In the today’s world of global commerce and supply chains, reliable and efficient delivery services are essential. The transportation networks that provide these services are cornerstones of successful economies and nations. Transportation networks at their most fundamental level are made up of people and policies, products and processes. For a network to provide consistent and optimized delivery services, its policies and processes must ensure precision and excellence and elicit a passion to perform amongst the people underpinning the network. Additionally, the components of the network need to work together efficiently and smoothly ensuring that goods are delivered within the promised timeframe, while at the same time providing a seamless and coherent experience to customers.
With countries and markets around the world becoming more interconnected and interdependent, transportation networks face major challenges. The volatile environment, in which businesses operate, requires resilience from logistics solutions. At the same time the needs of customers are becoming broader, and in particular the precision in service delivery is becoming more critical for the increasingly complex supply chains. Few players today have the reach and coverage to satisfy these demands, using traditional sole ownership-based network models. Ownership networks are limited by the financial resources to establish the assets and structures these networks are built upon. Furthermore, building ownership networks takes time.
The more flexible model of a transportation network that can meet these challenges and cope with the demands of the modern world is a network based around collaboration – that is a network where the assets are not owned by one company, but instead belong to multiple owners. Such a network is about sharing – sharing of vision, sharing of investments, and sharing of risks and gains. It is also about frameworks, about flexibility and about focus. The collaborative model allows companies to offer services and reach beyond their own borders and means. At the same time, each partner can focus all efforts on the specifics and dynamics of its market, while the network or lead entity and partner is ensuring network coherence. The result is a network that responds very well to local requirements and rapidly adapts to changing demand patterns.
In order to better understand the collaborative model, it is best to contrast it against the traditional model for network businesses – the sole ownership model. At a conceptual level, the difference between the sole ownership model and the collaborative model can be described as integration across the value chain versus value added.
How does the collaborative network differ from the traditional sole ownership model?
Sole ownership networks are built around a single asset base, whilst collaborative networks are built around a shared vision. Sole ownership networks seek differentiation predominantly through “hardware” (e.g. trucks, planes, buildings…), whilst collaborative networks do so predominantly through “software” (e.g. processes and relationships…). Consequently, sole ownership networks seek advantage through controlled own assets and sometimes feel constrained by a shortage of “hardware” in the form of capacity. Collaborative networks, on the other hand, seek advantage through combined knowledge and capabilities and sometimes feel constrained by a shortage of “software” in form of partners.
Looking at it in more detail, sole ownership networks are built on the underlying belief that quality and an efficient operation can best be ensured by owning in one hand as many network components as possible. The key integrating factor here is total control and clear direction through the sole ownership of assets. The ownership network is focusing on harmonizing through standardization and training. Collaborative models are built on a different paradigm. They are driven and differentiated by design and efficiency of process rather than the assets that underpin the network. The network or lead entity and partner in a collaborative network taps into the capacity and capabilities, talent and knowledge of various players and needs to manage diversity in an inclusive way.
In practice, most transportation networks are a mixture of ownership and collaboration, though they do have tendency towards one particular model. Consequently, there are predominantly sole ownership networks, with most assets on a single balance sheet, and there are predominantly multiple owner networks, with assets spread across several balance sheets.
The approach to product offerings and meeting customer demands varies across the two types of network. The needs of customers vary from market to market, as a result of local geography, culture, infrastructure etc. These variations need to be factored somehow into the product offering of the network. Sole ownership models tend to adopt a single centrally developed offering in all markets across the world. This ensures a high level of coherence globally, at the detriment of showing less adaptation to the intricacies of local customer demand. Collaborative models tend to set a broad global product concept and a minimum set of global operating standards, and then allow the local entrepreneurs within the network to respond to specific customer needs within this framework. This enables tailoring of product offerings to local market needs, but may sacrifice on the global harmonization of the offering. Both models have their own strengths and weaknesses and each appeals to different types of needs and customers.
For both network types, local operations and their offerings are connected by a common network architecture. Ultimately both, the local operation and the network operator are responsible for ensuring that goods are delivered on time and in good condition. In order to achieve this, both models require IT systems that can manage massive information to support the steering and monitoring of cross-partner processes. Due to their standardized product offerings and the fact that only a single party accesses the systems, one can imagine that the IT architecture for sole ownership networks are relatively simple. However, they are often heavy systems as they have to cover all needs of all entities – a closed shop and system approach. In contrast, collaborative networks require a more complex core element, which can support greater interfacing capabilities, the flexibility to integrate the various partner systems, and the ability to adjust to tailored local product offerings. While the smaller core is a rigid module, the interfaced partner systems remain flexible and can be well tuned towards varying local market needs – a more open system approach.
The most significant difference between the sole ownership and collaborative models is their management culture and philosophies. Sole ownership models have a general tendency towards top down shaping and a “command and control” culture. For collaborative networks, no partner, not even the network or lead entity has total control over the network assets. This makes this “command and control” approach unfeasible. With this type of model, only strategic vision and operating frameworks are introduced top down, ensuring a coherent business model and that all partners are moving in the same direction. Beyond this, operational decisions are generally taken bottom up, though this is within the common framework developed by the network or lead entity and partner. This ensures consistency, while enabling effective adaptation to local markets. Thus rather than a “command and control” approach, the leadership approach in collaborative networks can be characterized by “teamwork and entrepreneurship”.
What are the key factors that ensure the success of collaborative networks?
The key factors that are essential to the success of the collaborative model can be described on three levels: the “leadership and strategic” level (why), the “operating” level (what) and the “management” level (how).
In respect to leadership and strategy, integration and alignment are key factors. Integration in collaborative networks starts with alignment between partners, which in turn comes through shared visions, beliefs and concepts – the jointly accepted strategy. This alignment within collaborated networks can only be achieved, when the leaders and often owners of the participating companies are willing and able to align themselves with each other. Leadership is crucial for ensuring a collaborative network is well integrated, which drives the success of the business community and the success of each individual partner.
In respect to network operations, common references are needed. These can be provided for example by a franchise concept. A franchise provides common frameworks, standards and common and individual targets. It outlines the rights and obligations of parties involved and fosters an entrepreneurial drive amongst franchisees. Consequently, the franchise concept is an effective tool to integrate collaborative networks and ensure that seamless processes exist across the network. This ensures a coherent and consistent customer experience, while the entrepreneurial spirit of the largely autonomous franchisees ensures the most commercial approach to the business and different markets.
Making a collaborative network work in day-to-day life and requires a management style that supports “teamwork and entrepreneurship”. The contracts and cultures of the different network members have to support this approach and spirit. At the beginning and more importantly as the collaboration progresses, a constant dialog between partners is essential to prevent and address concerns and tensions that may emerge. Effective communication skills and an ability to understand and adapt to different cultures (whether that be a corporate culture or the culture of a country) is key to enabling this dialog and bridging the gaps between the different partners.
The warrants of success in any kind of collaborative model are first of all strong leadership and a clearly defined strategy. Successful collaborations are built around shared vision and ambitions and a common set of value shared by all partners involved. They can be sustained over time by mutual benefits and joint prosperity. Achieving this requires clarity and alignment in terms of the respective strategies of the individual partners. Collaborations should be a core element of the strategy, endorsed and announced by the top management of each partner organization. This canon of aligned messages needs to filter down through all levels of the collaborating organizations. In their early stages, collaborative partnerships need to focus on realizing “quick wins”. This can be about ensuring agreed financial and operational milestones are reached, as well realizing softer achievements such as rapid knowledge transfer and sharing of best practices. This allows all partners to see the benefits of the collaboration early on, thus cement the partnership. In collaborative transportation networks, brand is also an important strategic factor. While its brand is often the core value that the network or lead entity and partner of a collaborated network brings to individual partners, this does not mean the network or lead entity brand becomes the common brand, or that local brands should be replaced. The network may well wish to respect the existing local partner brand and leverage the goodwill it has built up in its community. However, some sort of commonality is helpful as the reference for customers, for example co-branding with a shared alliance and network brand. The brand functions as a common signature for customers and the network and business community, standing for the coherent customer experience that is provided.
At the operating level, integration is driven by product concepts and standards, aligned processes, and interfaced IT systems. Customers demand a coherent offering, which requires the same broad product concepts and standards to be used across the common platform. Aligned processes and flexible reliable IT interfaces enable this by making effective and efficient network management possible. While local processes have to be tailored to support local offerings, common standards across the network ensure the seamless flow of goods.
At the management level, alignment of governance mechanisms is a key enabler of successful integrations. Contracts with collaboration partners underpin the network and are undoubtedly the most critical governance mechanism as they summarize all critical factors. A prudent approach to forming a collaborative network is to gradually upgrade contracts as partnerships evolve and strengthen. Beginning with a “lighter” collaboration agreement (for example some sort of agency or service arrangement), and then eventually progressing through to a fully-fledged franchise contract minimizes risks and ensures, the suitability of partners can be thoroughly assessed before they become fully entrenched in the network. Participations cement the relationship. Road maps attached to the contracts serve as useful reference points for the discussion amongst the partners.
Which is the better model: collaboration or sole ownership?
The case can be made for either of the two network models.
The sole ownership model clearly has the advantage of robustness, as well maximizing profits since they do not need to be shared between various partners. While the model is very rigid, it allows for a clear global standard – one company, one brand, one offer – suiting those who believe in a high level of standardization. Through its tendency towards central command and control, the ownership model usually provides greater confidence to shareholders, management and employees and enables the faster implementation of new ideas and concepts, policies and procedures, processes and systems. However, this often comes at the cost of high investments in assets and ramp-up phases.
The collaborative model, on the other hand, enables each partner to focus on their core activities and strengths. Although profits are split amongst numerous partners, collaborative models enable expansion beyond financial and knowledge barriers of individual companies, through shared investments, expertise and risks. While decision making and implementation of new ideas may be slower, due to the numerous partners involved, this is offset by the natural tendency for collaborative networks to allow for greater operating flexibly and tailoring to the needs of local markets and customers. Instant reach is possible when fully-fledged operations are connected. However, this comes at the cost of less cohesion.
In summary, while the sole ownership model is a very effective and coherent way of running a business, applying the collaborative partnership concept to a supply chain eco-system and logistics value chain is a smart and responsible way to run a business as existing capacity is combined and used – in fact, the collaborative culture promotes the creation of value beyond the organization, for partners and customers alike.