Collaboration isn’t a natural activity for competitors. But as financial institutions look to understand the potential – and the threats – of blockchain technology, collaborative approaches are on the agenda. For example, leading banks (22 at the last count) are working together with financial innovation firm R3 to see how blockchain/distributed ledger technology can be applied in financial markets.
As R3 points out, collaboration can be a quick, efficient and cost-effective approach. The pharmaceutical industry offers several examples of successful collaborations. For example, in the US National Institutes of Health Accelerating Medicines Partnership companies and non-profits collaborate to identify possible biological targets for new treatments. This helps reduce early failures, while still leaving individual competitors free to develop their own treatments.
So are there any pitfalls that participants in collaborative projects need to watch out for? How far can and should you collaborate?
The R3 collaboration aims in part to help participants ‘establish consistent standards and protocols to facilitate adoption and encourage network effects’. So far, so good – the benefits of industry standards are widely recognised, particularly where technical interoperability offers significant benefits. It needs to be borne in mind, however, that establishing standards runs the risk of raising competition issues – for example, if competitors are excluded from the standard-setting process, or if companies influence the creation of a standard that relies on their (undisclosed) intellectual property.
More broadly, the R3 collaboration – like most joint ventures – aims to develop commercial applications. Can this work without winners and losers among the participants?
Joint ventures between US and Japanese car manufacturers back in the 1980s are widely credited with helping emerging Japanese competitors catch up with – and overtake –previously dominant US manufacturers. Writing in the Harvard Business Review, Gary Hamel and others suggested several lessons for success:
- Make sure you have clear strategic objectives for collaboration – and understand how your partners’ objectives can affect your success.
- Commit to collaboration as an opportunity to learn, not just a way of avoiding costs. Participants with ambition tend to benefit most.
- Control of information-sharing is critical. Bear in mind that critical information is often shared day-to-day by engineers and others. Some individuals may ‘go native’ with a greater emotional attachment to the new venture and new colleagues than to their original employer.
The parallels for financial institutions investigating blockchain are evident. While there are clear benefits to interoperable systems in areas such as payments, you’ll also be looking for opportunities to develop applications that give you a competitive edge. Senior management need to understand the possible strategic significance of blockchain rather than seeing it as just a cost centre or a technical issue. And managers must think about how build and maintain loyalty among enthusiastic technical staff.
What do you think?