In the quest for higher performance, what company can ignore the benefits of partnering with business specialists and of outsourcing noncore activities to focused providers? The virtues of business collaboration are clear: innovation and efficiency. Most companies seem to think that the right way to structure outsourcing is equally clear: tightly managing, across corporate boundaries, the process of producing and delivering products or services. Yet most companies also admit that such arrangements involve trade-offs. Tightly coupled processes are often inflexible. Problems with key suppliers—for instance, a plant fire that forces unanticipated delays in the shipping of products—can be crippling.

We believe that executives settling for these trade-offs have made a mistake. Companies at the cutting edge of process management handle critical cross-company processes as though they were networks rather than production lines. For core operating processes such as the management of supply chains and customer relationships and the development and commercialization of products, these cutting-edge companies have swapped their tightly coupled processes for loosely coupled ones, thereby gaining much-needed flexibility and improving their performance in the bargain.

Most companies hold fast to a strong managerial preference for controlling their activities tightly

Companies have started to unbundle their corporate structures,...