What is external collaboration?

External collaboration refers to the process where independent organizations, such as businesses, come together to work on a shared project or goal.  External collaborations can be big or small, transactional or strategic.  They’re different from other kinds of collaborations in that while the entities work together towards a common end, they maintain their organizational identities and goals. That’s one reason why building trust is so important. It’s required so that collaborating parties—frequently called external stakeholders—can leverage the unique strengths and capabilities of each entity to achieve a common objective, which would not be feasible for them to achieve independently.

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What's an External Collaboration?
It's when entities work together towards a common end while maintaining their individual identities and goals. External collaborations can be big or small, transactional or strategic.

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Why do organizations collaborate externally?

Simply, they can’t do it alone. 

Organizations collaborate externally to access resources and capabilities that they do not possess internally in order to enhance their competitive advantage and achieve goals that would be challenging or impossible to accomplish alone. Take the most basic of external collaborations, sales. It’s not possible to generate revenue without parties external to your organization, e.g., customers.   

In other kinds of external collaborations, the resources and capabilities could range from specialized knowledge, technology, and market access to additional manpower and financial capital. External collaboration allows organizations to leverage the strengths of their partners, be it through sharing risks in joint ventures, tapping into new markets with strategic alliances, or accelerating innovation through R&D partnerships. This synergy not only drives business growth and innovation but also enables organizations to respond more effectively to market demands and rapidly changing business environments. 

Finally, from an organizational learning perspective, external collaborations create opportunities for learning and development, exposing organizations to new perspectives, practices, and business cultures. 

What are the main kinds of external collaborations?

There are two main kinds of external collaborations: strategic and transactional. The primary factor that separates these two types of collaborations is their scope and duration with respect to the organization’s goals.

• Strategic collaborations tend to be long-term and deeply tied to the organization's overarching strategies and objectives. 
• Transactional collaborations, on the other hand, are usually short-term and operational. They are driven by immediate business needs and are characterized by specific, often limited scopes with clear, near-term objectives

However, that does not mean that transactional external collaborations can’t be strategic.  For example, when entering a new market, those initial sales (typically seen as transactional external collaborations) are very strategic as they provide concrete information about the market and its nature.   In fact, that’s one of the very best results outcomes of taking a value-based selling approach.  Organizations that can collaborate effectively with prospects and customers end up understanding their market segment at a much deeper level.  That translates into more effectiveness across the board, from marketing to sales, and even support and customer success.  

Strategic External Collaborations Defined

Strategic external collaborations are long-term, partnership-based initiatives that are integral to an organization's overarching goals and strategies. These collaborations typically involve:

• Deep Integration and Alignment: Partners in strategic collaborations work closely to align their goals, strategies, and often, their cultures. This deep integration ensures that the collaboration effectively supports the strategic objectives of all parties involved.
• Mutual Investment and Risk-Sharing: Such collaborations often require significant investments of time, resources, and capital from all parties. They also involve sharing risks, as the outcomes of these collaborations can have substantial impacts on the participants.
• Innovation and Market Expansion: Strategic collaborations are often pursued to drive innovation, enter new markets, or develop new products or services that would be difficult to achieve independently. This includes joint ventures, long-term R&D partnerships, and alliances for entering new geographical markets.
• Long-Term Focus: The success of these collaborations is measured in years, not months, reflecting their long-term nature and the sustained commitment required from all involved parties.

Transactional External Collaborations Defined

Transactional external collaborations, in contrast, are more operational and short-term in nature. These collaborations typically involve:

• Defined Scope and Duration: Transactional collaborations are characterized by a clear, often narrow scope, and a predetermined duration. The interactions are usually short-term or occur on an as-needed basis.
• Operational Efficiency and Flexibility: These collaborations are often pursued to achieve operational goals such as cost savings, efficiency improvements, or meeting short-term operational demands. Examples include purchasing goods from suppliers, selling products or services to customers, or contracting external service providers for specific tasks.
• Limited Risk and Investment: Compared to strategic collaborations, transactional collaborations usually involve less risk and require minimal investment from the involved parties. The focus is on the exchange of goods, services, or resources rather than on shared strategic outcomes.
• Quick Outcomes and Flexibility: The success of transactional collaborations is often quickly measurable, based on the efficiency, cost, and quality of the transaction. They offer flexibility, allowing organizations to respond rapidly to operational needs without long-term commitments.

Examples of External Collaborations

To help you get a better sense of external collaborations, here’s a short, non-exhaustive set of examples. Remember, depending on the context of the organization, each one of these could be either transactional or strategic.

• ‍Enterprise Sales: This involves the sale of products or services by one company to another large organization, typically characterized by complex, high-value transactions. It includes not only the sale of goods or services but also post-sale support, customization, and long-term service agreements.
• Consulting Engagements: Consulting engagements encompass a wide range of services, including strategic planning, technical consultation, and project management. Businesses engage with consulting firms to gain external expertise, address specific challenges, or manage complex projects that require specialized knowledge.
• Subcontracting & Outsourcing: These collaborations involve a business delegating certain tasks or operations to external firms. Subcontracting usually refers to specific portions of a larger project, while outsourcing often involves transferring entire business processes or functions. The purpose is to leverage specialized skills, manage operational demands, or achieve cost efficiencies.
• Strategic Alliances: Strategic alliances cover a broad spectrum of partnerships, including channel partnerships, market expansion collaborations, and co-marketing agreements. These alliances can involve various forms of cooperation, such as product distribution through channel partners, joint marketing initiatives, or co-branding efforts, all aimed at mutual growth and market penetration.
• Joint Ventures: Joint ventures occur when two or more businesses come together to form a new entity or undertake a specific project, sharing resources, risks, and rewards. These ventures are often formed to enter new markets, combine different sets of expertise, or jointly develop new products or services.
• Research and Development (R&D) Partnerships: R&D partnerships involve collaboration between companies and research institutions, or between businesses, to develop new technologies, products, or innovations. These partnerships combine the research capabilities of academic or research institutions with the practical, market-driven focus of businesses.

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Final Thoughts

External collaboration is defined as the process where independent organizations, such as businesses, government agencies, or non-profits, unite to work on shared projects or goals. As highlighted earlier, these collaborations vary in scale but share a unique feature: while working together towards a common objective, each entity retains its distinct organizational identity and goals. Also, it’s important to note that external collaborations fall into two main types: transactional and strategic. The nature of the collaboration, whether it's transactional or strategic, is often driven by the specific context and needs of the participating organizations.

Understanding this distinction is crucial for organizations. Recognizing how external collaborations differ from typical internal collaborations, as well as comprehending the nuances between transactional and strategic external collaborations, is vital. This understanding allows organizations to navigate and leverage these external collaborations effectively. By doing so, they can align other parties with their immediate operational requirements and long-term strategic objectives, ensuring successful outcomes in a complex and interconnected business environment.