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Transcript: Why it pays to keep suppliers out of the loop

Apple works with partners that do not work with each other, leaving the company in a position to aggregate any insights internally.


KARL MOORE – This is Karl Moore of the Desautels Faculty of Management at McGill University, talking management for The Globe and Mail. Today, I am delighted to speak to Insead's Andrew Shipilov [an associate professor of strategy at the international business school based in France].

Andrew, you have been doing some interesting research on collaboration. What are some of your key findings in your most recent research?

ANDREW SHIPILOV – A lot of research in the past has been looking at how firms become more creative as a result of what is happening inside of the firm, but we have actually done a lot of research linking a firm's creativity and innovation to the external networks that the firms build – and more specifically, the networks of alliances and partnerships which they have to their key collaborators.

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The key findings in a lot of studies that me and my colleagues have done, looking at the sources of the firm's success and sources of the firm's innovation, is that the structure of network ties which they have to partners really matters.

There are two kinds of ties, or two kinds of networks, a firm could have. One of them is a hub-and-spoke network, which is a network where you work with partners who don't work with each other. In this kind of configuration, you actually draw a lot of insights from different partners, you aggregate those insights internally, and you use those insights to get breakthrough innovations.

Another alternative could be something which we will call an integrated network. An example of an integrated network, for example, would be Toyota, where they work with a lot of partners who work a lot with each other. From this kind of network you can implement ideas, you can get incremental innovation, but you don't really get radical innovation.

The reason you don't get radical innovation from integrated networks is because, when the partners work with each other, everybody knows what everybody else knows and they all have the same information inside that network. This information, which is called information redundancy, leads you to make incremental improvements and process improvements, but radical innovation is more apparent in the hub-and-spoke networks.

In fact, if you think about the most known company with a hub-and-spoke network, it's Apple. Because you wouldn't even know, as a partner of Apple, who the other partners are, because they don't want you to work together, they don't want the partners to work together to understand sort of where Apple is going into the future.

Another company which has a fair bit of a hub-and-spoke network is Samsung. If you look at Samsung's network map, you would see they have collaborations in a variety of different industries. They are working, for example – Samsung Electronics has partners in telecommunications, it has partners in nanotechnology, it works with Kia Motors to embed Samsung products in cars, it also works with the Russian government to manufacture 4G equipment in Russia, it also works with makers of LCD panels, it also works with firms to learn how to make and transmit 3D movies and 3D signal over the air.

You can actually see that all of those collaborations, with different kinds of partners who don't normally work with each other, provide Samsung with something we call network advantage – that is the ability to outcompete their competition using and relying on their networks of ties.

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