to repair the facility, relocate to an alternate site or build a new facility
- Acquiring the additional resources necessary for restoring business operations
- Re-establishing normal operations
- Resuming operations at pre-disruption levels
Conclusion
When critical services and products cannot be delivered, consequences can be severe. All organizations are at risk and face potential disaster if unprepared. A Business Continuity Plan is a tool that allows institutions to not only to moderate risk, but also continuously deliver products and services despite disruption.
Additional resources
Business continuity organizations
Disaster Recovery Information Exchange (DRIE)
An organization dedicated to the exchange of ideas within the business continuity and disaster recovery industry
Disaster Recovery Institute Canada (DRI)
Provides valuable services, certification and international standards for contingency planning and business continuity planning professionals.
Provincial/territorial emergency management organizations (EMOs)
Consult your local or provincial emergency management for information specific to your region.
To view this article at its source, please visit
http://www.publicsafety.gc.ca/prg/em/gds/bcp-eng.aspx#a03
Tuesday, June 2, 2009
Innovation through Global Collaboration
It is crucial to consider the strategic role of collaboration in the contemporary business environment in order for your company to stay competitive. Collaboration is becoming an incresingly important source of competitive advantage.
We came across this article published by Alan MacCormack from Harvard School of Business. The author talks about the benefits of collaboration and emphasizes the differences between "outsourcing" and collaboration efforts mistakenly confused by many companies.
Innovation through Global Collaboration:
A New Source of Competitive Advantage
http://hbswk.hbs.edu/item/5760.html
Date: August 14th 2007
Author: Alan MacCormack
Harvard Business School
Abstract
Many recent studies highlight the need to rethink the way we manage innovation. Traditional approaches, based on the assumption that the creation and pursuit of new ideas is best accomplished by a centralized and collocated R&D team, are rapidly becoming outdated. Instead, innovations are increasingly brought to the market by networks of firms, selected for their unique capabilities, and operating in a coordinated manner. This new model demands that firms develop different skills, in particular, the ability to collaborate with partners to achieve superior innovation performance. Yet despite this need, there is little guidance on how to develop or deploy this ability.
This article describes the results of a study to understand the strategies and practices used by firms that achieve greater success in their collaborative innovation efforts. We found many firms mistakenly applied an “outsourcing” mindset to collaboration efforts which, in turn, led to three critical errors: First, they focused solely on lower costs, failing to consider the broader strategic role of collaboration. Second, they didn’t organize effectively for collaboration, believing that innovation could be managed much like production and partners treated like “suppliers.” And third, they didn’t invest in building collaborative capabilities, assuming that their existing people and processes were already equipped for the challenge. Successful firms, by contrast, developed an explicit strategy for collaboration and made organizational changes to aid performance in these efforts. Ultimately, these actions allowed them to identify and exploit new business opportunities. In sum, collaboration is becoming a new and important source of competitive advantage. We propose several frameworks to help firms develop and exploit this new ability.
Introduction
The management of innovation is changing. No longer is the creation and pursuit of new ideas the bastion of large central R&D departments within vertically integrated organizations. Instead, innovations are increasingly brought to the market by networks of firms, selected according to their comparative advantages, and operating in a coordinated manner. In this new model, organizations de-construct the innovation value chain and source pieces from partners that possess lower costs, better skills and/or access to knowledge that can provide a source of differentiation. The aim is to establish mutually beneficial relationships through which new products and services are developed. In short, firms increasingly seek superior performance in innovation through collaboration. This new model is being driven by a series of trends forcing firms to re-think traditional approaches to innovation. First, the complexity of products is increasing, in terms of the number of technologies they include. No longer is it possible for one firm to master all these skills and locate them under one roof. Second, a supply of cheap skilled labor has emerged in developing countries, creating incentives to substitute these resources for higher-cost equivalents. Third, different regions of the world have developed unique skills and capabilities, which leading firms are now exploiting for advantage. And finally, advances in development tools and technology combined with the rise of open architectures and standards have driven down the costs of coordinating distributed work.
In sum, collaboration is no longer a “nice to have.” It is a competitive necessity.
In this article, we report on a study of the strategies and practices used by firms that achieve greater success in their collaborative innovation efforts. The aim was to build on prior work that provides evidence of the value in a more “open” approach to innovation, and to explore an emerging theme in these studies; that firms must consider more than just lower cost when looking at the benefits from collaboration. Our research was designed to shed light on how firms can use collaboration to create greater business value and to reveal the practices that dictate the effectiveness of these efforts.
About the Research
We conducted semi-structured interviews with managers in firms that are making extensive use of collaboration in their innovation efforts. Our aim was to evaluate how firms achieved greater success in these efforts, as opposed to understanding why or where they chose to collaborate. Where possible, we captured data on two development projects at each firm; one in which collaboration was perceived to be highly successful and another in which performance fell below expectations. To increase reliability we interviewed multiple managers from each project; each lasting between one to four hours.
In total, we talked to over 100 managers from 20 firms, gathering data on over 40 projects. By contrasting the responses, across both projects and firms, we synthesized the strategies and practices that best explained perceived differences in performance.
Collaboration is not “Outsourcing”
Our study revealed dramatic differences in the performance of firm’s collaboration efforts, driven by contrasting approaches to their management. In particular, many firms mistakenly applied a “production outsourcing” mindset to collaboration, viewing the use of partners only as a means to achieve lower costs through “wage arbitrage” – substituting a US resource with a cheaper one of equivalent skill. These firms saw little need to change the way they organized their innovation efforts to facilitate collaboration.
By contrast, successful firms went beyond simple wage arbitrage, asking global partners to contribute knowledge and skills to projects, with a focus on improving their top-line. And they re-designed their organizations, to increase the effectiveness of these efforts. Managing collaboration the same way a firm handles the outsourcing of production is a flawed approach. Production and innovation are fundamentally different activities – while the former seeks to replicate an existing product at low cost, the other seeks to develop something entirely new and valuable. In addition, outsourcing and collaboration have very different objectives. Outsourcing involves procuring a commodity asset or resource at the cheapest price. Collaboration, by contrast, entails accessing globally dispersed knowledge, leveraging new capabilities and sharing risk with partners. It is a much more sophisticated skill. While “outsourcers” achieved lower R&D costs in our study, rarely was this a source of advantage. “We lowered costs, but so did our competitors,” said one manager. “Our process is not differentiated at all.” By contrast, “collaborators” leveraged partners to create new sources of value. As Mak Agashe, General Manager for Windows Serviceability at Microsoft remarked, “We use partners to gain access to capabilities we don't possess. They have a huge impact on our ability to innovate that goes way beyond low cost and allows us to achieve significant advantages in time to market, results that we could not realize working with just our own resources.”
Firms which managed collaboration using an “outsourcing” mindset made three critical errors, as compared to more successful organizations:
- They didn’t consider the strategic role of collaboration, but saw it only as a tactic for reducing cost. As a result, their efforts were misaligned with their business strategy.
- They didn’t organize effectively for collaboration. Instead, they treated partners like suppliers of parts or raw materials, and managed them using a procurement function.
- They didn’t make long-term investments to develop collaborative capabilities.
Instead, they assumed their existing staff and processes could handle the challenge.
In combination, these errors meant firms systematically missed opportunities to use collaboration for competitive advantage. By contrast, successful firms found that attention to these critical areas generated new options to create value that competitors could not replicate. Below, we describe the principles that these latter firms employed.
1: Develop a Global Collaboration Strategy
In many firms, little thought was given to strategy; these companies typically began using global partners to lower costs, and did not evolve from that goal even after executing a half dozen or more projects. The result was a de facto, unarticulated cost-reduction strategy, driven at a departmental or divisional level. Collaboration received little senior management attention; when it did, it was because expectations were not being met.
Leading firms, by contrast, developed an explicit strategy for collaboration, designed to support their business goals. In contrast to organizations that viewed collaboration only as a tool for reducing cost, these firms considered a variety of more strategic benefits, in particular, assessing how collaboration could improve their top line through increased product differentiation. Successful organizations achieved this in two ways: first, by leveraging a partner’s superior capabilities (i.e., know-how that the firm did not possess internally); and second, by accessing a partner’s contextual knowledge (i.e., knowledge that the partner possessed by virtue of its local position). In combination, these benefits comprise the “3C’s” of a global collaboration strategy: cost, capability, and context.
Lowering R&D Costs
Reducing R&D costs was the number one priority for firms using partners to innovate. Firms in our sample reported between 10-30% reductions in cost, as compared to their performance prior to partnering. But savings were often lower than expected, due to the added costs associated with the need for greater coordination. Firms using an outsourcing mindset sought to lower costs through “wage arbitrage,” replacing US resources with cheaper ones of equivalent skill. Leading firms however, lowered cost in a different way. Rather than swap one resource for another, they “reconfigured” their operations to optimize performance at the system level. While the decisions they made, in isolation, sometimes appeared to add cost, these firms understood the need to change the way they organized to maximize the value of collaborative efforts.
Consider SemCo, a leader in the contract manufacturing industry, which designs and develops electronic components and systems for own-equipment manufacturers (OEMs).
When SemCo built a semiconductor plant in China, it did not replicate the design of its US facilities. While substituting US staff with Chinese staff would yield lower costs, SemCo saw a bigger opportunity in revisiting how the facility would operate. So it recruited a huge engineering staff – an order of magnitude greater than the US – and devoted them to process and product improvement. The result: a facility with the highest productivity of any in their network, independent of wage levels. Substituting one worker for another merely yields a one-time saving that can be easily copied. Semco, by contrast, built the capability to lower costs systematically over time.
Leveraging Superior Capabilities
Leading firms focused greater attention on how to leverage partner capabilities. We observed two broad types of capability in action: First, the ability to rapidly bring online large amounts of capacity, allowing firms to lower time to market and increase responsiveness, while avoiding the cost of full-time staff; and second, the ability to access unique competencies, technical know-how and/or process expertise that firms did not possess internally. Successful firms sought partners with a blend of both abilities, giving them instant access to a repertoire of skills not available in-house. As one manager recalled, “It takes us nine months to find and hire a new employee. But using our partner, we staffed up in two weeks, accessing a skill that we don’t have internally.”
Microsoft used the capabilities of a partner to dramatically improve agility and quality in one business unit. This unit provides periodic updates to customers – billions of downloads every quarter. Testing for these updates includes operating system, hardware, chipset and 3rd party application testing. It spans 5 operating systems covering millions of lines of code. Microsoft’s partner helped apply “Lean” manufacturing techniques to this process, streamlining and prioritizing tests and re-designing tasks to allow staff to work in parallel. For one of the projects, the team improved time to test by 90%, lowered costs by 70% and reduced “failure” rates to near zero.
Accessing Contextual Knowledge
An increasing focus for many firms was gaining access to the knowledge and relationships that a partner possessed by virtue of its position in a local context. In our study, examples included partners who possessed a deep knowledge of local firms with specific production skills, relationships with university faculty in a new research area, and contacts with the government officials who approved market access. These benefits, being based upon the knowledge and relationships that come from a local presence, were difficult to value. As a result, many firms tended to underestimate their impact.
Consider NewCo, a firm that designs enterprise servers sold to OEMs like HP and Sun. To complement its US staff, NewCo established an Owned Development Center (ODC) in Taiwan and teamed with a partner in India. In one recent project, the firm was having difficulty in meeting the target cost due to the high price of one particular component. So NewCo asked its ODC to leverage its knowledge of different local manufacturer’s costs and capabilities to solve the problem. The organization eventually located a new supplier that could source an equivalent component at lower cost. In this case, the value of the ODC was not in providing better capability; it came from superior local knowledge.
Thinking Strategically
Viewing collaboration through this broader lens highlights how it can be used to support a firm’s strategy. It forces managers to understand the competitive implications of partner selection, by assessing their merits along multiple dimensions, instead of only one. And it helps firms understand where to use collaboration, in terms of the parts of the innovation value chain where a focus on cost versus differentiation is most appropriate.
To illustrate, consider the strategies of two firms – A and B. Initially, firm B has a dominant position, with lower cost and superior differentiation. But firm A has identified opportunities to improve its position through collaboration. It can move along the horizontal to position C, achieving lower cost, or along the vertical to position D, achieving superior differentiation. Or it can move to position E, which is superior on both dimensions. In essence, collaboration has the potential to move firm A to the “frontier” of the space joining C, D and E. Contrast this with a firm that views collaboration only as a way to lower cost; this firm sees only one position to move to. While this may be a good choice, this firm does not see that it is not the only choice.
While successful firms often used different terms to those above, all had developed similar methods to align collaboration efforts to their business strategy. Collaboration received visibility at a senior level, and was an integral part of the strategic-planning process. Increasingly, the focus was not on wage arbitrage, but on using partners to increase business value. These firms grew more sophisticated in the use of collaboration over time; by contrast, poor performers remained stubbornly focused on cost.
2: Organize for Collaboration
The second area separating leading firms from others was how they organized. Firms that viewed collaboration through an outsourcing lens adopted a “transactional” model. They focused on how to break up the innovation value chain and specify in detail the deliverables required from each part. In procuring these parts, the selection of partners was driven mainly by cost. These firms treated partners like “suppliers” and adopted organizational structures, management policies and contracts reflecting this mindset. By contrast, successful firms recognized the uncertainty in their innovation efforts and sought mechanisms to overcome it. This required a more “collaborative” model.
The need for a different model can be seen by considering the challenge of partnering along two dimensions: The degree of uncertainty over the product to be produced; and the degree of uncertainty over the process to produce it. Replicating an existing product (i.e., production) involves little uncertainty while developing a new one (i.e., innovation) is far more uncertain. Similarly, some processes are routine and easily specified whereas others are idiosyncratic and rely on trial and error learning. When firms face little uncertainty on both dimensions – the arena of production outsourcing – traditional models work well, given firms can specify what they want and how it should be made. As uncertainty increases however, a more collaborative approach is needed. Firms that adopted a more collaborative model made different choices in terms of team design, contract structure and intellectual property management. We discuss each below.
Leading firms viewed partners as an extension of their own development organizations, seeking their participation in meetings and including them in internal communications. As part of this philosophy, they required greater continuity in partner staff, in contrast to a transactional model, in which people move in and out of projects. This ensured the “tacit” knowledge of a project’s context was retained, and improved communication between teams. As one manager explained, “It takes time to appreciate the skills of each team member and understand how to work together. When people leave, we have to go through that learning curve again. So we put a premium on ensuring staff continuity.”
Successful firms focused on improving the efficiency of information transfer between teams given the need to jointly solve problems, the specifics of which cannot be predicted in advance. Having a partner liaison manager on-site, though expensive, was viewed as critical for resolving higher-level issues. For day-to-day problems however, direct contact between team members proved more effective, helping to get questions to the right place and resolved quickly. Several firms created a “buddy” system at the start of projects, linking offsite staff to onsite staff with similar responsibilities. By contrast, in projects that tried to manage communication at a single senior level, the transfer of information was often delayed, resulting in expensive rework and reduced trust.
Leading firms also made different choices in the contract terms that governed the funding of projects and payment of rewards. They aimed to align the incentives of client and partner, reducing the need to specify what was required from each in great detail. While service level agreements were common substitutes for time and material contracts, these firms went further, sharing risks with partners and rewarding them for their top-line impact. Partners often absorbed costs in return for payments tied to revenues or profits.
In some cases, they acquired stakes in the business. As one manager noted, “We ask partners for ideas, so we need to reward their ideas and not just the effort in developing them. We give them a share of the pie, but their ideas make the pie bigger.”
The final area in which firms made different organizational choices was in intellectual property (IP) management. Global partners increasingly develop their own IP – new components, technologies and processes – to improve project performance. Furthermore, collaboration often requires that partners re-use and add to a firm’s existing IP in the search for new solutions. Given these trends, traditional approaches to IP which assume that a firm must develop, own, protect and isolate its IP are increasingly outdated.
While successful firms in our study differed on the specifics of their IP policies, their actions reflected a common shift in values; towards a more open and flexible approach. These firms sought to leverage partner IP, focusing on the cost and speed advantages, which outweighed concerns about the need for control. They developed mechanisms for partners to access their own IP, in a way that facilitated collaboration but ensured the protection of competitive assets. And they shared newly developed IP when the firm and its partners could benefit from its application, as long as the uses were not competitive.
3: Build Collaborative Capabilities
The final area separating leading firms from others was their willingness to invest in developing “collaborative capabilities.” All too often, firms assumed that their existing employees, processes and infrastructure were capable of meeting the challenge of collaboration. But successful collaboration doesn’t just happen – it is a skill that must be learned. Rarely do firms get it “right first time.” Leading firms recognized this reality, and made investments to enhance their performance over time.
Successful firms targeted investments in four areas: people, process, platforms and programs. We call these the “Four Pillars” of collaborative capability. These investments were typically funded outside the budgets of individual projects, given few projects can justify the levels of infrastructure needed to perform well on their own. In essence, leading firms made a strategic decision to invest in collaborative capabilities, and sought to leverage these investments across projects and over time.
Developing People
Superior performance in collaboration requires people with different skills, given team members often lie outside the boundaries of the firm, are located in far flung countries and have vastly different cultures. The “art” of management in such projects is in finding ways to exert influence over resources not under a firm’s control. Rather than a focus on deep technical expertise, managers therefore require a much broader skill set, associated with the need to orchestrate and coordinate the work of distributed teams.
Successful firms tackled this challenge through changes to their recruitment, training, evaluation and reward systems. For example, as well as training in technical disciplines, these firms ensured that engineering staff were educated on how to partition work into parts that can be worked on by different teams and how to manage the multiple workflows that result. The emphasis was on “softer” skills, such as communication and motivation, as opposed to discipline-based content. Increasingly, firms invited partners to these sessions, to develop a shared understanding of how best to work together.
The emphasis on developing new people skills was reinforced by a firm’s evaluation and reward systems. Unfortunately, these systems were often poorly equipped for the challenge, given they focused solely on assessing the performance of internal teams. For example, while 360 degree reviews for managers were increasingly common, rarely did firms seek feedback from partners; a critical omission given partner performance is central to effective collaboration. Leading firms recognized the need to assess this aspect of performance, developed metrics to make it visible and rewarded those who excelled. They viewed collaboration as a skill to be learned and took actions to develop it in staff.
Designing Processes
Most projects we observed employed a formal product development methodology based upon a modified “stage-gate” or “waterfall” type process. These processes are increasingly popular ways to ensure greater control and consistency in the execution of projects. But these techniques, and others that share their roots, are often predicated on the assumption of single-site development. There is a need to re-think how they should operate when managing the distribution of work among a team of global partners.
Distributed development requires a variety of additional activities as compared to single-site projects, related to the division of tasks, the sharing of artifacts, the coordination of handoffs, and the integration of components. Leading firms designed processes to address these activities, taking into account the experiences and preferences of partners.
This did not mean that each partner used the same process; rather the aim was to decide how much standardization was needed. For example, in one software project we observed, one team used a rigid “stage-gate” process to develop the core technology, and another used an “agile” process for the user-interface. Weekly and monthly “builds” were used to synchronize the work of both teams. Given each team used a process in which they were skilled, as well as one which fit their goals, the project was successful.
Ultimately, successful firms used a learning-driven approach to process design given their understanding of how to collaborate was in its infancy. Small pilot projects were used to experiment with alternative techniques, the best being chosen for a wider roll-out.
For example, German electronics giant Siemens recruited several university teams around the globe to contribute to a project led by staff in its Princeton R&D center. The firm tested different approaches to managing distributed teams, gaining insight on how contextual differences (e.g., between Indian and Irish teams) affected performance. The results are helping the firm decide what information to share with teams, how frequently they should interact and what modes of communication are the most effective.
Building Platforms
Leading firms developed technology “platforms” to improve the coordination of work. These platforms comprised four main parts: First, development tools and technologies to improve the efficiency of distributed work; second, technical standards and interfaces to ensure the seamless integration of partner outputs; third, rules to govern the sharing of intellectual property among partners; and fourth, knowledge management systems to capture the firm’s experience on how distributed work is best performed. This collaboration “infrastructure” was leveraged across multiple projects over time. The goal was to promote a long-term view of the assets needed for effective collaboration.
Consider TransCo, a leading transportation firm which undertook a multi-year project involving engineering work by over 50 global partners. The firm needed a platform that ensured the output from different partners was compatible, enabled the frequent integration of components, and facilitated testing of the entire system. Developing the platform was a multi-year undertaking, involving hundreds of staff from the firm and its partners. This effort focused on minimizing the constraints on each partner. As one manager noted, “We asked ‘what is the minimum level of commonality in process, data and computing to allow us to work together?” The resulting capabilities were vital to success – for example, the firm could make global design changes (e.g., to the system’s electrical standards) and have these “ripple through” to all affected components.
While some firms like TransCo developed customized tools for collaboration, many used off-the-shelf products. In these cases, it was common to ensure that partners used the same version of the same tool, ensuring seamless data transfer. Where this was not possible, significant up-front effort was devoted to defining how integration would be handled. Failure to do this led to major problems. Consider the troubles at Airbus, in developing its flagship A380 aircraft. Airbus’ German and French partners chose to work with different versions of Dassualt Systems’ CATIA design software. But design information in the older system was not translated accurately into the new one, which held the “master” version. Without a physical mock-up, these problems remained hidden throughout the project. The result: 300 miles of wiring, 100,000 wires and 40,000 connectors that did not fit, leading to a 2-year production delay at a cost of $6bn. Yet the cause of Airbus’s problems was not in choosing different software versions; rather it lay in the lack of an effective process for dealing with the problems this created.
Managing “Programs”
Successful firms managed their collaboration efforts as a coherent “program,” in contrast to organizations which ran each project on a stand-alone basis. A program view was critical given collaboration projects rarely met expectations early on, and performance often deteriorated when the scope of efforts was increased. Leading firms did not differ from others in this respect; but they did differ in the rate at which they improved. Top performers put in place mechanisms to help improve their collaboration skills over time.
A program view was cultivated by allocating responsibility for all of a firm’s collaboration efforts to one senior manager. In large firms, this took the form of a formal VP or director-level position; in smaller organizations, a senior manager added this role to existing responsibilities. This “Chief Collaboration Officer,” while not a direct report on each project, was tasked with developing a plan for improving the performance of all collaboration efforts. The involved the creation of a firm-wide collaboration strategy, as well as organizational changes to improve the effectiveness of execution.
The most progressive firms managed the “trajectory” through which they developed skills by carefully selecting the projects that used collaboration. Early efforts were chosen to minimize complexity, with an emphasis on “learning the basics;” more ambitious projects were tackled as skills increased. The focus was on assembling a pool of knowledge to aid future efforts, through post-mortems conducted with partners. Hence top performers set up systems to codify lessons learnt from past collaborations; and often linked partners into these systems to benefit from their broader collaboration experience.
A New Source of Competitive Advantage
Firms that devoted attention to the three areas above – strategy, organization, and capability development – were more successful in their collaboration efforts. For a few firms in our study however, these efforts not only lent support to their existing business strategies, but also led to new value creation opportunities. Their investments to build capabilities, in turn, created options to pursue strategies that could not be replicated by competitors; especially those that managed collaboration like outsourcing. For these firms, collaboration had become a source of competitive advantage.
A striking example of these dynamics was in Boeing’s development of its 787“Dreamliner” aircraft. Boeing builds the most complex commercial product in the world, each project being almost literally a “bet-the-company” experience. The levels of capital investment required and the increasing breadth of technologies that must be mastered – from digital cockpit design to new lightweight materials – have forced Boeing to look at new forms of organization, the aim being to share risk with partners while exploiting the unique technical expertise that each brings to development. Boeing’s approach to the 787 was the epitome of global collaboration. The project included over 50 partners from over 130 locations working together for more than four years. From the start, the aim was to leverage advanced capabilities from this network.
For example, in technologies like composite materials, which are being used for the first time for large sections of the airplane, smaller more focused firms had developed expertise that was unique. Rather than replicate this expertise, the firm sought to tap into it, blending it with skills from other partners developing complementary technologies. Furthermore, the relationships it established were not the traditional “build-to-print” contracts of past years. Instead, partners designed the components they were to make, ensuring a seamless integration with the outputs of other partners.
In our view, Boeing’s source of competitive advantage is shifting; it is less and less related to the possession of deep individual technical skills in hundreds of diverse disciplines. While the firm still possesses such knowledge, this is no longer what differentiates it from competitors such as Airbus, who can access similar capabilities. Rather, Boeing’s unique assets and skills are increasingly tied to the way the firm orchestrates, manages and coordinates its network of hundreds of global partners. Boeing’s experience is increasingly common across the industries we observed: Collaboration is becoming a new and important source of competitive advantage.
REFERENCES
Chesbrough, H. Open Innovation, HBS Press, Boston MA. 2003.
Cooper, R. Stage Gate Systems: A New Tool for Managing New Products, Business Horizons 33, 1990.
Eppinger, S. and Chitkara, A. The New Practice of Global Product Development, SMR, Summer 2006.
Hansen, M. and Nohria, N. How to Build Collaborative Advantage, SMR, Fall 2004.
Iansiti, M. The Keystone Advantage, HBS Press, Boston, MA. 2004.
Porter, M. Competitive Strategy, Free Press, New York, NY. 1980.
Santos, D., Doz, Y. and Williamson, P. Is Your Innovation Process Global?, SMR, Summer 2004.
Teece, D. Profiting from Technological Innovation: Implications for Integration, Licensing, Collaboration
and Public Policy, Research Policy 15, 1986.
Williamson, O. The Economic Institutions of Capitalism, Free Press, New York, NY. 1985.
We came across this article published by Alan MacCormack from Harvard School of Business. The author talks about the benefits of collaboration and emphasizes the differences between "outsourcing" and collaboration efforts mistakenly confused by many companies.
Innovation through Global Collaboration:
A New Source of Competitive Advantage
http://hbswk.hbs.edu/item/5760.html
Date: August 14th 2007
Author: Alan MacCormack
Harvard Business School
Abstract
Many recent studies highlight the need to rethink the way we manage innovation. Traditional approaches, based on the assumption that the creation and pursuit of new ideas is best accomplished by a centralized and collocated R&D team, are rapidly becoming outdated. Instead, innovations are increasingly brought to the market by networks of firms, selected for their unique capabilities, and operating in a coordinated manner. This new model demands that firms develop different skills, in particular, the ability to collaborate with partners to achieve superior innovation performance. Yet despite this need, there is little guidance on how to develop or deploy this ability.
This article describes the results of a study to understand the strategies and practices used by firms that achieve greater success in their collaborative innovation efforts. We found many firms mistakenly applied an “outsourcing” mindset to collaboration efforts which, in turn, led to three critical errors: First, they focused solely on lower costs, failing to consider the broader strategic role of collaboration. Second, they didn’t organize effectively for collaboration, believing that innovation could be managed much like production and partners treated like “suppliers.” And third, they didn’t invest in building collaborative capabilities, assuming that their existing people and processes were already equipped for the challenge. Successful firms, by contrast, developed an explicit strategy for collaboration and made organizational changes to aid performance in these efforts. Ultimately, these actions allowed them to identify and exploit new business opportunities. In sum, collaboration is becoming a new and important source of competitive advantage. We propose several frameworks to help firms develop and exploit this new ability.
Introduction
The management of innovation is changing. No longer is the creation and pursuit of new ideas the bastion of large central R&D departments within vertically integrated organizations. Instead, innovations are increasingly brought to the market by networks of firms, selected according to their comparative advantages, and operating in a coordinated manner. In this new model, organizations de-construct the innovation value chain and source pieces from partners that possess lower costs, better skills and/or access to knowledge that can provide a source of differentiation. The aim is to establish mutually beneficial relationships through which new products and services are developed. In short, firms increasingly seek superior performance in innovation through collaboration. This new model is being driven by a series of trends forcing firms to re-think traditional approaches to innovation. First, the complexity of products is increasing, in terms of the number of technologies they include. No longer is it possible for one firm to master all these skills and locate them under one roof. Second, a supply of cheap skilled labor has emerged in developing countries, creating incentives to substitute these resources for higher-cost equivalents. Third, different regions of the world have developed unique skills and capabilities, which leading firms are now exploiting for advantage. And finally, advances in development tools and technology combined with the rise of open architectures and standards have driven down the costs of coordinating distributed work.
In sum, collaboration is no longer a “nice to have.” It is a competitive necessity.
In this article, we report on a study of the strategies and practices used by firms that achieve greater success in their collaborative innovation efforts. The aim was to build on prior work that provides evidence of the value in a more “open” approach to innovation, and to explore an emerging theme in these studies; that firms must consider more than just lower cost when looking at the benefits from collaboration. Our research was designed to shed light on how firms can use collaboration to create greater business value and to reveal the practices that dictate the effectiveness of these efforts.
About the Research
We conducted semi-structured interviews with managers in firms that are making extensive use of collaboration in their innovation efforts. Our aim was to evaluate how firms achieved greater success in these efforts, as opposed to understanding why or where they chose to collaborate. Where possible, we captured data on two development projects at each firm; one in which collaboration was perceived to be highly successful and another in which performance fell below expectations. To increase reliability we interviewed multiple managers from each project; each lasting between one to four hours.
In total, we talked to over 100 managers from 20 firms, gathering data on over 40 projects. By contrasting the responses, across both projects and firms, we synthesized the strategies and practices that best explained perceived differences in performance.
Collaboration is not “Outsourcing”
Our study revealed dramatic differences in the performance of firm’s collaboration efforts, driven by contrasting approaches to their management. In particular, many firms mistakenly applied a “production outsourcing” mindset to collaboration, viewing the use of partners only as a means to achieve lower costs through “wage arbitrage” – substituting a US resource with a cheaper one of equivalent skill. These firms saw little need to change the way they organized their innovation efforts to facilitate collaboration.
By contrast, successful firms went beyond simple wage arbitrage, asking global partners to contribute knowledge and skills to projects, with a focus on improving their top-line. And they re-designed their organizations, to increase the effectiveness of these efforts. Managing collaboration the same way a firm handles the outsourcing of production is a flawed approach. Production and innovation are fundamentally different activities – while the former seeks to replicate an existing product at low cost, the other seeks to develop something entirely new and valuable. In addition, outsourcing and collaboration have very different objectives. Outsourcing involves procuring a commodity asset or resource at the cheapest price. Collaboration, by contrast, entails accessing globally dispersed knowledge, leveraging new capabilities and sharing risk with partners. It is a much more sophisticated skill. While “outsourcers” achieved lower R&D costs in our study, rarely was this a source of advantage. “We lowered costs, but so did our competitors,” said one manager. “Our process is not differentiated at all.” By contrast, “collaborators” leveraged partners to create new sources of value. As Mak Agashe, General Manager for Windows Serviceability at Microsoft remarked, “We use partners to gain access to capabilities we don't possess. They have a huge impact on our ability to innovate that goes way beyond low cost and allows us to achieve significant advantages in time to market, results that we could not realize working with just our own resources.”
Firms which managed collaboration using an “outsourcing” mindset made three critical errors, as compared to more successful organizations:
- They didn’t consider the strategic role of collaboration, but saw it only as a tactic for reducing cost. As a result, their efforts were misaligned with their business strategy.
- They didn’t organize effectively for collaboration. Instead, they treated partners like suppliers of parts or raw materials, and managed them using a procurement function.
- They didn’t make long-term investments to develop collaborative capabilities.
Instead, they assumed their existing staff and processes could handle the challenge.
In combination, these errors meant firms systematically missed opportunities to use collaboration for competitive advantage. By contrast, successful firms found that attention to these critical areas generated new options to create value that competitors could not replicate. Below, we describe the principles that these latter firms employed.
1: Develop a Global Collaboration Strategy
In many firms, little thought was given to strategy; these companies typically began using global partners to lower costs, and did not evolve from that goal even after executing a half dozen or more projects. The result was a de facto, unarticulated cost-reduction strategy, driven at a departmental or divisional level. Collaboration received little senior management attention; when it did, it was because expectations were not being met.
Leading firms, by contrast, developed an explicit strategy for collaboration, designed to support their business goals. In contrast to organizations that viewed collaboration only as a tool for reducing cost, these firms considered a variety of more strategic benefits, in particular, assessing how collaboration could improve their top line through increased product differentiation. Successful organizations achieved this in two ways: first, by leveraging a partner’s superior capabilities (i.e., know-how that the firm did not possess internally); and second, by accessing a partner’s contextual knowledge (i.e., knowledge that the partner possessed by virtue of its local position). In combination, these benefits comprise the “3C’s” of a global collaboration strategy: cost, capability, and context.
Lowering R&D Costs
Reducing R&D costs was the number one priority for firms using partners to innovate. Firms in our sample reported between 10-30% reductions in cost, as compared to their performance prior to partnering. But savings were often lower than expected, due to the added costs associated with the need for greater coordination. Firms using an outsourcing mindset sought to lower costs through “wage arbitrage,” replacing US resources with cheaper ones of equivalent skill. Leading firms however, lowered cost in a different way. Rather than swap one resource for another, they “reconfigured” their operations to optimize performance at the system level. While the decisions they made, in isolation, sometimes appeared to add cost, these firms understood the need to change the way they organized to maximize the value of collaborative efforts.
Consider SemCo, a leader in the contract manufacturing industry, which designs and develops electronic components and systems for own-equipment manufacturers (OEMs).
When SemCo built a semiconductor plant in China, it did not replicate the design of its US facilities. While substituting US staff with Chinese staff would yield lower costs, SemCo saw a bigger opportunity in revisiting how the facility would operate. So it recruited a huge engineering staff – an order of magnitude greater than the US – and devoted them to process and product improvement. The result: a facility with the highest productivity of any in their network, independent of wage levels. Substituting one worker for another merely yields a one-time saving that can be easily copied. Semco, by contrast, built the capability to lower costs systematically over time.
Leveraging Superior Capabilities
Leading firms focused greater attention on how to leverage partner capabilities. We observed two broad types of capability in action: First, the ability to rapidly bring online large amounts of capacity, allowing firms to lower time to market and increase responsiveness, while avoiding the cost of full-time staff; and second, the ability to access unique competencies, technical know-how and/or process expertise that firms did not possess internally. Successful firms sought partners with a blend of both abilities, giving them instant access to a repertoire of skills not available in-house. As one manager recalled, “It takes us nine months to find and hire a new employee. But using our partner, we staffed up in two weeks, accessing a skill that we don’t have internally.”
Microsoft used the capabilities of a partner to dramatically improve agility and quality in one business unit. This unit provides periodic updates to customers – billions of downloads every quarter. Testing for these updates includes operating system, hardware, chipset and 3rd party application testing. It spans 5 operating systems covering millions of lines of code. Microsoft’s partner helped apply “Lean” manufacturing techniques to this process, streamlining and prioritizing tests and re-designing tasks to allow staff to work in parallel. For one of the projects, the team improved time to test by 90%, lowered costs by 70% and reduced “failure” rates to near zero.
Accessing Contextual Knowledge
An increasing focus for many firms was gaining access to the knowledge and relationships that a partner possessed by virtue of its position in a local context. In our study, examples included partners who possessed a deep knowledge of local firms with specific production skills, relationships with university faculty in a new research area, and contacts with the government officials who approved market access. These benefits, being based upon the knowledge and relationships that come from a local presence, were difficult to value. As a result, many firms tended to underestimate their impact.
Consider NewCo, a firm that designs enterprise servers sold to OEMs like HP and Sun. To complement its US staff, NewCo established an Owned Development Center (ODC) in Taiwan and teamed with a partner in India. In one recent project, the firm was having difficulty in meeting the target cost due to the high price of one particular component. So NewCo asked its ODC to leverage its knowledge of different local manufacturer’s costs and capabilities to solve the problem. The organization eventually located a new supplier that could source an equivalent component at lower cost. In this case, the value of the ODC was not in providing better capability; it came from superior local knowledge.
Thinking Strategically
Viewing collaboration through this broader lens highlights how it can be used to support a firm’s strategy. It forces managers to understand the competitive implications of partner selection, by assessing their merits along multiple dimensions, instead of only one. And it helps firms understand where to use collaboration, in terms of the parts of the innovation value chain where a focus on cost versus differentiation is most appropriate.
To illustrate, consider the strategies of two firms – A and B. Initially, firm B has a dominant position, with lower cost and superior differentiation. But firm A has identified opportunities to improve its position through collaboration. It can move along the horizontal to position C, achieving lower cost, or along the vertical to position D, achieving superior differentiation. Or it can move to position E, which is superior on both dimensions. In essence, collaboration has the potential to move firm A to the “frontier” of the space joining C, D and E. Contrast this with a firm that views collaboration only as a way to lower cost; this firm sees only one position to move to. While this may be a good choice, this firm does not see that it is not the only choice.
While successful firms often used different terms to those above, all had developed similar methods to align collaboration efforts to their business strategy. Collaboration received visibility at a senior level, and was an integral part of the strategic-planning process. Increasingly, the focus was not on wage arbitrage, but on using partners to increase business value. These firms grew more sophisticated in the use of collaboration over time; by contrast, poor performers remained stubbornly focused on cost.
2: Organize for Collaboration
The second area separating leading firms from others was how they organized. Firms that viewed collaboration through an outsourcing lens adopted a “transactional” model. They focused on how to break up the innovation value chain and specify in detail the deliverables required from each part. In procuring these parts, the selection of partners was driven mainly by cost. These firms treated partners like “suppliers” and adopted organizational structures, management policies and contracts reflecting this mindset. By contrast, successful firms recognized the uncertainty in their innovation efforts and sought mechanisms to overcome it. This required a more “collaborative” model.
The need for a different model can be seen by considering the challenge of partnering along two dimensions: The degree of uncertainty over the product to be produced; and the degree of uncertainty over the process to produce it. Replicating an existing product (i.e., production) involves little uncertainty while developing a new one (i.e., innovation) is far more uncertain. Similarly, some processes are routine and easily specified whereas others are idiosyncratic and rely on trial and error learning. When firms face little uncertainty on both dimensions – the arena of production outsourcing – traditional models work well, given firms can specify what they want and how it should be made. As uncertainty increases however, a more collaborative approach is needed. Firms that adopted a more collaborative model made different choices in terms of team design, contract structure and intellectual property management. We discuss each below.
Leading firms viewed partners as an extension of their own development organizations, seeking their participation in meetings and including them in internal communications. As part of this philosophy, they required greater continuity in partner staff, in contrast to a transactional model, in which people move in and out of projects. This ensured the “tacit” knowledge of a project’s context was retained, and improved communication between teams. As one manager explained, “It takes time to appreciate the skills of each team member and understand how to work together. When people leave, we have to go through that learning curve again. So we put a premium on ensuring staff continuity.”
Successful firms focused on improving the efficiency of information transfer between teams given the need to jointly solve problems, the specifics of which cannot be predicted in advance. Having a partner liaison manager on-site, though expensive, was viewed as critical for resolving higher-level issues. For day-to-day problems however, direct contact between team members proved more effective, helping to get questions to the right place and resolved quickly. Several firms created a “buddy” system at the start of projects, linking offsite staff to onsite staff with similar responsibilities. By contrast, in projects that tried to manage communication at a single senior level, the transfer of information was often delayed, resulting in expensive rework and reduced trust.
Leading firms also made different choices in the contract terms that governed the funding of projects and payment of rewards. They aimed to align the incentives of client and partner, reducing the need to specify what was required from each in great detail. While service level agreements were common substitutes for time and material contracts, these firms went further, sharing risks with partners and rewarding them for their top-line impact. Partners often absorbed costs in return for payments tied to revenues or profits.
In some cases, they acquired stakes in the business. As one manager noted, “We ask partners for ideas, so we need to reward their ideas and not just the effort in developing them. We give them a share of the pie, but their ideas make the pie bigger.”
The final area in which firms made different organizational choices was in intellectual property (IP) management. Global partners increasingly develop their own IP – new components, technologies and processes – to improve project performance. Furthermore, collaboration often requires that partners re-use and add to a firm’s existing IP in the search for new solutions. Given these trends, traditional approaches to IP which assume that a firm must develop, own, protect and isolate its IP are increasingly outdated.
While successful firms in our study differed on the specifics of their IP policies, their actions reflected a common shift in values; towards a more open and flexible approach. These firms sought to leverage partner IP, focusing on the cost and speed advantages, which outweighed concerns about the need for control. They developed mechanisms for partners to access their own IP, in a way that facilitated collaboration but ensured the protection of competitive assets. And they shared newly developed IP when the firm and its partners could benefit from its application, as long as the uses were not competitive.
3: Build Collaborative Capabilities
The final area separating leading firms from others was their willingness to invest in developing “collaborative capabilities.” All too often, firms assumed that their existing employees, processes and infrastructure were capable of meeting the challenge of collaboration. But successful collaboration doesn’t just happen – it is a skill that must be learned. Rarely do firms get it “right first time.” Leading firms recognized this reality, and made investments to enhance their performance over time.
Successful firms targeted investments in four areas: people, process, platforms and programs. We call these the “Four Pillars” of collaborative capability. These investments were typically funded outside the budgets of individual projects, given few projects can justify the levels of infrastructure needed to perform well on their own. In essence, leading firms made a strategic decision to invest in collaborative capabilities, and sought to leverage these investments across projects and over time.
Developing People
Superior performance in collaboration requires people with different skills, given team members often lie outside the boundaries of the firm, are located in far flung countries and have vastly different cultures. The “art” of management in such projects is in finding ways to exert influence over resources not under a firm’s control. Rather than a focus on deep technical expertise, managers therefore require a much broader skill set, associated with the need to orchestrate and coordinate the work of distributed teams.
Successful firms tackled this challenge through changes to their recruitment, training, evaluation and reward systems. For example, as well as training in technical disciplines, these firms ensured that engineering staff were educated on how to partition work into parts that can be worked on by different teams and how to manage the multiple workflows that result. The emphasis was on “softer” skills, such as communication and motivation, as opposed to discipline-based content. Increasingly, firms invited partners to these sessions, to develop a shared understanding of how best to work together.
The emphasis on developing new people skills was reinforced by a firm’s evaluation and reward systems. Unfortunately, these systems were often poorly equipped for the challenge, given they focused solely on assessing the performance of internal teams. For example, while 360 degree reviews for managers were increasingly common, rarely did firms seek feedback from partners; a critical omission given partner performance is central to effective collaboration. Leading firms recognized the need to assess this aspect of performance, developed metrics to make it visible and rewarded those who excelled. They viewed collaboration as a skill to be learned and took actions to develop it in staff.
Designing Processes
Most projects we observed employed a formal product development methodology based upon a modified “stage-gate” or “waterfall” type process. These processes are increasingly popular ways to ensure greater control and consistency in the execution of projects. But these techniques, and others that share their roots, are often predicated on the assumption of single-site development. There is a need to re-think how they should operate when managing the distribution of work among a team of global partners.
Distributed development requires a variety of additional activities as compared to single-site projects, related to the division of tasks, the sharing of artifacts, the coordination of handoffs, and the integration of components. Leading firms designed processes to address these activities, taking into account the experiences and preferences of partners.
This did not mean that each partner used the same process; rather the aim was to decide how much standardization was needed. For example, in one software project we observed, one team used a rigid “stage-gate” process to develop the core technology, and another used an “agile” process for the user-interface. Weekly and monthly “builds” were used to synchronize the work of both teams. Given each team used a process in which they were skilled, as well as one which fit their goals, the project was successful.
Ultimately, successful firms used a learning-driven approach to process design given their understanding of how to collaborate was in its infancy. Small pilot projects were used to experiment with alternative techniques, the best being chosen for a wider roll-out.
For example, German electronics giant Siemens recruited several university teams around the globe to contribute to a project led by staff in its Princeton R&D center. The firm tested different approaches to managing distributed teams, gaining insight on how contextual differences (e.g., between Indian and Irish teams) affected performance. The results are helping the firm decide what information to share with teams, how frequently they should interact and what modes of communication are the most effective.
Building Platforms
Leading firms developed technology “platforms” to improve the coordination of work. These platforms comprised four main parts: First, development tools and technologies to improve the efficiency of distributed work; second, technical standards and interfaces to ensure the seamless integration of partner outputs; third, rules to govern the sharing of intellectual property among partners; and fourth, knowledge management systems to capture the firm’s experience on how distributed work is best performed. This collaboration “infrastructure” was leveraged across multiple projects over time. The goal was to promote a long-term view of the assets needed for effective collaboration.
Consider TransCo, a leading transportation firm which undertook a multi-year project involving engineering work by over 50 global partners. The firm needed a platform that ensured the output from different partners was compatible, enabled the frequent integration of components, and facilitated testing of the entire system. Developing the platform was a multi-year undertaking, involving hundreds of staff from the firm and its partners. This effort focused on minimizing the constraints on each partner. As one manager noted, “We asked ‘what is the minimum level of commonality in process, data and computing to allow us to work together?” The resulting capabilities were vital to success – for example, the firm could make global design changes (e.g., to the system’s electrical standards) and have these “ripple through” to all affected components.
While some firms like TransCo developed customized tools for collaboration, many used off-the-shelf products. In these cases, it was common to ensure that partners used the same version of the same tool, ensuring seamless data transfer. Where this was not possible, significant up-front effort was devoted to defining how integration would be handled. Failure to do this led to major problems. Consider the troubles at Airbus, in developing its flagship A380 aircraft. Airbus’ German and French partners chose to work with different versions of Dassualt Systems’ CATIA design software. But design information in the older system was not translated accurately into the new one, which held the “master” version. Without a physical mock-up, these problems remained hidden throughout the project. The result: 300 miles of wiring, 100,000 wires and 40,000 connectors that did not fit, leading to a 2-year production delay at a cost of $6bn. Yet the cause of Airbus’s problems was not in choosing different software versions; rather it lay in the lack of an effective process for dealing with the problems this created.
Managing “Programs”
Successful firms managed their collaboration efforts as a coherent “program,” in contrast to organizations which ran each project on a stand-alone basis. A program view was critical given collaboration projects rarely met expectations early on, and performance often deteriorated when the scope of efforts was increased. Leading firms did not differ from others in this respect; but they did differ in the rate at which they improved. Top performers put in place mechanisms to help improve their collaboration skills over time.
A program view was cultivated by allocating responsibility for all of a firm’s collaboration efforts to one senior manager. In large firms, this took the form of a formal VP or director-level position; in smaller organizations, a senior manager added this role to existing responsibilities. This “Chief Collaboration Officer,” while not a direct report on each project, was tasked with developing a plan for improving the performance of all collaboration efforts. The involved the creation of a firm-wide collaboration strategy, as well as organizational changes to improve the effectiveness of execution.
The most progressive firms managed the “trajectory” through which they developed skills by carefully selecting the projects that used collaboration. Early efforts were chosen to minimize complexity, with an emphasis on “learning the basics;” more ambitious projects were tackled as skills increased. The focus was on assembling a pool of knowledge to aid future efforts, through post-mortems conducted with partners. Hence top performers set up systems to codify lessons learnt from past collaborations; and often linked partners into these systems to benefit from their broader collaboration experience.
A New Source of Competitive Advantage
Firms that devoted attention to the three areas above – strategy, organization, and capability development – were more successful in their collaboration efforts. For a few firms in our study however, these efforts not only lent support to their existing business strategies, but also led to new value creation opportunities. Their investments to build capabilities, in turn, created options to pursue strategies that could not be replicated by competitors; especially those that managed collaboration like outsourcing. For these firms, collaboration had become a source of competitive advantage.
A striking example of these dynamics was in Boeing’s development of its 787“Dreamliner” aircraft. Boeing builds the most complex commercial product in the world, each project being almost literally a “bet-the-company” experience. The levels of capital investment required and the increasing breadth of technologies that must be mastered – from digital cockpit design to new lightweight materials – have forced Boeing to look at new forms of organization, the aim being to share risk with partners while exploiting the unique technical expertise that each brings to development. Boeing’s approach to the 787 was the epitome of global collaboration. The project included over 50 partners from over 130 locations working together for more than four years. From the start, the aim was to leverage advanced capabilities from this network.
For example, in technologies like composite materials, which are being used for the first time for large sections of the airplane, smaller more focused firms had developed expertise that was unique. Rather than replicate this expertise, the firm sought to tap into it, blending it with skills from other partners developing complementary technologies. Furthermore, the relationships it established were not the traditional “build-to-print” contracts of past years. Instead, partners designed the components they were to make, ensuring a seamless integration with the outputs of other partners.
In our view, Boeing’s source of competitive advantage is shifting; it is less and less related to the possession of deep individual technical skills in hundreds of diverse disciplines. While the firm still possesses such knowledge, this is no longer what differentiates it from competitors such as Airbus, who can access similar capabilities. Rather, Boeing’s unique assets and skills are increasingly tied to the way the firm orchestrates, manages and coordinates its network of hundreds of global partners. Boeing’s experience is increasingly common across the industries we observed: Collaboration is becoming a new and important source of competitive advantage.
REFERENCES
Chesbrough, H. Open Innovation, HBS Press, Boston MA. 2003.
Cooper, R. Stage Gate Systems: A New Tool for Managing New Products, Business Horizons 33, 1990.
Eppinger, S. and Chitkara, A. The New Practice of Global Product Development, SMR, Summer 2006.
Hansen, M. and Nohria, N. How to Build Collaborative Advantage, SMR, Fall 2004.
Iansiti, M. The Keystone Advantage, HBS Press, Boston, MA. 2004.
Porter, M. Competitive Strategy, Free Press, New York, NY. 1980.
Santos, D., Doz, Y. and Williamson, P. Is Your Innovation Process Global?, SMR, Summer 2004.
Teece, D. Profiting from Technological Innovation: Implications for Integration, Licensing, Collaboration
and Public Policy, Research Policy 15, 1986.
Williamson, O. The Economic Institutions of Capitalism, Free Press, New York, NY. 1985.
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