This is one of a 13-part series exploring Cooperation and Collaborative Business Model.
“If you want to go fast, go alone. If you want to go far, go together” – African Proverb
Are you looking for a way to work with others?
As part of our 13-part series on Professional Collaboration, we are going to look at 6 types of collaborative enterprise models over the next 6 articles. The topic of this article is the Consortium.
Consortia have been around for decades. They can be seen in different industries and in both the public and private sectors. We see examples of consortia in the education sector where universities will create a consortium, such as the Five College Consortium in Massachusetts. This allows the partnering schools to pool resources and allows students enrolled in any of the schools to attend classes in any of the other schools at no cost. This provides the consortium with the opportunity to market a more diverse and richer level of course selection in order to attract a larger pool of potential students. An example from the private sector is Hulu, the video streaming service. In order to compete with companies like Netflix, the companies of Comcast, Time Warner, Walt Disney Co, and 21st Century Fox formed a consortium that owns Hulu to leverage their assets and enter a market that would have been too risky to enter alone.
According to the Harvard Business Review, consortia can be used to bring together partners of a similar focus to offer expanded services or to pool resources in order to purchase assets too expensive for an individual entity. They are about increasing competitiveness in a market that is either dominated by major players, mitigating the risk of a new venture, or pooling resources and leveraging assets to increase the growth of the individual partners involved.
How do consortia work?
There are two main models of consortia that are commonly used. The main distinction between a consortium and other collaborative enterprise models is that in a consortium you are creating a legal entity owned by the founding partners that leverage assets to offer a unique service. There are similarities between a Co-operative and a Consortium, but we will touch on that in a later article.
Consortium Model 1: The Super Provider
A Super Provider is a collection of similar, and often like-minded entities that form a legally separate corporation in order to pool resources and leverage each others’ assets to create a more competitive position in a marketplace. This model is most successful when applied to create a new product or service in a crowded or dominated market. An example of a Super Provider is Hulu. As mentioned previously, Hulu is a product of a consortium of media conglomerates created to compete in the video streaming market and rival the industry leader Netflix. This would have been too risky a venture for any of the consortium’s partner companies to take on alone but is manageable through this consortium model.
To pull off this type of consortium, the partners need to stay aligned and ensure that their values, culture, and risk tolerance are compatible, otherwise, there could be friction. Depending on the size and scope of a Super Provider, it could be expensive and time consuming to create. There could be significant upfront costs to get the Super Provider started and the partners will be required to cover the cost until the Super Provider is fiscally solvent.
Consortium Model 2: Hub and Spoke Consortium
A Hub and Spoke Consortium is a collection of like-minded entities that form a legally separate corporation in order to pool resources and leverage each others’ assets to market the partners’ products or services. It may also purchase products or services for the partners to access. The Hub and Spoke Consortium acts as a “Super Contractor” that will subcontract work to the partners or purchase assets (real estate, equipment) that will be used by the partners, without any single partner responsible for owning it. The Hub and Spoke Consortium does not deliver any products or services, nor does it use any of the assets it purchases. This model is most successful when applied to sell combined value-added products created by the partners or for collaborative procurement. Examples of Hub and Spoke Consortium are often seen in real estate. Sometimes a collection of non-profits will look at purchasing a building, however, their funding only allows for them to pay rent. In this instance, they may form a Hub and Spoke Consortium that will purchase the building for them all to share. The consortium acquires the loan or mortgage and the partners secure the loan and pay rent to coverage it.
Like the Super Provider model, to pull off this type of consortium the partners need to stay aligned and ensure that their values, culture, and risk tolerance are compatible, otherwise, there could be friction. If there are major purchases, the partners need to be committed for the long term. Often one of the partners will need to act as a commissioner of the consortium and provide all administrative duties to manage the consortium.
If a collection of businesses, non-profits, or government bodies are looking for a formal partnership model that will allow them to leverage each other’s assets, and to make large gains that would be out of reach to each of them individually, then there is real merit to considering forming a consortium. But before you initiate this type of collaborative enterprise, remember that these are complicated legal entities and could have significant upfront costs.
To learn more about Consortia, contact our team at email@example.com
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