536. Competition and collaboration
In entering a new activity, you can build up the needed resources and skills yourself, or you can faster and more cheaply buy into those of someone already engaged upon it, in collaboration. In cooperation, the goal is to go beyond the zero-sum game of competition, where you gain by the other’s loss, to a positive sum game where you both gain
In the first approach, this is based on what exists. The deeper value of
collaboration, however, lies in resonance, in mutual influence that yields an opening
up to ‘novel combinations’ of ideas, resources and skills of the partners. That
entails uncertainty concerning the potential of partners and their conduct .
Not to forego that potential, one needs trust and restraint of control. That is
not only a moral but also an economic imperative.
The value of collaboration was seen but only according to economic
doctrine, where it had to be based on a balance of give and take, a ‘quid pro
quo’. Williamson (1993) proposed, and I agree, that if trust means give and
take without going beyond calculative rationality, it does not add anything to
economic doctrine, because that already includes enlightened self-interest, in surrendering advantage in the present
in order to gain greater advantage in the future. But due to the uncertainty of
conduct and contingencies in the future, trust requires a leap of faith across
that uncertainty, and cannot be fully calculative, even if to some extent one
can make rational inferences of trustworthiness from the arrangement of the
relationship and observed conduct, as discussed before. If it does go beyond
calculative self-interest, Williamson argued, it cannot survive in the
competition of markets. Against that I have argued, also in personal debate
with Williamson, that since in modern times innovation is crucial for survival
of firms, and innovation engenders uncertainty, trust beyond calculative
rationality is needed in markets. The give and take, voice and trust in a
collaborative relationship tie in with the concept of resonance.
What kind of cooperation could or should there be? Innovation is
enhanced by collaboration between different, complementary skills, knowledge or
other resources at some cognitive distance, discussed before. Such distance
hampers mutual understanding and hence the efficiency of collaboration, but
also offers the opportunity of novel combinations. Optimal distance is large
enough to offer the opportunity of novelty, but not so large as to prevent
understanding. The combination of some distance for variety and enough
understanding is a source of innovation. Where that optimum lies depends on
accumulated knowledge, and experience with partners who think differently. The
larger those are, the more one has the ‘absorptive capacity’ to understand, and
the larger distance can be., but the larger distance must also yield something
new. As discussed, this was confirmed with an econometric model (Nooteboom et
al.2007)
Organisations can cooperate by merging or by one side taking over the
other. The alternative to such mergers and acquisitions (MA) is an alliance
between partners staying apart as separate entities. In MA, cognitive distance can
decline too much, because in the new, merged organisation there is a need to
limit cognitive distance by means of an ‘organisational focus’, to align
workers in a joint purpose and ways of conflict resolution. Also, an MA is less
flexible because more difficult to end and disentangle than an alliance. That
does depend on institutional conditions. In the US one can separate from a
partner, in firing a worker or selling part of a firm, more easily than in
Europe. An MA can better control conflicts of interest, in an overarching
hierarchy that is lacking in an alliance. In the absence of such hierarchy, an
alliance needs to be better at the practice of trust beyond control, discussed
before. It needs to master the art of ‘voice’ to deal with conflicts. However, a
MA may be needed to realise certain forms of economy of scale.
There are different types of economy of scale. One is to profit from specialisation that is technically inseparable and necessitates integration in an organisation. In removal, one needs two pairs of hands to move furniture. Another effect of scale is the pots and pans effect, characteristic of process industries such as chemicals, refuse processing, energy production, steel manufacturing and a nuclear reactor. The effect is a consequence of the mathematical law that the surface of a spherical container, such as the reaction chamber of a process industry, is proportional to the square of the radius, and its content is proportional to its third power. The surface determines the material cost, and hence weight and transportation cost, of the container, its cost of cleaning and its radiation of heat or refrigeration to the outside. The content determines the volume of production, and hence revenue. Productivity, measured as the ratio between revenue and cost then is proportional to the radius and hence the diameter and size of the container.
The formula also applies to containers such as houses, trucks and Jumbo
jets. There also, the surface determines costs of material, air resistance and
fuel, while the content determines the space for users, such as the possible
number of seats.
Why are warm-blooded animals at the north pole large and bulbous? Because
the loss of warmth by radiation through the hide relative to inner warmth of the
body is less than for small size. That is also why small animals and people
huddle together in the cold. But why, then, are there also large, bulbous
animals in hot climates, such as elephants, rhino’s and hippopotami? The same
principle applies, but in reverse. There it is about absorption of heat into
the body through the hide. Then, why are there also thin, elongated, lean
animals there, like puma’s and leopards? Because in the spurt of pursuing a
prey, they generate even more heat relative to their environment, and they have
to radiate that outwards. When not in pursuit, they lie panting in the shade of
a tree.
Another economy of scale arises with an indivisible production factor
such as an attendant in a shop, a bank counter, emergency or service desk, and
so on. Its productivity depends on the number and frequency of calls, which
relates to size. Lack of custom causes the improductivity of idle capacity. This
is one factor causing the decline of small shops relative to large ones. This
could be dodged when shops were at home, so that idle capacity could be used
for housekeeping or child care, or for a shoe shop to repair shoes in the
absence of customers. The problem of idle capacity at small size of utilisation
arises also for specialist professional service, in a small organisation, such
as a legal expert. Together with other small organisations, the organisation
then has to collectively outsource that service, to create sufficient utilisation
of capacity. This economy of scale combines with that of the size of an
airplane in the need for a pilot, whether a plane is large or small. This
economy of scale is a prod towards automation and self-service, in shops,
hotels, gas stations, self-driving vehicles, and so on.
There is also economy of scope,
where costs are lowered or production is increased by combining different,
complementary activities. A classic example is an orchard, where there must be
enough space between the trees to allow for light and air, in combination with
sheep grazing the grass in the fallow space between the trees. This also may best
be done in collaboration between tree growers and sheep keepers.
While trust and resonance are part of fruitful collaboration, there
remains an element of rivalry and the possibility that dependence is grasped as
a basis for power play, to exert pressure and gain material advantage. That is
why there trust is accompanied by a degree of control, to hedge for that risk,
until that risk becomes minimal, in habituation, deepening trust in mutual
benevolence and solidarity. Trust will seldom be blind.
Questions
-
Is collaboration
between rivals viable, how
-
Why are mammals at
the north pole bulbous
-
Do you profit from
economies of scale, how
-
In business, would
you prefer a merger/acquisition or an alliance, under what circumstances
-
Can trust survive
in markets, how
No comments:
Post a Comment