no business is an island - the economist intelligence unit

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No business is an island

Pete Swabey

Senior editor, Thought Leadership

The Economist Intelligence Unit


Introduction

Ariba commissioned The EIU to investigate collaboration between business

partners: How are businesses collaborating now?

What value do they place on collaboration?

What, if anything is holding back progress?

Launched ‘No business is an island’ We surveyed 281 executives based in EMEA

All from organisations with $500m+ in annual revenue across functions including finance, procurement, IT, sales,

marketing, strategy, etc.

Qualitative insights from: Folkert Bergstra, finance director for container logistics, CEVA Benelux

Robert Fieten, board member, the German Association Procurement and Material Management

John Francis, senior manager, Accenture Strategy

Craig Lardner, global president of The Chartered Institute of Purchasing and Supply

David Loseby, chief procurement officer, Arriva

Heiko Rumpl, European e-business director, Brammer

Emmanuel Walter, chief financial officer, Caterham Alpine


Summary

There is a growing recognition of the importance of collaboration

Companies with strong technology capabilities make for attractive trading

partners

Information sharing is the most common form of collaboration

Collaboration does pose risks but they can be mitigated

Collaboration is widely recognised as a strategic capability but few organisations

appear to pursuing innovation in collaboration


The value of collaboration

97% of

respondents agree

that they derive value

from collaboration.

Value chains cross

organisational

boundaries

Collaboration extends

capabilities and

situational awareness

These days, you cannot stop improving business processes when they reach your company’s borders.

You need to improve the competitiveness of your value network if you want to improve the

competitiveness of your own organisation. Heiko Rumpl, European e-business director, Brammer

What people have to recognise is sometimes suppliers have access to market insight,

knowledge and a trend. It is recognition that you cannot afford to be too arrogant no matter how

big you are. You need to be able to listen to feeds from all sorts of angles and if you don’t

respond to that, then that is a very dangerous place to be. It will be part of helping deliver future

business models. David Loseby, Chief procurement officer, Arriva

‘


Source: EIU

49%

27%

27%

26%

24%

24%

21%

19%

19%

18%

13%

10%

10%

0% 10% 20% 30% 40% 50% 60%

Increasing customer satisfaction

Reaching new customers

Developing new products and services

Increasing share of wallet with existing customers

Reducing unit costs

Reducing supply chain risk

Improving cash flow

Reducing process costs

Geographic expansion

Improving compliance

Gathering information

Improving demand forecasting

Lowering inventory

Why do companies collaborate?

QUESTION:

What are your organisation's priorities when collaborating with trading partners?


56%

38%

37%

37%

30%

29%

29%

20%

0% 10% 20% 30% 40% 50% 60%

The partner’s technological capabilities

There being an existing relationship in place

The partner's size and reach

Aligned objectives

The partner’s organisational capabilities

Readiness to share information

Matching company culture

The partner's brand

Source: EIU

What do companies

want in a collaboration partner?

QUESTION:

What are the most important considerations when selecting a partner to collaborate with?


Technological capabilities

‘

‘

This includes product

development…

…and internal

processes

[Technology] is the key issue right now, especially in industries like automotive

and aerospace. It is an absolute must. Nobody has all the wisdom that is

necessary to make high-tech products. It is driven by a need to cooperate and

reap the rewards of synergies.” Robert Fieten, board member, German Association for Procurement and Material

Management

Brammer offers a number of technology-based, value-added services, such as

data integration, analytics and access to business networks in order to

become the most cost effective supplier to do business with


Source: EIU

63%

57%

54%

51%

51%

38%

33%

29%

0% 10% 20% 30% 40% 50% 60% 70%

Information sharing

Joint product development

Joint marketing / promotion

Process automation

Joint long-term (5 years +) strategy

Intellectual property sharing

Early payments in return for discounts

Joint financing

How companies collaborate

QUESTION:

Which of the following collaborations has your organisation undertaken at least once in the last

three years?


Source: EIU

65%

61%

54%

49%

38%

35%

34%

32%

30%

0% 10% 20% 30% 40% 50% 60% 70%

Demand/supply forecasts

Your strategy

Operational metrics (eg, units sold)

Operational data - SKUs - in aggregate

Real-time performance metrics

Financial metrics (eg, revenue / profit earned)

Your financial targets

Internal communications

Intellectual property

Information sharing

QUESTION:

In a typical collaboration, how much information does your organisation share with partners and

suppliers (tick all that apply)?


Information sharing

Very few are convinced straight away. Initially it may

seem like additional work so we have to explain why it is

beneficial to them. We can demonstrate with other

customers what steps we made, how they deliver

information and how we deliver it to them and what the

benefits are. By doing those sorts of thing, we convince

the customer to change to a certain way of working to

get benefits on both sides. Folkert Bergstra, finance director for container logistics, CEVA

Benelux

‘

Situational awareness CEVA Logistics encourages customers to share as much

information as possible so that it can spot operational

issues in advance and tailor its services to their needs.

For example, it works with UK retailer Primark to gain

upstream visibility of its supply chain. Some customers

need encouragement, however.


‘

Information sharing

We’ve developed tools that allow customers to analyse

how much they spend with us, and sometimes that

means they can see that we sell a product to one of

their plants at a cheaper price than we do to another

plant. So the data might not always be easy to explain

to customers, but we don’t hide it from them because

transparency builds trust. And without trust, value

cannot be released between trading partners.

Heiko Rumpl, European e-business director, Brammer

Building trust For the ‘value network’ to function, partners

need to trust one another. Sharing

information – perhaps more than

immediately prudent – is one way to achieve

that

Building trust For the ‘value network’ to function, partners need to

trust one another. Sharing information – perhaps more

than immediately prudent – is one way to achieve that.


48%

40%

38%

37%

28%

25%

22%

18%

13%

13%

0% 10% 20% 30% 40% 50% 60%

Shared objectives

Communication

Transparency

Shared values

Performance monitoring / management

Executive buy in

Strong contract

Staff buy in

Automated means of collaboration

Investment

Source: EIU

The qualities of a successful collaborative relationship

QUESTION:

Which of the following do you believe are the critical components of a successful collaboration?

(Select up to three)


Source: EIU

The risks of collaboration

50%

42%

36%

35%

33%

31%

16%

0% 10% 20% 30% 40% 50% 60%

Damaged reputation

Loss of product quality

Wasted money

Unreliable supply

Loss of intellectual property

Wasted time

Damage to morale

QUESTION:

What do you consider to be the biggest risks in undergoing collaboration with a supplier, B2B

customer or other trading partner? (Select up to three)


‘

‘

Key risks

Damaged

reputation

Loss of product

quality

If you look at the apparel or textile industry, they might have a problem if they

have many suppliers in Bangladesh or Cambodia where working conditions

are not good. You read about this sort of problem almost every day in the

newspapers. It has a very strong impact on the firm’s reputation and they are

very concerned

about this.

It can be due to neglecting the supplier relationship, without sufficient quality

control. It is very important that after the relationship is established you have

continual checks.

Robert Fieten, board member, German Association for Procurement and Material

Management


‘

‘

Supplier risk

Danger of suppliers

going bust is

preventing some

companies from

collaborating

Mitigated by

innovative

approaches to

collaboration

For some companies, this is a real barrier. They are not engaging, and they

are keeping more things in-house.

John Francis, Senior manager, Accenture Strategy

Caterpillar was concerned that small suppliers would not have the working

capital to ramp up production during economic recovery.

* Standardised payment terms

* Offered early payment in exchange for discounts

* Helped suppliers access US government supply chain finance


‘

Strategic collaboration

What does

this mean?

86% agree that

their organisation

recognises

collaboration as a

strategic capability.

[Strategic collaborators] do things differently, and one of those

things is how they look at the strategy of an organisation from

board-level. They ask themselves and their team the question:

‘what are we going to do, in our area of speciality, to help deliver

on those strategic goals?’ That behaviour is called strategic

alignment.

Craig Lardner, global president, The Chartered Institute of Purchasing and

Supply


Formal collaboration

Source: EIU

QUESTION: Which of the following statements best describes your organisation's approach to

collaboration trading partners?

15%

13%

32% 39%

We collaborate only as much as is required to

perform transactions

We have made informal efforts to improve

collaboration with some trading partners

We have taken formal action to improve

collaboration with some trading partners

We have institutionalised collaboration with

trading partners to maximise mutual benefit


Source: EIU

63%

57%

54%

51%

51%

38%

33%

29%

0% 10% 20% 30% 40% 50% 60% 70%

Information sharing

Joint product development

Joint marketing / promotion

Process automation

Joint long-term (5 years +) strategy

Intellectual property sharing

Early payments in return for discounts

Joint financing

Is this strategic?

QUESTION: Which of the following collaborations has your organisation undertaken at least once

in the last three years?


Conclusions

Value chains cross organisational boundaries

Good collaboration strengthens those chains via

e.g. trust, visibility

Technology an important platform for collaboration

There is more room for innovation

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