As global markets become more complex, companies are increasingly pursuing collaboration to unlock value chain efficiency and agility. From joint demand planning to asset sharing, companies are seeking to unlock cross-firm economies of scale and scope.
A key challenge preventing systematic collaboration is one of participating companies taking opportunistic, zero-sum actions during ambiguously defined scenarios and situations that can undermine long term success.
Surprisingly, historical lessons from Medieval Trade can provide a non-traditional venue for insights. 11th-13th Century merchants engaging in global spice trade faced similar collaboration challenges:
They rely on broad range of partners to achieve value. For example, an Egyptian cotton merchant must rely on her local agent’s demand planning insights in Avignon to optimize pricing in the French market.
They operate in an environment where legal contracts were even more inadequate than today for driving optimal partnership behavior. The above Egyptian merchant lacked capabilities to monitor French market conditions (i.e. contract monitoring). In addition, international litigation courts were almost non-existent (i.e. contract enforcement).
Despite these challenges, collaborative partnerships in Medieval trade flourished. Based on historic records, various merchant groups (e.g. Maghrebi traders in Egypt, Italian merchant guilds, etc.) employed reputation referencing networks for encouraging win-win collaboration behaviors.
Non-Anonymous Reputation: The Medieval coalition relied on reputation “social” network as an alternative and supplement to contracting. Under this arrangement, network members are obliged to share referencing information about past and current partners with fellow members. Thus, member firms embarking on a collaboration effort must balance the temptation to act opportunistically in the near term against the impact of a tarnished reputation on securing favorable future transactions and partnership opportunities. As more firms join the network, reputation referencing becomes an increasingly strong incentive for driving long term commitment behaviors.
A formal or even informal industry reputation network can provide strong incentives to rally internal stakeholders and external partners to commit to win-win value creation over near term zero-sum games. Building a reputation network in today’s market context would likely require an industry agreed upon reporting standard, managed by an impartial 3rd party distributed broker.
Michael Hu | BCG 