Productive Friction: How Difficult Business Partnerships Can Accelerate Innovation

Managers are in a bind. They are becoming more dependent on business partners—suppliers, distribution channels, and so on—for key elements of business value, but all the effort of coordinating with outsiders takes its toll. It requires time and money to get relevant information about them, negotiate terms, monitor their performance, and, if needs are not being met, switch from one partner to another. As anyone with an MBA can tell you, the burden of such transaction costs was the basis of Ronald Coase’s theory of the firm. Coase noted that companies brought activities in-house for one of two reasons: They could execute those activities better than anyone else, or the superior performance they could get elsewhere wasn’t worth the extra cost and bother of working with an outsider. The organization took the shape it did because of transaction-cost economics. (See the sidebar “The Nature of Today’s Firm.”) The Nature of Today's Firm In thinking about why companies exist, academics and executives have long been influenced by the seminal essay “The Nature of the Firm,” published in 1937 by Ronald Coase, who later won the Nobel Prize in economics. Coase asserted that all economic activity incurs transaction or interaction costs—and that, under certain circumstances, firms provide a more efficient mechanism for accessing and using resources than do open-market transactions. In this view, efficiency is the primary motivation for the rise of firms. As information technology systematically reduces interaction costs both within and across organizations, perhaps it is time to reassess the rationale for firms. We hasten to add that we are not arguing for the dissolution of the firm. On the contrary, we believe that companies, albeit in somewhat different forms, will continue to play a critical role in economic value creation. But we sense that the reason for their existence is shifting from efficient use of existing resources to capability building and systemic innovation. This is different from—though related to—the argument that core competencies should be a company’s basis for strategy. We are suggesting that they should be the basis for the firm itself. Institutions that can accelerate capability building most effectively will create and capture value. Others will inevitably fall by the wayside. Coase’s theory seems to have held up as these economics have changed. By reducing the costs of coordination between firms, information and communication technology has brought on steady growth in outsourcing—contracting outside for activities traditionally performed within the organization’s own walls. Companies increasingly find that, even when outsiders’ capabilities are only marginally better than their own, it’s worth buying that expertise on the market. And meanwhile, providers of specialized offerings spring up like mushrooms, as the promise of nearly “frictionless” interaction enhances the value they offer. But what if Coase—or at least his followers—placed too much emphasis on the coordination costs of transactions? We’ve seen companies actually gain from their interactions with others, beyond the goods or services contracted for. That is, the interactions themselves seemed to yield benefits. We know of companies that have gotten better at what they do—and improved faster than their competitors—by working with outsiders whose specialized capabilities complement their own. These cases have made us wonder, What if transactions between companies weren’t simply a form of cost but could be a source of innovation? What if friction could be made productive? The Sand in the Oyster Productive friction makes sense in theory and even has precedent. Liken it, for instance, to “creative abrasion”—a term coined by Gerald Hirshberg, founding director of Nissan Design International (now Nissan Design America), and later developed more fully by Dorothy Leonard in her book Wellsprings of Knowledge. Hirshberg believed in pairing designers with different priorities and work styles on a project. The clash made creative sparks fly, but it had another benefit as well: It gave both designers the freedom to go with their own strengths (no matter how quirky) because each person knew that the other would provide balance. Now let’s think about that concept more broadly, looking beyond knowledge building and innovation within or between work groups. Between enterprises, too, there are often difficult problems that both parties have a stake in solving—the most important of which involve finding new ways to meet customers’ needs. Different enterprises bring different perspectives and competencies to tackling a problem. And the potential for innovative solutions rises when people from diverse specializations interact. Here’s how this dynamic played out in the development of flat panel display (FPD) technology by a group of businesses in Japan’s Kansai-Tokyo corridor. As Thomas P. Murtha, Stefanie Ann Lenway, and Jeffrey A. Hart describe in Managing New Industry Creation: Global Knowledge Formation and Entrepreneurship in High Technology, it was the very existence of this business “ecosystem” that enabled the rapid innovation of FPD technology. Development was concentrated in this specific locale because it had been the breeding ground for FPD’s precursor—liquid crystal display (LCD) technology. Starting in the 1960s, Japanese consumer electronics companies such as Sharp and Seiko had great interest in using LCD to create small, inexpensive products like watches and calculators. At the same time, though, some Japanese companies envisioned using similar technology to replace cathode-ray tubes in large-screen televisions. Their investments to that end attracted investments by large U.S. companies such as IBM, Applied Materials, and Corning. By the mid-1980s, a robust and highly specialized local ecosystem of major multinational corporations had formed. The challenge here was formidable. To become a feasible replacement for cathode-ray tubes in televisions, FPD technology had to meet aggressive size and price-point targets at the product level, and these called for equally aggressive yields in FPD manufacturing facilities (known as “fabs”). The companies were pushing the envelope in terms of product and process performance. The designers had to confer with the manufacturers during the design phase, rather than simply hand over detailed specifications as they would normally do. Because the specs had to come from collaboration, there was an opportunity for productive friction to yield innovative designs. Productive friction came to bear even more on the design and development of each new generation of fabs. These facilities became important focal points for product designers, equipment manufacturers, and materials suppliers to negotiate how they could collectively boost performance in manufacturing. With speed being the primary basis for competition, the major members of this ecosystem raced through eight generations—or, as some industry sources keep count, fractional generations—of technology between 1988 (when 14-inch FPD prototypes were first demonstrated) and 1998 (when 14-inch FPDs achieved significant commercial production). Tacit knowledge was rapidly generated among the participants. Companies without a local presence found themselves falling further and further behind. Unanticipated problems created friction among the various specialized players, but this led to a lot of product and process innovation. For example, Sharp, one of the leading manufacturers of flat panel displays, tried to simplify its manufacturing process on a new production line to lower costs; the company modified its product design to make it easier to produce larger panels. Sharp wanted to keep these changes secret and thus did not share them with one of its main suppliers, Corning Glass, before the start-up of the new production line. Unfortunately, Sharp’s panels on that line failed completely. Resisting the temptation to point fingers, Sharp and Corning decided to work together to find out what went wrong. The close collaboration of the companies’ engineers over the next several months led to the development of a new acid treatment for one of Corning’s glass products. When used in Sharp’s new generation of panels, the treated glass yielded even higher performance than had been expected from the original product. The new production line and the designs for the panels provided tangible objects for the two sides to negotiate over. The immediate challenge of bringing the new line back up helped keep both parties very focused on specific performance objectives. Rapid iteration between Corning, with its highly specialized knowledge of glass chemistry, and Sharp, with its deep understanding of panel manufacturing processes, produced a breakthrough in product and process design. The glass treatment ended up being used more broadly, in entirely unrelated problem areas, and it became the foundation for panel design innovations in the years ahead. By bringing diverse specializations together around a near-term problem, Sharp and Corning quickly improved their own product and process designs to compete more effectively in the race for lower costs and higher performance. What’s important to understand about this example is that the innovation occurred not because the interactions between the companies were seamless but because the activity at the seams was challenging, stimulating, and catalytic. All companies thrive or wither according to how well they continue to build on their capabilities. In the case of FPD technology development, companies actually accelerated their capability building by mixing it up with other organizations. Creative sparks fly not when interactions between companies are seamless but when the activity at the seams is challenging, stimulating, and catalytic. Keep in mind, of course, that productive friction doesn’t usually happen so naturally. It can’t be relied on to carry the day. As we all know, when people with different backgrounds, experiences, and skill sets engage with one another on problems, misunderstandings arise, arguments occur, and time is consumed before resolution and learning take place (if they do at all). Too often, in fact, the friction becomes dysfunctional. Misunderstanding hardens into mistrust, and opposing sides focus on the distance that separates them rather than the common challenges they face. How do we harness this potentially destructive force so it accelerates learning, generates innovation, and builds capabilities? Let’s step back from the specific circumstances of FPD technology and explore more generally some of the elements that help make friction productive. All Eyes on the Prize. One thing that allows collaborating companies to move forward quickly is a shared sense of what must be achieved. In product development, productive friction is enhanced when teams have clear and aggressive performance targets but few, if any, constraints are imposed on how the product design might meet these targets. The more restrictions there are—for example, a specification that the product must use certain components—the less room there is for problem solving and the greater the potential for dysfunctional friction. To make performance requirements tangible and immediate, we need what Tara Lemmey, CEO of LENS Ventures, has termed “action points”: A specific product must be introduced, performance shortfall addressed, or operations breakdown resolved. In some way, concrete actions must be at stake. Otherwise, it is far too easy to produce abstract “answers” or “perspectives” that give the appearance of resolution but gloss over profound disagreements or misunderstandings. Essentially, the same core principle underlies the development of common law. Judges will issue verdicts only on the case at hand and only after adversaries have fully developed their arguments and confronted each other on the facts and issues involved. Judges are generally reluctant to articulate broad principles because they believe that good law emerges only from wisdom applied to specific cases. Similarly, productive friction in commercial settings occurs precisely when action must be taken—when disagreements or misunderstandings must be brought to the surface, addressed, and resolved. It’s vital to capitalize on those action points as they materialize. One of the reasons that the Toyota Production System has been such a fertile source of practice and process innovations is that it seeks to freeze context (even, if necessary, stopping entire assembly lines) and rapidly mobilize appropriate people to address problems as they arise, rather than letting time pass and trying to reconstruct context afterward. By stopping the line until an issue has been resolved or at least fully diagnosed, Toyota creates a compelling action point, allowing friction and rapid resolution. Sharp’s production glitch in the FPD example above provided an equally compelling action point. The power of clear and aggressive performance targets, shaped by a tangible action point, was apparent in a recent project undertaken by the Beck Group, a Dallas-based commercial design and construction firm. Construction, of course, is one of the world’s oldest industries—and one of the most challenging. For each major commercial project, dozens (often hundreds) of specialized, independent businesses must come together under tight schedules and work closely with one another to deliver a unique and complex product. The general contractor orchestrates the whole process, recruiting appropriate participants, defining roles, specifying outputs, sequencing units of activity, and monitoring quality along the way. In this instance, Beck’s client had an urgent need to bring a large data center in Dallas online in record time. In fact, the first phase had to be up and running within seven weeks. In the words of Mike Hildebrandt, the project leader from Beck: “We were in a real pressure cooker. We had never delivered a facility in such a short period of time. We had to do things very differently—on the fly—to get the job done.” Hildebrandt was allowed to handpick his own team within Beck, and the company freed him from all other responsibilities so he could focus full-time on this project. Departing from usual practice, Beck did not require subcontractors to bid competitively on the project; the company carefully selected them on the basis of specialized capabilities needed to build this kind of facility. Because of time constraints, complete drawings of the facility were not available when the subcontractors were chosen. The subcontractors met at the construction site three times every week, collaborating to refine the drawings and devise ways to get the job done quickly and reliably. Time urgency removed restrictions that would have been imposed by detailed drawings in a more conventional construction project. The fees were structured to align the interests of the subcontractors. Everyone wanted to complete the project cost-effectively and in the shortest time possible. Tomato, Tomahto. Productive friction ultimately depends on the people involved. If they don’t have relevant specializations and diverse perspectives, their problem solving will be weakened, and they may not even be able to tackle the issues at hand. Yet different skill sets and experiences can create misunderstanding and undermine trust. Since time is usually at a premium, identifying and connecting with people who have relevant specializations is often a challenge. This is why, in some cases, local ecosystems are hotbeds of productive friction. But even then, specialized “knowledge brokers” may be required to determine who should be involved and to bring these people together. This challenge becomes even more acute in distributed operations like global process networks or dispersed field operations. To mobilize the right people, a knowledge broker needs to be well versed in the practices at hand. In the case of Beck, Mike Hildebrandt played this role. He emphasizes, “If I hadn’t had complete freedom to pick the right people for this project, we would never have been able to come up with the innovations required to get the job done.” Even more fundamentally, knowledge brokers help bridge participants’ knowledge gaps. This was the case at GaSonics, a developer and manufacturer of semiconductor-processing equipment. Back in 1991, GaSonics had acquired Branson, which made similar equipment. The two companies had perfected different approaches to handling a certain stage of semiconductor manufacturing. Unfortunately, neither method could deliver the required performance as customers moved to a new generation of semiconductor technology. Each company’s engineering team was determined to refine its own approach. Fierce battles broke out over which system should prevail. Dave Toole, the CEO of GaSonics at the time and an executive with extensive industry experience, was the knowledge broker. Recognizing that both sides were stuck on processes that just couldn’t resolve the issues, Toole urged the teams to look at the problem from a new perspective and consider a two-part solution. This reframing helped the engineers discover that a hybrid approach could be used in the initial phase of processing. By intervening and reorienting the teams at a critical stage in their discussions, Toole was able to help them generate a solution that built upon both sides’ experiences. It was an important breakthrough because it facilitated the move to subsequent generations of semiconductor technology. What We Talk About When We Talk About Innovation. When people with very different skills, experiences, and mind-sets must engage in difficult negotiations, their ability to communicate can be significantly enhanced by an appropriate prototype. By prototype, we mean any object that can be accessed by a number of people and that enables them, with its concrete form, to see beyond the boundaries of their distinct specializations. (Because of this unique value, the term “boundary object” is gaining currency in innovation circles.) In the Beck project, prototypes came in two forms: the rough drawings and, unexpectedly, a whiteboard in the construction site trailer where the subcontractors met three times per week. At first, the board was simply a repository for open issues, helping in the normal way to focus each meeting on what needed resolving. But its role changed as the team turned to one of its thorniest issues: the sequence in which the various mechanical and electrical systems would be put in place. Someone noted that the predrawn grid on the whiteboard corresponded handily to the site’s floors, which were made up of two-foot-by-two-foot tiles. Suddenly, the team had a device for collaborating on a creative approach to installing systems simultaneously rather than sequentially. In retrospect, they came up with a simple solution, specifying that mechanical systems would be located under even-numbered tiles and electrical systems would go under odd-numbered ones. But it had tremendous impact because it allowed various subcontractors to work effectively in parallel. As the idea took shape, the subcontractors gathered excitedly around the whiteboard and explored the implications of this approach for their specific jobs. They quickly visualized how the project would come together and agreed on their individual roles. An effective prototype can be anything from a clay model to a computer simulation, a process map, or even a spreadsheet. As a group’s work evolves, shifting to different kinds of prototypes may enhance the potential for productive friction. Connecting the Dots. So far, we’ve been talking about the conditions that create friction and, importantly, keep it from becoming dysfunctional. But productive friction bears limited fruit if it yields only local innovations. For amplified impact, the learning must be captured and disseminated within and across enterprises. Benefiting broadly from local innovations is difficult, unfortunately, even for capable organizations like the Beck Group. Although Peter Beck, a managing director of the firm, recognized the significance of what the data center construction team had done (and even had them present their experience to Beck’s board of directors), there was no further adoption of the improvisational approach. The obstacle was not so much within the company as among its customers. The improvisation on the data center project hinged upon moving away from requirements that subcontractors submit competitive bids. Customers found it hard to trust that, with more degrees of freedom in implementation, a construction team whose members’ economic interests were aligned could produce far superior results at a lower cost. Usually, innovations remain localized, and their economic impact marginalized, because groups do not even think to look for patterns or share best practices. This is especially true with more modest forms of innovation in companies where similar business situations repeatedly emerge. Teams often find, to their dismay, that they have reinvented the wheel—they’ve come up with an “innovation” that has already been developed and implemented elsewhere. Customer service is one area where wheels are being reinvented all the time, but the potential for productive friction and pattern recognition is great. Customers employ products in many different environments and work contexts, so a lot of the difficulties they experience are unanticipated. Resolving a breakdown often calls for joint problem solving with the customer and can generate new insight about successful operation of the equipment. In the mid-1990s, Xerox deployed a network-based system called Eureka, an electronic bulletin board on which customer service engineers (CSEs) could post tips on dealing with unusual repair situations. Over the first three years, Eureka captured 30,000 tips and saved Xerox an estimated $100 million a year. Eureka has become an important tool for CSEs to determine whether a given type of breakdown has occurred in the past and, if so, to learn from the way it was resolved. It also contains information that could help product designers spot patterns and improve performance in later generations of products. Productive friction occurs when people with diverse and appropriate specializations creatively resolve difficult business issues. But to gain its full benefit, companies must also establish processes (supported by new generations of information technology) to help them reflect on the practices emerging from these collaborations, recognize patterns, and increase awareness of high-impact solutions across related groups of practitioners. For mnemonic purposes, think of the ingredients of productive friction as four Ps: performance requirements, people, prototypes, and pattern recognition. Rubbing Shoulders with the Best Your ability to generate productive friction with your suppliers and customers is a source of competitive advantage now—but over time, it will become a competitive necessity. Why? Because specialization is the way of the world. As information technology makes it easier for companies to contract with outsiders for more and more of the business tasks that once needed to be performed in-house, organizations sharpen their focus on what it is they do uniquely well. Companies that hew to their old forms will truly find themselves jacks of all trades and masters of none—and this will cripple them in two ways. First, their own core strengths will fall increasingly short of world-class; second, they will not be availing themselves of world-class capability in peripheral functions. Meanwhile, for the companies that specialize, the name of the game will be capability building. Once you have chosen to focus your resources on a particular function, the imperative is to be the best—and to keep getting better at a faster rate than the competition. How will you accomplish this? Not in isolation, we believe, but through productive friction with other specialized players. Dell is thinking along these lines, as we can see in its approach to relationships with Taiwanese original design manufacturers (ODMs). When Dell uses ODMs, it works closely with them, sharing knowledge in formal meetings that occur throughout the product life cycle. These interactions are structured so Dell can systematically integrate its expertise with that of its suppliers and, in the process, build new capabilities. Your Real Rationale for Offshoring The significance of offshoring is widely misunderstood. Most executives look at it simply as a way to achieve near-term savings in operations. But this perspective greatly underestimates the opportunities—and challenges—offshoring creates. In fact, it is a powerful way to rapidly build capabilities and reap the benefits of increased specialization. We are just now, for instance, seeing the first forays by traditional computer manufacturers into a variety of consumer electronics markets. Gateway, in a very short time, has established a leadership position in the U.S. plasma TV market. Hewlett-Packard has entered the digital camera market and, in only a few years, carved out a 6% market share among leaders like Nikon and Canon. Dell is targeting televisions and smart phones. All of these companies have relied heavily on offshore design suppliers in their core businesses to accelerate their entry into consumer electronics. Rather than seeing offshoring solely as a form of wage arbitrage, think of it as a form of skill arbitrage supplemented by the opportunity to generate savings through more favorable wages. Even this view, however, doesn’t capture the full potential of offshoring. Longer term, we anticipate that it will become a powerful source of innovation in products and services. Initially, this innovation will be focused on serving the unique needs of demanding consumers in the high-growth emerging economies of China and India. Over time, though, it will disrupt markets in more developed economies as consumers in these places realize that they too can get more value at lower cost. To continue to create value in this new world, executives must adopt a much more strategic and dynamic view of offshoring. They need to use offshoring (and related outsourcing) decisions to reexamine the most basic question of all: What business are we really in? Companies must be clear about their own areas of expertise before they can leverage the specializations of others. To extend this logic even further: Imagine you are the best at what you do. Every other specialized company out there wants you as part of its process network. However, your capacity to engage with others in problem solving and innovation is limited. With whom do you choose to rub shoulders? You might answer, “Other world-class companies.” But more precisely, you’d choose to engage with companies if you believed doing so would strengthen your own capabilities. In other words, the companies that learn to generate productive friction early will set into motion a virtuous cycle. They will become partners of choice, and that will keep them competitive in the long term. The real test is whether a company can create relationships that accelerate the capability building of all participants and whether it can amplify the value that each party brings. Note that the amplification must go beyond achieving the static synergies that arise from combining complementary capabilities. It must also grow those benefits over time. When companies leave a business relationship, will they perform better on a stand-alone basis than they did before they entered into it? Have they each enhanced their own capabilities more effectively than they could have without the relationship? Weaving a Performance Fabric Bringing together diverse, highly specialized companies and getting them to collaborate in mission-critical business processes is not an easy task. The companies cannot be hardwired to one another; they must be loosely coupled. That is, it is not effective for a company to specify a partner’s activities in great detail and then to monitor performance accordingly. Instead, the right approach is to delineate relatively independent modules of activity and assign to each a clearly accountable owner. For every module, performance targets should be defined. Then participants should be left relatively free to improvise within their areas of activity as long as they can meet the performance requirements. Few companies, however, are comfortable with such arrangements unless there is a basis of shared meaning and trust between the parties involved. Shared meaning and trust—with the assistance of information technology architectures and software—make up the fabric that supports collaboration across enterprise boundaries. We won’t discuss the IT dimension at length here, but we should underscore that new generations of information technology will weave the threads of performance fabrics more tightly and, in turn, add opportunities for productive friction. (In our forthcoming book, we will highlight the convergence of three diverse strands of IT innovation: service-oriented architectures, virtualization architectures, and interaction tools such as social software, wireless networks, and other devices that equip people to improvise and innovate together.) Cisco is one company that appreciates the importance of creating shared meaning across its network of business partners, especially its dispersed, fragmented distribution channels and channel partners. In the view of Tom Kelly, vice president of the company’s Internet Learning Solutions Group, the process starts with common perspectives. Cisco invests heavily in training not only its own staff but also its business partners’ through structured learning activities, including “emergency” modules that prepare people to deal with time-sensitive business situations. Cisco makes it as easy as possible to search for and access its learning materials online and delivers them in small packages, tailored to specific business needs. Along the way, shared meaning takes hold incrementally. It also, by necessity, takes hold iteratively. Common points of view cannot simply be imposed. There must be a back-and-forth process by which partners come to an understanding. By the same token, complete alignment is a chimera. The key, then, is to determine at the outset those areas in which shared meaning is most critical, by observing where the most significant misunderstandings occur, and to expand its scope over time. Trust, too, cannot be established overnight. Most executives seem to believe it is like fine wine: One can only act in good faith and hope it will eventually develop. Yet companies that work skillfully with a broad range of business partners have found that certain tools and approaches can be used to accelerate the building of trust. They tend to rely primarily on forward-looking incentives (How can this relationship accelerate our learning and lead to faster improvement of performance?) rather than backward-looking assessments (Has the other party delivered against expectations in the past?). Perhaps because process networks often emerge in rapidly changing environments like apparel and electronics, their orchestrators are painfully aware that the past is not a useful predictor of future performance. Yet they avoid overemphasizing near-term cash rewards, which can actually undermine trust. This is because, in the near term, the cash pool available for distribution among participants is essentially fixed. If one party receives more, then others must do with less. As in all zero-sum games, each party maneuvers to get as much of the pie as it can, and trust erodes. Those who want to accelerate trust also define the concept narrowly. Rather than pondering the overall trustworthiness of an individual or institution, they focus on the delivery of certain outcomes as promised and the commitment that neither party will abuse privileged access to corporate resources and relationships. Then, they assess the ability and willingness—the “skill and will”—of the other party. For example, apparel giant Li & Fung recruited several former managers of textile plants in the early days of organizing its renowned process network. These seasoned executives could walk through the plant of a potential business partner and, within 30 minutes, determine the plant’s capabilities. The company has learned, though, that the skill of a partner is only part of the trust equation, especially over time. Will can trump skill since, with the appropriate motivation, partners will invest aggressively in building necessary capabilities. Will can trump skill. With appropriate motivation, partners will invest aggressively in building necessary capabilities. Li & Fung’s practice also illustrates the somewhat counterintuitive effect on trust when neither party in a relationship is locked in. As a matter of policy, Li & Fung seeks to use between 30% and 70% of the capacity of its process participants. At least 30%, the thinking goes, will result in priority attention from the partner; but more than 70% may mean that the other company is too dependent on Li & Fung. When the stakes get too high in a relationship, so does the threshold for trust. Other trust accelerators fall into the category of “trust—but verify.” Some companies, for example, employ event-notification systems carefully constructed to provide early warnings of potential performance issues, as well as robust exception-handling procedures to ensure that problems are quickly addressed. Performance bonds and other assurance mechanisms can protect against economic losses created by disruptions. Such tools help reduce perceived downside risk and, in the process, strengthen the impact of positive incentives on how rapidly trust is built. Finally, reputation systems administered by process orchestrators can also reward or punish performance. Companies focused on accelerating trust understand how to use “trust staircases” to minimize risk. They pace their relationships with others to build capability and confidence in quick increments. Early interactions may involve areas of relatively limited business value. Here, each party can test the other’s will and skill by refraining from specifying activities in fine detail and instead focusing on defining required outcomes. Alternatively, when substantial business value is at stake, the two parties can begin with detailed activity specifications but, as they gain more experience with each other, start to relax some of the specs and emphasize goals. The trick is to be thoughtful about the sequencing and design of these interactions so that trust rapidly accumulates but risk is managed. If the necessary underpinnings of shared meaning and dynamic trust are established, companies can work well together, and the friction at their boundaries will likely be productive. Without these elements, the performance fabric quickly unravels, and process networks disintegrate into rivalrous competitors. • • • In our relentless quest for efficiency over the past several decades, we have become conditioned to believe that all friction is bad. After all, wasn’t a “frictionless economy” the nirvana promised to us by the dot-com visionaries? Friction was a sign of waste. The problem needed to be rooted out wherever it reared its ugly head. As we move further into the twenty-first century, we will find that we’ve been too hasty in dismissing friction. The companies that thrive will be those that employ it to aggressively build their own capabilities as well as their partners’. Most organizations will take on higher degrees of specialization—and, therefore, rely more heavily on others to perform business functions that fall outside those specialties. Clearly, we need a more systematic understanding of what it takes to enhance performance across broad networks of participants. To ensure your own competitive viability, you may need to reassess the criteria you have used in the past for creating and sustaining relationships. For example: To what extent did you choose your five most significant business partners because of their ability to spur your own long-term capability building through collaborative improvising and problem solving? To what extent do the orchestrators of your process networks focus on accelerating participants’ capability building? What is their track record to date? What are the five most innovative companies with capabilities that complement yours? Do you have effective business partnerships with them? If not, why not? The most successful process networks will be those that can maintain a focus on future-oriented capability building. Within them, thoughtfully structured sequences of interactions will facilitate joint knowledge building in the areas that are likely to have the greatest impact on the performance of process participants. We need to learn to embrace friction, even seek it out, when it promises opportunities for learning.

Productive Friction: How Difficult Business Partnerships Can Accelerate Innovation

Summary.

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