Enterprises conduct most of their business processes internally to limit transaction costs and keep intellectual capital confidential, but also partly out of habit. Those processes that sit outside the enterprise are typically outsourced and paid for at market rates. This is good for some activities but a third way exists that has significant advantage in some areas: external collaboration.

External collaboration differs from outsourcing in that it involves a mutual exchange of value. Instead of one party paying another, each partner brings assets and capabilities to create new forms of value — for example, by serving customers more fully, reducing time to market or stimulating more innovative products.

This differs too from the more traditional form of collaboration. In traditional, static collaborations, a small group of contributors works to achieve a specific value goal, such as reduced inventory in the overall industry supply chain. In more recent, dynamic collaborations, the number of participants is often larger, changing over time, and the sources of value may also grow and change. An extreme example of this is the open source software development community, involving millions of people in a growing number of software initiatives.

External collaboration is not without its pitfalls. It is harder than working internally, so it needs a significant trigger. There are two types of triggers that prompt enterprises to rush into each others' arms to collaborate. The first is that enterprises become aware of an opportunity to create value that they can contribute to, but cannot reach alone. The second trigger is when an enterprise realizes the internal processes or value chain is "stuck" in an inefficient mode and needs an external kick-start, often, but not always, in the R&D area.

Much of the current academic literature on collaboration is very positive, but the truth is that collaborating outside familiar territory is fraught with difficulty and prone to failure. External collaborations face cultural, legal and technical issues in an environment with complex leadership and governance mechanisms, and where trust is often a scarce commodity.

So does the CIO have any role to play in this? At a minimum, the CIO must provide the technical underpinning needed for the collaboration to work well. There are also increasing opportunities for CIOs to experiment with, and influence the enterprise to take advantage of, new collaboration models, many of which rely on new tools and uses of the Internet. This is especially so when the participants are numerous and diverse, and the role of technology in coordinating efforts and outcomes is therefore larger. Dynamic collaboration requires eight success conditions. In each part of the internal value chain, there may be opportunities to collaborate externally to generate value.

• In R&D, the driver of external collaboration is normally to introduce radical innovation. Other common benefits are productivity and quality improvements, and reduced time to market.
• In the core manufacturing and operations of the enterprise, collaboration is often used to improve productivity, quality and efficiency.
• In distribution, there may be opportunities to improve efficiency and control through tighter collaboration with partners, as well as improving customer service levels and reach.
• In the sales and marketing space, the main benefits of collaboration are normally reaching more customers and markets, and servicing those customers more fully.
• Finally, there are opportunities to collaborate in completely different spaces from existing business operations.