Title: Rewiring: Cross-Business-Unit Collaborations and Performance in Multi-Business Organizations (Subscription or fee required.)
Authors: Jeffrey A. Martin (University of Texas at Austin) and Kathleen M. Eisenhardt (Stanford University)
Publisher: Academy of Management Journal, vol. 53, no. 2
Date Published: Forthcoming (April 2010)
The most successful collaborations between multiple business units within firms occur not when they are mandated by management, but when self-interested managers spot opportunities to collaborate and share resources with one another, according to this study. One reason is that managers at individual business units understand their immediate needs better than corporate executives who take a higher-level view; another is that business unit managers will pursue joint projects only when they believe those projects will benefit their own department.
The authors focused on six software firms, examining one successful and one unsuccessful collaborative project at each company. Through more than 80 interviews with corporate executives, general managers, and frontline employees, the researchers were able to gain key insights into the origin and outcomes of each project. (The company names in the study were changed, and interviewees were identified only by title so that subjects could speak freely.) The key finding was that effective collaborations bubble up from small events within individual units — for example, when one engineer finds out that an engineer at another business unit is trying to solve a similar problem — and are polished and expanded by self-interested business unit managers at that level who realize they can extend the value from the collaboration.
Individual self-interest, it turns out, serves, rather than impedes, collaboration. This contrasts with the commonly held view that top corporate executives make the best decisions because they have the highest vantage point in the organization and can use firm-wide incentives to increase motivation for unit general managers to work together. In one example from the study debunking that notion, a manager decided to bundle a group of products from different business units into one piece of packaged software because he couldn’t afford the marketing costs of promoting each product individually. Corporate executives were against the idea, fearing that overall revenue would fall. But the bundled product was a hit with consumers, generating US$100 million in sales and giving the business units that originated the programs near-monopoly status in their markets.
The bundling campaign, in turn, became the foundation of a new corporate sales strategy. By contrast, projects that began as a result of a corporate executive’s direct order generally failed in this study. But the role of upper management was still found to be important. The authors conclude that executives are most effective at removing barriers to collaboration among individual business units and can eliminate incentives for managers to work against one another.
Bottom Line: Multi-business organizations operate best when business unit managers decide which intra-firm units they should collaborate with, rather than having that order be mandated by corporate headquarters. Executives should seek to remove barriers to firm-wide collaboration and help general managers work together.
- Matt Palmquist was a founding staff writer and is currently a contributing editor at Miller-McCune magazine. Formerly, he was an award-winning feature writer for the San Francisco–based SF Weekly.