The four questions you need to ask to balance external collaboration and risk management

In Darkest Hour there’s a scene in which Winston Churchill is almost begging Franklin Roosevelt for the warplanes that they had ordered, and now desperately needed. It got me thinking about collaboration and about how important it can be for gaining capability; and how badly it can go if we don’t assess the new risks that collaborating entails. I’ll refer back to this scenario throughout the post but please note that for the history buffs, I know I’m not being historically accurate.

Collaboration is essential to doing business – I don’t think this is in dispute (if you’d like to dispute it, I’ll happily debate you). What I don’t think gets talked about often enough is how we should think about the decision to collaborate. All collaboration should be cost-benefit based, with the decision predicated on whether the benefits outweigh the risks.

I’ve found that the frame below a useful way to think about the decision to collaborate with another organisation.

There are four basic questions that need answering:

  1. What benefit is there to collaborating?
  2. What new risks does the collaboration expose us to?
  3. Can you effectively mitigate the risks?
  4. Who has the authority to decide whether the balance is right?

1. What benefit is there to collaborating?

The UK needed planes to fight a resurgent Germany – but should they build them, or collaborate to get what they needed sooner and maybe even cheaper?

Stage 1 must be about quantifying the gain from collaboration. Collaboration is always about achieving objectives cost-effectively. If your organisation can already achieve the objective cost effectively, you don’t need to collaborate. Your thesis should be that collaborating will let you will gain access to information, capability or knowledge at a cost that makes the risks of collaborating worth the organisational gain. The deliverable from this stage should be a cost-benefit analysis.

2. What new risks does the collaboration expose you to?

Getting the planes sooner and cheaper gives the UK more capability, and more reserves to buy more capability if they need it – but what risks will relying on the US introduce?

Collaboration will always expose your business to new risks – so stage 2 should be identifying and quantifying them. New risks will principally come from two places –

  1.  The fact that your counter-party will always have better information about what they offer.
  2. The information you will expose about and from your business while collaborating.

To get this assessment right, you should seek input from experts in all areas of your business. Once you have an accurate risk register, and assessment of the magnitude of harm, you can move on to mitigation strategies.

3. Can you effectively mitigate the risks?

The war winning or losing question – if the US doesn’t deliver the planes when we need them, what do we do?

Once you understand the risks, mitigation measures can be defined. Risk mitigation will look to balance the incentives of involved parties, minimise the amount of information leakage, make sure adequate information about service quality is available, and ensure that adequate backup plans are in place. Once you understand your ability to effectively mitigate each risk, you can then make a call about whether to insure against or accept any residual risks.

4. Who has the authority to decide whether the balance is right?

Get it right – and the UK gets the planes and has the capability it needs to defend itself. Get it wrong, and the UK faces a resurgent Germany without what it needs to defend itself. Who had the authority to risk the future of the United Kingdom on this collaboration?

Someone in the organisation will need to accept the risks of a new collaboration. How high in the organisation they are will depend on the impact of loss. If you know who this person is, you should consider their appetite for risk early on and include that in your early go/no-go decisions. It goes without saying that putting together a great case for someone whose’ risk aversion won’t let you move forward should be avoided.

Conclusion

We all collaborate many times a day without thinking about it. When we go across the boundary of our organisation, the dynamic changes. We should be doing it because there is a cost-benefit relationship that lets us access information, capability and knowledge at far below the cost of developing it. Benefits though are only one side, we need to also consider the risks and whether we are able to take those risks on behalf of our organisation. If you keep this frame in mind, you should get good outcomes.

Does this reflect your view on collaboration and how it should be approached? If not, I’d love to hear from you and understand why.

Author: Karl Melrose

Thinker about how to think about economics, security, risk, technology and incentives. Out to solve every optimising problem, out to make sure my thinking gets better, every day.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s