Wednesday, December 19, 2012

66. The value of collaboration

In preceding items I indicated the cognitive, ethical and spiritual value of collaboration. Here I go into its economic value. Contrary to common opinion, markets are not only about competition but also about collaboration. Conversely, collaboration is seldom free from rivalry and tension of conflicting interests. Here I discuss the advantages, in the following item the problems of collaboration.

Organizations, including firms, must have some focus of knowledge, competence, purpose, and governance (as I discussed in my book A cognitive theory of the firm, 2009). One should not aim to do everything. The task of organizations is to achieve efficiency in performing a set of specific tasks. For that, one cannot afford, to have to learn to understand each other, negotiate goals and procedures at every step. Some things need to be taken for granted. As a result, cognitive distance within organizations must be limited. However, that yields a form of myopia. To avoid that, in order to identify all relevant threats and opportunities, especially for innovation organizations need collaborative relationships with other organizations at a larger cognitive distance, to repair their myopia, in complementary cognition.

However, between organizations that need each other, in complementary cognition, mutual understanding and adjustment needs to be built, and as discussed in items 57 and 59 that requires so-called relation specific investments that require some minimum duration of the relationship to be recouped. Therefore I argued for optimal, not maximum flexibility of relationships. As a result, partners become mutually dependent, and a system of governance is required to deal with it, and that must be a system of give and take, acceptance of difference, and empathy for each other’s position and problems.

All this is far from the usual rhetoric of competition in markets that demands that one take every bit of advantage from others that one can. Rather than ensuring one’s survival it can jeopardize it. This does not mean that there is no competition, but that a trade off should be made between one’s own advantage available in isolation and one’s share in a greater advantage achieved in collaboration. Admittedly, the latter requires give and take, and reciprocity, which entails that at times one gives more than one takes, and when competition is so fierce that in order to survive one cannot afford that even for a moment, then indeed this type of collaboration becomes impossible.

However, competition is seldom so fierce. Especially when collaboration yields specialty products with high profit margins that competitors find it difficult to replace. That reduces competitive pressure, allowing for the give and take of collaboration to take place. 

That has consequences for prosperity. The usual argument for markets is that competition enforces maximum efficiency. But the other side of the coin is that it excludes the collaboration that is needed for innovation. Since so much emphasis is now laid on innovation the option of collaboration may contribute most to prosperity.

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