Do Business Well

What collaborators value above all else are their suppliers‘ skills as consultants and expertise in project management. That explains why demand has surged for all kinds of advisory services, for instance, the offerings of the Big Five accounting-cum-consulting firms, and the likes of EDS and CSC. Outpacing them all on the basis of growth is IBM, which for decades has been portraying itself as a total-solutions provider. About 60 percent of its growth over the past six years was derived from value-added services, not products. With an army of 130,000 people working to ensure that customers glean the maximum benefit from technology and its complexities, IBM generated $32 billion in service revenues during 1999. Working with collaborators accounted for roughly half of that; outsourcing and related services provided to delegators accounted for the other half.

The trend toward embellishing offerings with value-added support has escaped neither other technology companies nor other industries. Witness Compaq’s acquisition of DEC, primarily for the latter’s strong service capabilities; another example was the announcement in September 2000 that Hewlett-Packard was negotiating with PricewaterhouseCoopers to buy its management consulting division so as to bolster its own service activities.

In another industry, which we’ll discuss in a later article, UPS has been busy transforming itself from a unidimensional delivery company to a custom services provider by teaming with key customers to exploit the intricacies of logistics in the Internet age.

Du Pont, too, recognizes that the real promise of chemistry (hence its customers‘ futures) lies in finding applications that will either add new value or reduce operating costs, and not just by lowering the prices of commoditylike products. Chad Halliday, chief executive officer and chairman of Du Pont, thinks the company should change from a fuel-based chemical company to a knowledge-intensive business that is willing to take on extremely complex and sometimes controversial projects. For example, in its agriproducts business, Du Pont’s intent is to increase the amount of nutrition contained in the world’s food supply. With its new company, Pioneer Hybrid, it is methodically approaching the problem by gathering a wide spectrum of data. It is not assuming a chemical solution, which is an enormous paradigm change for Du Pont. (Not incidentally, Du Pont has an excellent Web site detailing the company’s position on such sensitive and daunting issues as genetically engineered crops.)

Halliday expresses his aim this way: “We want to be paid for what we know, not for what we make.” In other words, he wants customers to benefit from the collective knowledge within his company’s operating divisions and laboratories, and not simply, or even primarily, through Du Pont’s products.

Evident in each of these cases is a shift from arm’s-length, often anonymous contact between customer and supplier to closer and more personal interactions. Paralleling this is a move among customers to reduce their supplier base to a select few Supplier rationalization, as the practice is called, has led companies such as

Xerox to shed 90 percent of its supplier base, and it is a widespread, ongoing development in the automotive sector. A survey by Industry Week and Price Waterhouse reported that 69 percent of a cross section of U.S. manufacturing plants have adopted some version of this practice. By dividing their purchases among as few suppliers as possible, the collaborators gain purchasing power and simplify their procurement operations as well. Paring down the supplier base also facilitates more-productive partnerships with the remaining suppliers, which is the essence of what collaborators seek.

Fruitful teaming between collaborators and suppliers assumes that both parties will appreciate and build upon the unique strengths and requirements of the other. Also, the relationship must foster a very high level of mutual trust to facilitate the two companies’ working side by side. Furthermore, teaming presumes that the supplier and the customer share the perception that their interests are entwined: Each benefits when one motivates the other to enhance its areas of excellence. If that sounds like a major departure from the contentiousness typical of traditional supplier-customer relations, it is. In the final analysis, the new market leaders’ success with collaborators transcends leveraging superior knowledge and expertise. It is rooted in the way they enable their teams to work.

In this article, I outline four market strategies, all of which are aimed at turning complexity into opportunity and, in appropriate circumstances, are exploited by the new market leaders in their teamwork with collaborators. The first two, based on particular projects lasting anywhere from weeks to years, address specific issues and complexities, such as the installation of a corporate-wide software system or the assessment of a new business opportunity. The last two entail much longer involvements between the customer and supplier, in which the latter functions either in the role of adviser or as an integral part of the customer’s operations.

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