Unlikely bedfellows indeed. How about this list of manufacturing partners from IndustryWeek...General Motors and Ford. Hitachi and Panasonic. DaimlerChrysler and GM. Northrop Grumman and BAE. Yes, these manufacturers are direct competitors, but surprisingly also collaborators, teaming up with each other to jointly develop new products, to exchange ideas and technologies, and to grow their markets.

And this is not an anomaly. Industry observers expect more and more manufacturers to team up with the very same companies they compete so vigorously against. Why? Because the advantages--primarily cost-effectiveness--are outgunning the disadvantages. Consider the pros and cons below:

The Upside

• You can divvy up costs by joining forces. "Competitors can share costs on projects that they individually could not afford, and they can do this without hurting their competitive advantage," Mike Arnold, president of Timken Corp.'s Industrial Group, tells IndustryWeek. Currently, Timken is collaborating with competitors such as bearing manufacturer SKF on logistics and e-business activities. He points out that teaming up with competitors can help recession-hobbled manufacturers, allowing them to increase capacity while sharing cost and risk.

• You gain economies of scale when ordering parts from suppliers. Ford Motor Co. and GM have certainly enjoyed this benefit in their collaborative efforts to build a six-speed automatic transmission for front-wheel drive vehicles. "We get a significant economy of scale gain because most of the parts are common, so we can share suppliers," Shawn Burns, program manager for GM and Ford's joint development project, comments to IndustryWeek.

• You can keep up with the rapid pace of innovation. "Organizations are being put in a position where they have to innovate at a rate faster than they are used to," says Tom Koulopoulos, president of Delphi Group, a Boston-based unit of IT and business consultancy Perot Systems. "Globalization also is putting enormous pressure on companies, forcing them to partner in ways that would have been inconceivable a decade ago."

• You can cut product development time and secure market share. For example, both GM and DaimlerChrysler needed to make their presence felt in the rapidly growing market for hybrid gas-electric vehicles--fast. The solution: work together to speed up product development and take on early-to-market Toyota and Honda. "The competition between the two companies was less important than the challenge of getting a new product to market quickly," Peter Savagian, director of engineering for hybrid systems at GM's engineering office in Troy, Michigan, tells IndustryWeek.

• Your combined resources can better overcome the most confounding engineering problems, especially in the aerospace and defense industry where end products are exceedingly complex. By collaborating, manufacturers can drive up efficiencies and surmount sizeable product development challenges.

The Downside

• The partnership could be riddled with conflict, especially if manufacturers enter the relationship with different objectives. "Both parties have to have their goals on the table, and if they are not the same goal, they better be at least complementary goals," says James Champy, business transformation expert, best-selling author and chairman of the consulting practice at Perot Systems in Plano, Texas. "When two manufacturers come to the table and their goals are not the same, it's riskier. There's more likely to be a conflict at some time in the relationship."

• Such alliances demand a lot of commitment. For example, NUMMI, one of the most successful joint ventures was no walk in the park. When Toyota and GM formed the New United Motor Manufacturing Inc. two decades ago, they faced both outside opposition and internal labor issues, necessitating both long-term commitment and heavy investment from the two companies. Of course, the idea of partnering with your nemesis is not as revolutionary today, but it's still difficult to pull off.

• Your knowledge base could shrink. "What gets lost is expertise, particularly when the collaboration leads to some reduction of staff," Champy tells IndustryWeek. "With fewer engineers needed to design new engines, when there is an opportunity down the road to invest in a whole new engine, these players could lose some of their expertise."

• Your company may be perceived as less creative and innovative. "One way you differentiate yourself in the market is the ability to innovate," comments Delphi Group's Koulopoulos to IndustryWeek. "Companies ultimately want to be known as innovators, such as the preferred brand for innovation or quality."

• It makes it trickier to establish your identity and position yourself in the marketplace. Says Koulopoulos, "The branding issue is the real demon in the woodworks."

With these benefits and disadvantages in mind, would you team up with your arch-enemy?

Source:

Sleeping With The Enemy
Doug Bartholomew
IndustryWeek, May 1, 2005
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