A couple of weeks ago Damen Shipyards published design a new combat ship for the Dutch Navy. It also proudly mentioned that in the building process more than 50 suppliers, of whom most are Dutch, will participate in the building-process. Needless to say, the number of second and third-tier suppliers will be far bigger. This modern network of specialized companies will have to communicate at high levels to deliver. This is difficult in a time when a lot of people are already facing trouble communicating with their team-mates and colleagues from other departments.
It is said that most governmental organizations lost the capacity to design and ultimately build complex projects. This is even more apparent in cases like very specialized construction projects such as a combat ship. Hence, you end up with a complex network of specialized suppliers that will have to establish the most optimal flow of information to avoid becoming misaligned and ultimately to help managers do a better job.
This week’s paper by Gupta and Polonsky provides a detailed case-study of clinical research organizations (CRO) and multinational pharmaceutical companies (MPC). The MPC finds itself buying services from the CRO which makes them interdependent because the CRO has little value if their knowledge resources do not get capitalized by MPCs. So, CRO’s have little existence if no MPC is willing to collaborate with them. What the researchers find is that CRO’s mimic the structure of the MPC to create a more supportive environment for the flow of information.
Pharmaceuticals face a strict level of regulation. Both the CRO and the MPC are aligned with all these regulations and therefore the mutual understanding is much bigger then if it were not. Besides the organizational structure, there are two main distinctions the researchers make.
The coupling of departments is either loosely or tight. A loosely coupled structure means that knowledge sharing is promoted between peers but it chooses to have a relatively informal approach to how that information is ultimately shared between colleagues and departments within the organization. Tight coupling often occurs in more crucial environments such as product development. In this area, most components of the product need to be compatible to deliver the medicine and comply with the regulatory standards.
What can the curious executive learn from this?
As for a combat ship, the smallest compatibility issues can effectively impact the whole project because management procedures like just-in-time would not apply. Imagine the case in which basic components do not connect, leading a supplier to install a new machine without having enough spare parts for its installation. That would lead the outsourced company to look for suppliers that might face a shortage in supply because of war near their provider of metals. Now suddenly, the whole project might face months of delay because of a loosely coupled network in which the information just did not flow right.
Most companies are not islands. Almost all companies are interdependent upon many suppliers and clients to create complex products. Hence, the flow of knowledge and information has such a large impact that you can not ignore it as a means to create a competitive advantage. Digital tools such as video and chat are just a few of those which can create operating rhythms that keep operations tightly coupled. As an executive, you might choose the culture within your team or organization based upon the people that work at your company. Hence, having a team of young millennials who just really like to communicate important information through WhatsApp or Slack might be a bit problematic if you are a supplier of a new combat ship.
- Loose or tight coupling is not a preference you should execute merely because it suits your team members, it is as crucial to observe your role in the value chain.
- Voluntary knowledge sharing might seem strange for those who have invested significant resources in specialized services. However, the right flow of information enables your investment to grow into a much more valuable end-product.
- As the COVID-19 outbreak illustrates, we are so interconnected that we almost immediately face challenges when borders close and trade is put to a halt. Make yourself less reliant by choosing the right suppliers.
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Full credit goes to Gupta and Polonsky as the authors of the original paper. This article oversimplifies some of the original content to create quick and easy understanding. The one-and-only aim of this paper is to further promote it’s content to a wider audience. For the original paper please visit: https://www.sciencedirect.com/science/article/abs/pii/S0148296313000738
About:
Bram van Kleef is a international business consultant @ VanKleef/Andersson and is located in Amsterdam. He holds an MSc in Business Administration: International Business & Marketing from the Kristianstad University in Sweden. For inquiries: Bram@vankleefandersson.com
