Co-opetition vs Competition When Cooperating With Your Competitors
is Good Business Strategy
By: John Shepler
There is an odd but effective business
principle that goes by the name co-opetition. It's a combination
of cooperation and competition that offers the counter intuitive
possibility for rivals to benefit from each other's seemingly
competitive activities. In short, there are circumstances where
having more players to cut the pie means bigger pieces of pie
for everyone. That's co-opetition.
That's not the way most of us learned to deal
with the world. We've been taught that to get anywhere you need
to be a player, and players are competitive. After all, there
is only so much to go around. You'll have to fight to get your
share of the economic pie. You have to dive in there and get
your piece of that pie before there's nothing left but crumbs.
Worse yet, it's a shrinking pie. The pieces are getting smaller
and harder to come by. Reach in. Grab a slice and run before
someone mugs you and takes even that away.
This is competition. It has winners
and losers. We've all watched the Olympics. Anybody can see that
there is only one tallest podium for the gold medal and two shorter
ones for the silver and bronze. After that it's nothing. Just
the anonymity of the also-rans, those who didn't make it to the
top and now fade into obscurity. Losers.
Who is your competition? Everyone. Well,
at least everyone who is after the same things that you are.
Remember the pie and the medals. You have to get there first
and strongest. If you can't do that, you at least have to find
a way to hold everybody else back. Business is sometimes referred
to as war, with the metaphors of war: "killing" the
competition, "beating" them bloody.
Now we all know that life isn't pure
competition. If it were, the stress would kill us at an early
age. We wouldn't get very far either, with everyone fighting
everyone else over every little issue. We'd soon starve...if
we lived that long. No, there is another side to relationships
called cooperation. Call it family, call it friendship, call
it mutual support. We get together in groups to do those things
that are larger than one person. We design airplanes, build roads
and play basketball in teams. We gladly help others to win because
we know that when they win, we win too. How could a basketball
team ever win a game if every player who got the ball hogged
it to themselves and took whatever shot they could? No, it's
the team score at the end that matters and determines who wins
the game. If our team wins, we all win. If their team wins, they
all win and we all lose. Or do we?
What if one team were allowed to exercise
the full wealth of whoever owned them. Say they had billions
of dollars at their disposal for player salaries, facilities,
broadcast rights, and so on. All the other teams would have some
small fraction of this to spend. Wouldn't this one team now become
the greatest contender of all time? They'd hire all the best
players and soon be the undisputed champions of the league. Wouldn't
people flock to see this winning phenomenon in action week after
week, year after year?
Well, not for long. You see, what fans
want is a game not a sure thing. This "super team"
would destroy the game by winning all the time. It is actually
in their best interest when the other teams win, because that
creates the excitement that draws people into watching the next
game. The competitors are really allies in the larger sense of
creating a business that continues to generate revenues to pay
those big salaries. All players are winners because they get
paid generously to play a game they love, and also have a chance
of winning more games than they lose and even becoming an individual
"star player."
You see the same thing in retail stores.
Having many car dealers or antique stores in close proximity
actually helps business for all because people know they will
have a great choice when they drive to this shopping "center."
In the case of the antique dealers, you might find a table at
one dealer, chairs at another and a lamp at still another. No
one dealer gets all the business, but they all benefit from selling
items that make up a set or collection. The individual pieces
might otherwise sit unsold.
So, is your competitor your friend or
your enemy? It's a little hard to sort out isn't it? Let's get
back to the notion of a pie again. Pies are always a certain
size or shrinking, right? No, you can always make more pies.
Consider the computer pie. In the fifties, the pioneers in computing
thought there might be a market for just a handful of computers
in the entire world. The big names, IBM and Univac, were in a
fierce competition for that small, but lucrative pie. Then along
came some unknowns named Digital Equipment Corporation and Data
General. They created another pie known as the minicomputer.
This pie was in addition to the mainframe pie, not in place of
it. Somewhat more recently, the biggest pie of all, the personal
computer industry, popped up suddenly and out of seemingly nowhere.
Are any of us not installing a mainframe or minicomputer in our
homes because we bought a PC instead? Of course not. We're part
of a market, a pie if you will, that didn't exist until very
low cost hardware and software became available.
Nor do we have to fight over the pie.
Even if there is one and only one pie on the counter and two
people who want it, there is a way for each to get more than
half? There is? Oh, yes. What if one person preferred filling
and the other preferred crust? Cut the pie so that one piece
has most of the filling and the other has the lion's share of
crust, and each party will think they got the best of the deal.
Consider this. Are United and American Airlines competitors
or allies? The instant answer is "why competitors, of course."
That's true. When it comes to passengers, landing slots and airport
gates, they are rivals seeking pieces of the same limited pie.
But, when it comes to building new aircraft, they assume a different
role. Both airlines are now complementors of each other's business
because together they create a larger pool of potential airplane
sales for Boeing. Where there is sufficient demand for a new
type of aircraft, then the development costs that run into the
billions of dollars can be justified. Both airlines benefit from
the combined marketplace that they mutually create.
How about in the defense arena? Wouldn't you say that each
of the big defense programs competes with all others for our
tax dollars. In a sense they do, when the time comes to pick
and choose for limited funds. Yet, a program such as the F-22
fighter benefits from other defense programs that shared common
development activity. Examples are avionics and navigation. If
any of those programs had been killed, the fixed and overhead
costs that were supported by both would have been carried by
the F-22 alone, which still needs those systems to fly. The result
is that fewer fighters would built because they now appear to
cost more per plane. Sometimes an apparent cost savings in one
area can cause havoc and higher costs in another. In industry
as in drama, it really is a tangled web we weave.
These paradoxes can be better understood through something
called a value network, as described in the book "Co-Opetition"
by Adam M. Brandenburger, Ada Brandenberger; and Barry J. Nalebuff.
Co-opetition is the delicate balance of cooperation and competition
that describes many business relationships. A value network,
or Value Net, is a map that helps visualize the tangled web of
interconnections in the game of business.
Imagine drawing a square on paper. The top side would be labeled
"customers." The opposite side, the bottom, is labeled
"suppliers." The left side is "competitors"
and the right side is "complementors." Right in the
middle is your "company." Now, draw lines from your
company to each of the four sides and also lines from each of
them to the adjacent others. With this schematic in hand, we're
ready to understand the relationships involved.
"A player is your complementor if customers value your
product more when they have the other player's product than when
they have your product alone." Most people, especially new
buyers, are more inclined to buy a computer that comes with software
than one that doesn't. Oscar Mayer hot dogs and Coleman's mustard
also complement each other, not compete for the same dollars.
People like hot dogs with mustard more than they like plain hot
dogs.
"A player is a competitor if customers value your product
less when they have the other player's product than when they
have your product alone." Coke and Pepsi go head to head.
So do American and United for passengers. Telephone and cable
TV companies have been complementors in sharing the cost of poles
to run wires to the same houses. Soon they'll be fierce competitors
for Internet access and even telephone service. Companies in
completely different industries, such as Microsoft and Citibank,
might become competitors as the world shifts to electronic commerce
where each might have a strategic advantage.
Suppliers also figure in this dual role in that other companies
are complementors if it is more attractive for someone to supply
you when there are also other players in the game, than if you
are the only one buying. Remember new aircraft development? New
microprocessors are also more attractive to develop when there
are lots of companies making personal computers than only a few.
Electronic parts are cheaper when there is a huge demand, although
preferably from a non-competing product.
A company is a competitor when it is less attractive to supply
you when there are other people buying. When gasoline is in short
supply, the last thing you want to see is more competing cars
on the road, if you are a driver. Although, you also know that
without millions of cars, there would be no superhighways and
that service stations would be fewer and farther between.
It is a complex web we weave, isn't it? Relationships, personal
or business, can be hard to sort out and often are not so clearly
defined as complementary or competitive. They are both. As Brandenburger
and Nalebuff describe, it's not War and Peace as Tolstoy wrote
of the endless cycles of war followed by peace followed by more
war. It's war and peace at the same time. That's the strange
world of co-opetition.
Books of Interest:
Co-Opetition by Adam M. Brandenburger; Ada Brandenberger;
Barry J. Nalebuff. Now available in paperback, with an all new
Reader's guide, The New York Times and Business Week bestseller
Co-opetition revolutionized the game of business. With over 40,000
copies sold and now in its 9th printing, Co-opetition is a business
strategy that goes beyond the old rules of competition and cooperation
to combine the advantages of both. Co-opetition is a pioneering,
high profit means of leveraging business relationships.
Intel, Nintendo, American Express, NutraSweet, American Airlines,
and dozens of other companies have been using the strategies
of co-opetition to change the game of business to their benefit.
Formulating strategies based on game theory, authors Brandenburger
and Nalebuff created a book that's insightful and instructive
for managers eager to move their companies into a new mind set
Now we all know that life isn't pure
competition. If it were, the stress would kill us at an early
age. We wouldn't get very far either, with everyone fighting
everyone else over every little issue. We'd soon starve...if
we lived that long. No, there is another side to relationships
called cooperation. Call it family, call it friendship, call
it mutual support. We get together in groups to do those things
that are larger than one person. We design airplanes, build roads
and play basketball in teams. We gladly help others to win because
we know that when they win, we win too. How could a basketball
team ever win a game if every player who got the ball hogged
it to themselves and took whatever shot they could? No, it's
the team score at the end that matters and determines who wins
the game. If our team wins, we all win. If their team wins, they
all win and we all lose. Or do we?