HOW TO INITIATE COOPERATIVE NETWORKS Practical guidelines for industry associations, development agencies and SMEs Matthias Nöster, Marita Gruber, Sylvie Feindt 1 TABLE OF CONTENTS INTRODUCTION .............................................................................................. 3 Purpose of the guide ..................................................................................... 3 Success factors for Cooperative Networks........................................................ 5 THE INITIATION PROCESS................................................................................ 7 TAKING FIRST STEPS....................................................................................... 8 Bringing companies together ......................................................................... 8 Creating interest in the network ....................................................................10 Moving from interest to commitment .............................................................12 PLANNING FOR SUSTAINABILITY......................................................................14 Deriving the network business case ...............................................................14 Establishing a network manager ....................................................................16 Developing terms of cooperation ...................................................................19 FACING “SOFT FACTOR” PITFALLS....................................................................21 ANNEX ..........................................................................................................23 Literature ...................................................................................................23 Best practice...............................................................................................24 Contacts.....................................................................................................25 Endnotes ....................................................................................................27 2 INTRODUCTION Purpose of the guide Despite the often cited advantages of network cooperation for SMEs such as sharing risks and resources, complementing competencies and capacities or increasing market power, good practice research shows that not many networks achieve the above. The reasons are that SMEs often have little experience with cooperation and are reluctant to withdraw resources (time and money) from daily operations to longterm, strategic business development. A cooperative network, however, has to be considered as an integrative part of the company’s strategy in order to create value. In addition, approaches to network initiation have often placed too much focus on infrastructure and organizational architecture. Otherwise, they have not paid enough attention to the personal, soft factors of cooperation and failed to embrace a more organic process of network initiation. These guidelines on “how to initiate cooperative networks” are the result of 18 months of practical experience with the initiation of cooperative networks in three European countries. They also embody the knowledge from several years of joint industry-university research into good practice in the domain of cooperative networks as well as knowledge inputs from the exchange with numerous European experts and projects. Cooperative networks hereby are understood as groups of legally independent organizations (and its individuals) that aim to cooperate closely and on a long-term basis with significantly fewer centralized management functions than traditional business organizations. The aim of these guidelines is to provide practitioners, i.e. industrial associations, development agencies and individual companies with practical and critical information about how to setup cooperative networks. The specific objectives of these guidelines are to: • Endow these target groups with a sound understanding of the crucial aspects (success factors) in the set-up process; 3 • Enable them to shorten the process and save resources; • Introduce them to existing network initiatives and network experts. This compact document thereby focuses on the initiation – the earliest stages – of networks. This early phase is particularly critical for the later stages of network cooperation and has shown to require careful support and guidance. Thereby, it is assumed that the practitioner reading this guide already has a basic knowledge of cooperative networks and virtual organizations in general. The guide does not introduce the concept from scratch, but provides practical, checklist-like recommendations for each step of the initiation process. The Annex contains further references to literature, good practice examples and experts. 4 Success factors for Cooperative Networks Good practice networks reveal that the success of a cooperative network largely depends on five interrelated factors. Respecting these basic principles will also improve the network initiator’s work notably: NETWORK MANAGEMENT BUSINESS OPPORTUNITIES TRUST COMMITMENT EXCHANGE OF INFORMATION Business opportunities must be identified and realised New business opportunities are the reason why companies join a network. In a cooperative network these opportunities stem from new and productive combinations of competences and resources and not simply from networking. When a network is initiated by a supporting organization, a possible lack of a concrete business case must always be offset by a clear strategy that will lead to business opportunities in the future. In any case the cooperation must bear fruits; otherwise companies will lose interest soon. Network-Management needs to be in place, sound and trusted Cooperative networks are “light” organisations with little hierarchy and central management functions. Nevertheless, a common understanding of how to handle business as well as conflict situations is crucial for success. It is therefore necessary to define basic roles and to establish some rules. Network management also plays a critical role in the initiation process where guidance and coaching are required before the rules have been put into place. 5 Commitment to active cooperation needs to be assured The active involvement of all participants and the sufficient allocation of resources (time and personnel) are critical for a network to identify and realise business opportunities. One of the most important aspects defining commitment is whether the network strategy has been well aligned with the individual strategic aims of the participating companies. This strategic match needs to be assured in the initiation phase. Trust needs to develop as the foundation of cooperative behaviour Trust has been recognized as a major factor for success in any type of cooperation. Whether and how quickly trust develops depends on the personalities of the involved people and the relationships between them. In any case the companies have to get to know each other and work together in order to develop trust. Particularly in the initiation phase, personal meetings and social gatherings facilitate this process. Nevertheless, networks must not only rely on personal trust but also need to establish norms to institutionalize trust. Information exchange has to be intensive and transparent Open communication is a basic factor in trustful relationships. During network initiation a lot of information has to be shared between the potential network members that need to get to know each other well. The network manager can contribute significantly to improving the flow of information in this phase. At later stages basic IT tools or platforms can support this task. 6 THE INITIATION PROCESS The focus of these guidelines is on the process of initiating cooperative networks of SMEs. The success factors above necessitate the involvement of strategic decision makers in the cooperative network who, in the case of SMEs, are usually the owner managers. These individuals need to be brought together so that the initiation process can be compared to a group or team building process, consisting of the following phasesi: FORM STORM NORM PERFORM NETWORK INITIATION Each phase needs to be completed before the next phase is reached: In the form phase, a newly established team is cobbled together and in the storm phase, the group members aim to develop a common understanding in a sometimes conflict ridden process. Companies can either drop out if they do not agree or take a position of silent resistance. In the norm phase the group eventually agrees on the specific rules of the game und only then can the group perform and start creating economic benefits. The model is supposed to illustrate that when initiating a cooperative network, a group of companies will go through a number of phases - form & storm & norm before it can start to perform, i.e. operate and do business. It is the network initiator’s task and challenge to guide the group through these phases which require significant time (maybe up to 24 months) and effort (support activities), depending on the particular situation. The following chapters aim to provide stepwise, hands-on recommendations on how to meet this challenge effectively: ‘Taking first steps’ covers activities that largely take place in the form & storm phase of the group building process while ‘planning for sustainability’ deals with some important tasks that facilitate the norming of the group. 7 TAKING FIRST STEPS Bringing companies together OBJECTIVE At the very beginning of the forming phase, it is necessary to gather a number of companies – including competitors - for the first time. This group of potential network members should be large enough to ensure that some companies will eventually become interested. This section deals with how to best approach companies and what kind of information to provide. CAUTION Be prepared to act as a missionary and sell the concept! Many companies are not familiar with cooperative networks and some might even be skeptical towards this approach! ACTIONS DO: Before taking any steps towards network set-up, be sure to have identified a clear opportunity for this type of cooperation. NOTE: Even if you see the business opportunity, it does not mean that the companies will see it, too! DO: Have the business situation analyzed by a third party (consultant or university for instance) in an investigative study. NOTE: Hard facts (about sectors, markets….) can facilitate your further work considerably. DO: Be ready to do some preparatory work and make individual phone calls to invite companies. NOTE: Build on personal contacts you have with come companies that might lead or drive the network set-up from the inside (opinion leaders). DO: Narrow down the target group from the beginning, because too diverging businesses will not see the common issues. DO: Organize a short (2-3 hours) workshop combined with a social gathering. 8 DO: Provide a simple, but concise presentation of the cooperative network concept proposed. NOTE: Understanding of cooperative networks will be different from company to company. Room for questions & answers is needed to informally assess this understanding. DO: Invite a good practice example from your country to present its work. NOTE: Companies relate more to national examples. DO: Organize a social gathering after the workshop. NOTE: The social gathering after the workshop should also help you to observe the first reactions of the companies. Spontaneous enthusiasm should be taken up immediately and companies that develop ideas or propose leadership need to receive specific attention. RESULT The result of these first steps should be a workshop that is attended by about 10 or more companies from a similar industry branch. At end of the workshop, they should have understood the added value of a cooperative network and the difference to other cooperation concepts. 9 Creating interest in the network OBJECTIVE The next step is to immediately follow-up on the first awareness created in order to generate actual interest in the cooperative network model. It is more effective to focus on two, three companies where a positive attitude has been observed. This core group should be brought together in several informal, but moderated meetings in order to develop a common agenda as soon as possible. CAUTION Companies are sluggish to recognize a common opportunity in cooperating with other companies. The vision for the network develops slowly! ACTIONS DO: Make individual follow-up phone calls the days after the first workshop. DO: Ensure that high level management gets involved in order to make strategic decisions. DO: Organise several short (2-3 hours) meetings within 4 weeks, dedicated to identifying common needs and a way to address these in the network. NOTE: Organise the first meeting within four weeks. DO: Ask the companies to make a company presentation. NOTE: Use interactive techniques to make the presentations more dynamic. DO: Carry out a SWOT analysis for the specific industry branch if the companies do not perceive commonalities at first sight. DO: Use some brainstorming technique for vision findingii. NOTE: Do not expect a clear vision to develop at this stage, because it needs more time to crystallise. NOTE: Joint purchasing in networks is an easy to understand concept and can be a proposed as part of the network vision; the practical implementation however is not always easy. DO: Try to ‘lock-in’ companies as forming the core group of the network. 10 DO: Ask companies to fill in a questionnaire assessing cooperation abilities. DO: Always fix a date for a next meeting where additional companies would participate. NOTE: Each company to invite two other companies they would like to have as partners in the network. RESULT The outcome of this stage should be that a core group of companies has expressed serious interest to further develop the network idea. 11 Moving from interest to commitment OBJECTIVE The race is not yet won at this stage, because the difficult task is to bring companies from being interested in the network companies to actually investing any resources for its implementation. A number of tasks and activities can help to create commitment in this phase. CAUTION The time of general managers/owners is a very scarce resource! Companies quickly lose interest if things do not move on. ACTIONS DO: Propose an external network manager to the companies that leads the set-up process. NOTE: The companies appreciate a person dedicated to the network. DO: Organise short and moderated workshops/meetings that take the vision of the network further towards strategic implementation; DO: Use these meetings to analyse the companies’ core competencies (questionnaires can provide structure for this task). DO: Organise the meetings at companies’ premises and have a guided tour after the meeting. NOTE: This is a real incentive for the other companies to participate and a sign of readiness for mutual trust. Consider inviting other good practise examples to provide further inspiration on how to cooperate in the network. DO: Create first tangible results such as a competence database. DO: Carry out analytical work in parallel that help you to develop and propose ideas and steps how to proceed consequently. DO: Develop a step-wise action plan that involves tasks to be carried out by each company. 12 DO: Initiate small joint projects of knowledge exchange or market analysis; NOTE: Make sure that most companies are involved or at least that the projects are open and transparent to everybody in the group. NOTE: The short-term projects will only lead to commitment if the long-term objectives of the network are also clear. DO: Create network boundaries in order to create a sense of exclusiveness. NOTE: If the group has the impression that other companies also benefit from the initiative they will be reluctant to commit resources. DO: Create a brand name and Web site for the network. RESULT At the end of this stage a small group of companies (a minimum of 3) should start referring to themselves as the network. The vision has been formulated and written down, and regular meetings and communication takes place. Do not expect to reach this point in less than a year’s time. 13 PLANNING FOR SUSTAINABILITY Deriving the network business case OBJECTIVE Cooperative networks require significant management (external or internal) effort before the network can eventually perform and create value. This effort needs to be justified and contingent financial means be assured. Therefore, a business case needs to be identified and put on record as soon as possible. The management effort represents the mayor cost element for the network and can be estimated. The returns, though, will be close to zero before the perform phase and even then probably be hard to measure. It thus makes sense to carry out a cost/benefit analysis with the network members, instead of discussing a potential return on investment. The benefits need to be recognized by the network members themselves, but the initiator can support the thinking process. In any case he/she should have perceived clear benefits before launching the network initiative. The costs need to be estimated in detail, best according to the various management functions. If financing is required, public funding programmes in many European countries provide financial support for cooperative networks and could always be considered in order to cover part of the costs. The rest needs to be covered by the network members. CAUTION Do not underestimate management costs! Therefore, try to keep other costs (administration, overheads, legal) as low as possible! ACTIONS DO: Identify medium to long-term opportunities and goals (benefits) with the network members. DO: Identify ways in which network management can contribute to achieving these goals and discuss them with the companies. NOTE: Some management activities are critical for all networks; others depend on the specific case. DO: Make a realistic estimation of the management effort (costs). 14 NOTE: Move down to function and task level. DO: Identify public funding opportunities and discuss advantages as well as disadvantages (delays in setting up the network) with the network members DO: Suggest and discuss a mix of financing mechanisms, such as commission based fees for acquisition activities and a fixed fee plus public funding for coaching/coordination tasks. NOTE: Demand a financial contribution from the companies to close the financing gap and to create commitment. DO: Evaluate whether all companies will benefit equally from the management activities. NOTE: If some will obviously benefit more than others, consider individual invoicing these companies. NOTE: Substituting the network manager’s effort with the members’ effort can lower the financial requirements, but not the total costs (opportunity costs). This approach is hence of limited applicability. DO: Present the business case and financing options to the members; make them decide whether there is a business case and put his on record. DO: Suggest carrying out a simple cost-benefit analysis periodically. RESULT The companies should have understood that there is a business case and have agreed to make a financial contribution for a pre-defined time. Public funding for cooperative networks is usually provided over three years regressively. Hence a plan for how to cover the costs over the whole period must be provided in a proposal and agreed upon with the network members. 15 Establishing a network manager OBJECTIVE As a cooperative network requires significant management effort in all its phases, a network should establish the role of the network manager and appoint a dedicated person with the right skills to take over that role. Usually, network members are not qualified for this job or lack the necessary time. Preferably either the network initiator or a third party take over this role as soon as possible in the process. Definitely, the initiator will have to take over the management functions in the earliest stages of the network where the network manager role has not yet been defined. If the facilitator does not have the required skills, it is more effective to appoint an external network manager at this early stage in order to drive the process. Both will lead to a situation where costs arise at a stage where the network membership is not yet stable and hence membership contributions are not possible. A solution to this problem is again to acquire some public funding for the initiation of the network or to accept the financial risk until a later stage. CAUTION As much as the network manager can speed up the network initiation process, he can also slow it down due to other agendas or lack of skills! ACTIONS DO: Assess your qualifications in terms of: Profound knowledge of and work experience in the target industry NOTE: This increases credibility before the network members. Ability to develop valuable marketing and business strategies jointly with the network members NOTE: This requires knowledge of analytical tools and techniques. Proven commercial and entrepreneurial skills 16 NOTE: It helps when the manager can stimulate business ideas and activities. Excellent and proven project management skills NOTE: They are particularly important in the perform phase. Excellent interpersonal and social skills, such as an ability to communicate clearly, to moderate discussions, to support trust building, to solve conflicts Practical experience in managing cooperative networks DO: In case you do not have the above qualifications, consider appointing a third party network manager that meets all the requirements above. DO: Select the most appropriate candidate that can start immediately and can dedicate several days a month to the network management activities. DO: Appoint someone who understands and believes in the cooperative network concept and its win-win orientation. NOTE: This will have a positive impact on companies’ attitudes towards cooperation. An entrepreneurial industry insider risks being closer to some companies than to others or might have a different agenda with some of them. DO: Face or set the following tasks for the initiation phase of the network Communication and trust-building support Network strategy development Network meetings coordination Network business plan Coordination of joint projects DO: Focus on specific management functions in line with the network’s strategy. NOTE: These broad management functions are: coaching, marketing, coordination, acquisition (brokering), R&D liaison; intensive communication cuts across all the functions. NOTE: During the norm & form phase, where companies need external guidance, the coaching and coordination functions are particularly important. 17 RESULT The result of this activity is to have established the role of the network manager, who supports the cooperative network throughout all phases and supports the activities described in the previous chapters. 18 Developing terms of cooperation OBJECTIVE When either the facilitator or a third party has taken over the role of a coordinating network manager, work can become more structured and formalised. References, such as a business plan, an action plan or a cooperation agreement need to be developed in order to stabilize the process, as time passes. These references (norms) need to be developed and agreed upon jointly by the network members. Some important issues to address are legal (such as warranty or intellectual property rights) and financial (transfer prices) aspects, but also quality and technical features of joint products. Dedicated working groups should be established to tackle some of these topics. At this point it is also necessary for the network members to involve other members from their organisations in the network, because of the technical expertise or the time required to participate to these working groups. Hence the owner managers need to be prepared to pass on the network idea to their staff. This internal as well as the external promotion (marketing) of the network should therefore be subject to extensive discussion or trainings with the owner managers. CAUTION Do not over-formalise cooperation! Make sure that simple norms are in place and that network does not get stuck in endless discussions of every detail! ACTIONS DO: Agree to a simple network etiquette that sets out the basic behaviour for cooperation. DO: Distribute work tasks between the network members, including the following: NOTE: The members should gather information and develop ideas themselves. Assessing market needs and potential for the network products and services (marketing or business plan) Identifying joint advertising & PR opportunities Developing logo and brand (if not developed earlier) 19 Investigating legal requirements Investigating financial requirements Investigating quality and technical requirements NOTE: It might help to establish dedicated working groups to address some of the tasks on the list. DO: Facilitate the on-going work and integrate the findings and ideas. DO: Fix a meeting schedule (how, where and when) for several months. DO: Formalise the results in written documents. NOTE: Use templates where available to reduce the effort. DO: Have the documents approved by all network members. DO: Organise trainings on how to promote the network internally and externally. NOTE: An external communication expert might be required for this task. RESULT Norms necessary for the network have been developed and approved by all members. They have been formalised in a marketing or business plan and a cooperation agreement that serve as reference documents. The network idea has been extended throughout the member companies and staffs have become involved in the cooperation. The network should dispose of the necessary terms of cooperation to perform and effectively pursue its strategy. 20 FACING “SOFT FACTOR” PITFALLS Objective Following the guidelines up to now, you might have brought companies together, have developed a joint network vision, established network management and basic norms. This, however, was not the most difficult part. The real challenge is to ensure that companies actually make use of these agreed terms of cooperation in order to perform and hence create economic value! The companies that have decided to continue the cooperation activities at this point are obviously convinced that there is a business case and believe that the benefits outweigh the risks/costs. The most critical factor for sound cooperation, however, is not the optimal combination of core competences, nor the existence of a lucrative business case. The way how network participants get involved in cooperation activities is strongly affected by personal relationships and trust. A network of companies is basically a network of people and it depends on the right mix of people in order to perform. This means that in parallel to the development of the organisational cooperation abilities, there should be significant consideration of the development of the social relationships between the people involved. A stable cooperation network can only be built on a stable network of trusting people. CAUTION The best business case (hard fact) will not lead a network to perform if some of the owner managers do not trust each other or the network manager (soft factor). ACTIONS DO: Treat companies as members instead of participants! NOTE: Every company shall have an active role in the network and therefore be certain that the process in their hands. DO: Work with the participants according to their preferences, expectations and time! 21 DO: Establish periodical and obligatory meetings in order for the owner managers to get to know each other as persons. NOTE: Let the members themselves organize the meetings at their premises DO: Start a discussion about joint rules for doing business as well as for conflict situations. Trust cannot develop without proper rules being formalised. DO: Establish small working groups on different topics like marketing of the network, financial issues, joint events etc. DO: Always reserve sufficient time for informal talks and meetings. Keep in mind the Golden Rules of Charles Handy Trust needs touch: People do not trust each other from the very first moment. Sustainable, trustful relationships require profound knowledge of each other and common experiences in business as well as in informal events. Trust takes time to develop. Trust needs boundaries: Trust can only be established in a well-defined environment. A unifying goal of all network members is the basis for commitment and mutual confidence. Trust is tough: Trust in a group cannot be established without impositions. If one partner betrays does not play fair there is no other way than to exclude him from the network. 22 ANNEX Literature Arnold, H., Benz, H., Bonnet, P., Bürkle, P., Gölz, A., Hofmann, J., Jacobi, J., Schulte-Wieking, J. (2003): Besser arbeiten in Netzwerken – Wie virtuelle Unternehmen Erfolg haben. Shaker, Achen. Brennecke, V. (2004), Innovationsnetzwerke – ein anwendungsorientierter Leitfaden für das Netzwerkmanagement; VDI Verein deutscher Ingenieure (ed.), Düsseldorf. Huber, C., Plüss, A., Schöne, R., Freitag, M. (2005) ‚Kooperationsnetze der Wirtschaft; vdf, Zürich. Schöne, S. (2000), Kooperationen von kleinern und mittleren Unternehmen – Ein Leitfaden; Polygraphisches Zentrum der Universität Chemnitz, Chemnitz. Schubert, I. (2000), Kooperationsprojekte erfolgreich durchführen, RKW, Eschborn. Stahl-Rolf, S., Hamann, O., Hausberg, B. (2004), Kompetenz mobilisieren – Ein Leitfaden für Initiatoren und Manager von Kompetenznetzen; Bundesministerium für Bildung und Forschung (ed.)., Bonn-Berlin. Umbauer, G., Lämmerer, W., Eder, W. (2005): Erfolgreich kooperieren! Unternehmensnetzwerke anbahnen, realisieren und begleiten, Fachgruppe UBIT, Wirtschaftskammer Steiermark (Hrsg.), Leykam, Graz. Wiendahl, H.P., Dreher, K., Engelbrecht, A. (2005), Erfolgreich kooperieren. BestPractice-Beispiele ausgezeichneter Zusammenarbeit. Physica-Verlag, Springer, Berlin. 23 Best practice Die Aufmöbler http://www.aufmoebler.at IMPRO http://www.impro-praezision.de/ Swiss Microtech Enterprise Network http://www.swissmicrotech.ch/ Virtuelle Fabrik Nordwestschweiz Mittelland http://www.virtuellefabrik.ch Virtuellbau Holding AG http://www.virtuellbau.ch/ Vollbad http://www.vollbad.at 24 Contacts - Experts Leyla Arsan VERITAS network manager Turkey TAGES Industry & Information Technologies R&D ISTANBUL [email protected] +90 212 2232101 Georges Puissant VERITAS network manager Belgium Puissant BtoB Consultancy BELGIUM [email protected] +32 2 3811852 Franz Sebl VERITAS Network manager Austria SECO AUSTRIA [email protected] +43 676 7009035 Charles Huber Network Manager Virtuelle Fabrik Nordwestschweiz Mittelland Fachhochschule Nordwestschweiz Institute for Business Engineering SWITZERLAND [email protected] +41 56 4624194 Dr. Adrian Plüss Coach Virtuelle Fabrik Nordwestschweiz Mittelland Fachhochschule Nordwestschweiz Institute for Business Engineering SWITZERLAND [email protected] +41 56 4624192 Michel Pouly Coach of Swiss Microtech Network Ecole Polytechnique Fédérale Lausanne SWITZERLAND [email protected] +41 21 6932559 Franz Filzmoser Innovation expert Innovation Network Austria AUSTRIA [email protected] +43 1 9617111 Dr. Matthias Freitag Network expert ISA Institute for Systemic Approaches GERMANY [email protected] +49 178 8831110 Prof. Dr. Roland Schöne Network expert Chemnitz University of Technology GERMANY [email protected] +49 371 5314250 Mob +49 178 546 07 63 Werner Pamminger Cluster manager Kunststoffcluster Upper Austria Clusterland Oberösterreich AUSTRIA [email protected] +43 732 798105117 25 - Authors Matthias Nöster Network expert Sylvie Feindt Consulting AUSTRIA [email protected] +43 1 789061216 Marita Gruber Network expert University of Vienna Faculty of Business, Economics, and Statistics AUSTRIA [email protected] +43 1 427738177 Sylvie Feindt Network expert Sylvie Feindt Consulting BELGIUM [email protected] +32 2 6622400 26 Endnotes i Tuckman, Bruce W.: Developmental Sequence in Small Groups, Psychological Bulletin, vol. 63, 1965, pp. 384-399. ii Some techniques are described at www.businessballs.com 27