A novel approach
BY ROSS FOTI PHOTOGRAPHY BY MIKKO LEHTIMÄKI
Annika Tidström, Researcher, Department of Management and Organization, Swedish School of Economics and Business Administration, Vasa, Finland
Traditionally, business growth means cannibalism: Acquire the small guys, and merge with the rest. However, a different mindset now has emerged within the global business community. “Companies have realized that every competitor is not necessarily an enemy that you have to conquer and destroy,” says Annika Tidström, researcher, Department of Management and Organization, Swedish School of Economics and Business Administration, Vasa, Finland. “Competitors are sometimes called friends and colleagues.”
Instead of fighting for business and guarding secrets, companies within the same industry—often with products that vie directly for consumer dollars—come together to share ideas, work through industry problems and strategically plan market direction. The business model is called coopetition, an amalgam of the words competition and cooperation.
Companies within the same industry are sharing ideas through a coopetition business model.
The four basic types of coopetition are knowledge exchanges, collaborative research and development, standards-focused market alliances and business integration.
Avoid conflict by setting solid ground rules. Decide how knowledge will be captured and shared.
To gain benefits, a company's leaders truly have to know their business and buy in to transparent information sharing.
The idea for coopetitive relationships grew out of the need for companies to develop stronger value propositions for customers. “Companies are finding it increasingly difficult to compete just on price, so many are trying to put their products together with complementary products,” says James Champy, chairman of consulting for Perot Systems, Plano, Texas, USA. “Also, a lot of small companies have interesting products and services but no robust channels to the marketplace. Companies like Pfizer consistently create alliances with other firms to bring products to market that [those firms] develop.”
More executives are realizing the strategic benefits of coopetition—how these relationships can help shape project portfolios. “If you're truly collaborative, there's an opportunity to learn more about the market you're in, how it behaves and the true value of your product or service in that context,” Champy says. “When you have open and transparent communication, your own strengths and weaknesses become more apparent.”
Uncertainties about emerging technologies—and the associated risks—also have pushed rivals together. These competitors manage uncertainty by sharing resources and spreading risk among all involved, says Francesco Garraffo, professor in the Department of Business Economics & Management at the University of Catania, Catania, Italy.
Garraffo describes four basic types of coopetition: exchanges of patents and knowledge; collaborative research and development activities; market alliances for setting new standards; and collaborative agreements for businesses integration. The motivation for every type is the same: profit. By working together to brainstorm opportunities and innovative ideas, teams eke more out of development efforts—maximized resources, strategic investments and better visibility. A good example is a global consortium, which includes Hitachi Ltd., Mitsubishi Electric Corp., Royal Philips Electronics and Sony Corp., that aims to set DVD as the technological standard in the home video industry.
Swedish School of Economics and Business Administration, Vasa, Finland
However, coopetition has its caveats. Sometimes it spawns new rivalries, as some competitors form relationships because another “network of innovators” is cooperating to develop a competing technology. Take a look at Symbian Ltd. (led by Nokia) and Microsoft Corp., both seeking to dominate the mobile wireless market. Each group formed independently around strategic needs. Only time will tell which network will be victorious.
The model works best within technology- and new-product-development-focused industries such as electronics and pharmaceuticals. “So many companies overlap in different technology spaces. If you can get them into a coopetition mode, discussing solutions, their commonalities provide for innovative solutions rather than them defining themselves into a narrow trench,” says Susan Duggan, chief executive officer of Silicon Valley World Internet Center, Palo Alto, Calif., USA. “Once you get beyond a territorial intellectual capital mindset, the sooner you get to innovation. You become OK with coming together with your competitors and sharing ideas across the table.”
Duggan says these meetings don't generate just intellectual capital, but also relationship capital. “At the end of the day, these are individual people coming up with ideas and making the decisions,” she says. “If they can share ideas and be open enough to move that dialogue forward, it will be cost- and time-effective.”
How It Works
There really isn't any precedent that says small or large companies will be more successful in this sort of relationship. “In Finland, a group of small companies within the same industry may apply for governmental support to increase exports by cooperating with each other,” Tidström says. “My experience is that coopetitive pairs often consist of larger companies, while coopetition between small companies often is based on a group of companies.”
The one certainty: There will be conflicts without proper ground rules. Overall, the coopetitive setup will determine productivity and pain. “It might be easier to handle potential conflicts if there is a third party involved that can act as an unbound negotiator,” Tidström says. “If there is not a third party involved, one of the companies may naturally take on the role as the ‘leader of the pack’ because it has the greatest interests in the coopetitive relationship, the strongest vision for the relationship, or a managing director that is a good communicator, active and committed to the success of the relationship.”
If you can get [companies] into a coopetition mode, … their commonalities provide for innovative solutions rather than them defining themselves into a narrow trench.
Susan Duggan, Chief Executive Officer, Silicon Valley World Internet Center, Palo Alto, Calif., USA
Future-thinking companies focus on the triple bottom line: environment, people and profit. The drive for “corporate citizenship” puts coopetition in a whole different light, as companies work across industries to better society. Just ask Ed Taylor, who's transitioning from his position as revenue generation officer with not-for-profit Canadian University Services Overseas, Calgary, Alberta, Canada, to a private sector position in Global Community Development with Canadian Rockport Homes, Vancouver, British Columbia, Canada.
Ed Taylor, Global Community Development, Canadian Rockport Homes, Vancouver, British Columbia, Canada
Companies that are looking at the long-term profit and social impact are starting to work more closely with developing countries to build schools and roads.
“If people are operating only within a single bottom-line environment, the public is more jaundiced about dealing with them,” Taylor says. “There's a really strong business case for social responsibility. The consumer is expecting more, especially since the big fraud cases.”
This issue has come to the forefront especially as more firms race toward global markets. “Those companies that are looking at the long-term profit and social impact are starting to work more closely with developing countries to build schools and roads,” Taylor says. “Part is fear, another part is realism. There's a sense that we need to work with each other and search for solutions together.”
Executives have to believe they can achieve more customers, sell more products or services and sustain a distinctive advantage in the marketplace.
Chairman of Consulting, Perot Systems,
Plano, Texas, USA
Before embarking on a coopetitive path, a company's leaders must take a good, hard look at pros and cons. Most executives don't thoroughly consider the real value proposition and how it will relate specifically to them, Champy says. “Sometimes companies need to sell their product in the marketplace in completely different ways, and that's not taken into account,” he says. “There isn't the appreciation that a ‘products’ company sells differently than a ‘services’ company. Products companies sell features, and services firms sell capabilities.”
Executives must have a good knowledge of core competencies. Before seeking partners, executives should ask:
On what terms do we compete, and what specific activities are to be included in the cooperation?
What is expected of each company?
How will the revenue be divided?
What if a conflict arises? What if somebody breaks a rule?
Can we wholeheartedly trust the company/companies that will be our partners?
Do we have enough knowledge about their strategies, goals, intentions and visions?
How are we going to relate the cooperation to our stakeholders?
Now in Session
If leaders hold knowledge too dear, meetings won't be fruitful. You can't hide how you operate and what you really believe as a company. “The major players have to be willing to come to the table openly and put aside some of their parochial interests,” Champy says. “If I look at some of the industry efforts of the last years, they've failed because of the dark side of coopetition. If the benefit wasn't big and clear, the group at the table would splinter. If the big players don't see their interests addressed, they won't support coopetition.”
Leaders also must understand how the information resulting from these sessions will affect projects already in progress. “Coopetition has to be seen as part of the strategic thinking—it can't be a bolt-on,” Champy says. “Executives have to believe they can achieve more customers, sell more products or services and sustain a distinctive advantage in the marketplace.”
And while a company can gain quite a bit of intellectual capital, it takes money to make money. “You have to be prepared to move some of the resources from current efforts and put them into these,” Champy says. “The only way you're going to get money to go after customers and markets is to stop doing some things. In the past 10 years, companies have tried to do too much. Companies go on to the next idea and never stop doing the past stuff.”
Coopetition also applies to relationships within companies, according to Ed Taylor, revenue generation officer with Canadian University Services Overseas (CUSO), Calgary, Alberta, Canada. “We are all sharing resources in terms of our work environment—the way we treat each other and the connection between sales and service between third-world country partner organizations and Canadian volunteers. A coopetitive relationship in the workplace means more team building, greater transformational efficiency—not simply getting ahead.”
Three keys to a more constructive work environment:
Create the value base. Get leadership and staffers together to discuss what the company is about. “If you want to build for the long term and feel good about what you're doing while building profit, then you're going to be more successful,” Taylor says.
Keep relationships open and make them workable. “Sensitivity to the needs of others will lead to greater commitment and productivity,” Taylor says. “Senior executives must seek support just as well as anyone in the trenches.”
Maintain quality. “There have to be good checks and balances—that's where bottom line comes in,” Taylor says.
PLUS AND MINUS
While a committed investment is a must, coopetition doesn't necessarily strain ongoing projects, according to Tidström. “[The focus of coopetition and ongoing projects] may involve totally different activities and resources, and thereby the constraint is minimized,” she says. “On the other hand, coopetition and ongoing projects may conflict if simultaneous resources and activities are needed at the same time at the same place. What may help to avoid these kinds of situations are planning—financial and time-based—and flexibility.”
It's imperative to decide how to capture and share knowledge between companies, departments and individuals. “It may be easy to cooperate with a competitor because you have similar products or market knowledge, but this similarity may also give rise to conflicts because it is hard to draw a clear line between cooperation and competition,” Tidström says. “Another danger is the potential of undesired knowledge leakages that the competitor can benefit from.”
Uncertainties about emerging technologies—and the associated risks—also have pushed rivals together.
Francesco Garraffo, Professor, Department of Business
Economics & Management,
University of Catania, Catania, Italy
Trust is paramount; decision-makers must choose the right people to sit at the table. “Not everyone walks in and loves everyone,” Duggan says. “There's a competitive side. While you're in these discussions, you're picking up how far ahead your competition is. That's part of the payoff. You may realize you need to wake up and pay more attention.”
In brainstorming meetings, participants must put back as much information as they take off the table or risk a culture of distrust. “For coopetition to work, the gloves must come off at the door,” Duggan says. “The return is that you take the ideas home and use them as you want. If everything's up for grabs, it makes people feel at ease and less guarded.”
Stand to Gain
Like any business risk, no one can foresee exactly how a coopetitive agreement will work out. Leaders must define appropriate and unacceptable behaviors—with connected penalty clauses—and progressively earn trust.
However, the value can outweigh the risk. “Ultimately, great companies share their knowledge and their wisdom,” Champy says. “If you study General Electric in its willingness to share about its Six Sigma efforts and process design efforts, you'll see they're willing to tell everyone. Historically, then they go on to the next big idea. If you look at Intel, they don't keep secrets. Great companies over time give away their best ideas and move on.”
When you strip away the layers separating you from your competitors, what truly differentiates you from the rest of the field? “You stay competitive by being highly innovative and superb in execution,” Champy says. “Project and program managers are the way to do that. Execution is the differentiator.” PM
PM NETWORK | JUNE 2004 | WWW.PMI.ORG
JUNE 2004 | PM NETWORK