Use Co-opetition to Build New Lines of Revenue

February 11, 2014 Editor 0

Examples of high-profile failed business collaborations are everywhere. From the WordPerfect-Novell acquisition that led to bankruptcy, to the misfires of the Target-Neiman holiday experiment, it’s clear that despite the plethora of management literature on how to launch a successful partnership, collaborations often go bust. It turns out, where there is money to be made, self-interest prevails, thus trumping cooperation in the process.

Traditional collaborations fail because deep down, stakeholders assume their success must come at others’ expense, which is clearly a zero-sum game. The way forward is co-opetition, in which entities in the same industries act with what everyone recognizes as partial congruence of interests.

As management professors Adam M. Brandbenburger and Barry J. Nalebuff have written in their book Co-Opetition, businesses that form co-opetitions become more competitive by cooperating. For example, LinkedIn co-founder Reid Hoffman, who practices co-opetition by partnering and competing with headhunters, said in a New York Times article, “[No] one can succeed by themselves. The only way you can achieve something magnificent is by working with other people.  There [are] lots of co-opetitions.”

Unlike traditional collaborations, instead of coming together to do something and pretending you’re not competing, co-opetition leverages your competitor’s strength in order to thrive together. Recruiters use LinkedIn to find prospective candidates and employment opportunities, and, in order to increase product-users, LinkedIn relies on recruiters to use their professional networking platform — while each group would surely like a greater percentage of the recruitment pie for themselves, the pie as a whole is larger because of the involvement of both. So – how do you protect your own interest while cooperating with your competitors in order to create (and maximize) value?

Agree to share information. Sharing information and expertise is a great way to build trust with your competitors. One example is a Memorandum of Understanding (MOU), a non-legally binding partnership, like the one Ford entered into with Toyota. They’re now talking about joint ventures to develop a lightweight-hybrid truck.  In order to avoid getting burned, they’re taking it slow. As with any relationship, as it progresses you’re inclined to share more. When information-sharing is profitable for both partners, you can see some pretty strange bedfellows. For instance, Microsoft and Apple developed a partnership that stunned the tech community, Apple licensed their mobile “look-and-feel” patents to Microsoft, but they have an anti-cloning agreement. Apple makes money through licensing and Microsoft gets help in their mobile development department. Developing memorandums or licensing patents are only some examples of how sharing information with competitors can link to greater success down the line.

Focus on building something new. Co-opetitions work especially well for businesses that create the “latest- and-most-gadgeted” technologies and innovations because R&D is expensive. For example, in the airline industry, American Airlines partnered with Boeing to retrofit“76 Next Generation 737s.”If these firms had not embraced the idea of working together, they would not have the fiscal resources and manpower to renovate and build new airplanes. When creating an expensive technology or service, go to your competitors and say: “We both make X, but we have limited resources, however. Your company is awesome at doing A. My company is awesome at doing B. If we configure AB, instead of just creating X, we can create X².”

Choose partnerships where you each bring something different to the table. Bartering with a similar company – but not one that’s too similar — is the best way to leverage and create win-win relationships. For example, online retailer Wayfair (disclosure: I used to work there) partnered with Amazon to leverage their brand recognition to increase sales conversions — and in turn gave them a cut of the profits. While Amazon and Wayfair are competitors, in this deal they both profit. In another example, Peugeot Citroen will supply Toyota Motors light-weight trucks to sell under the Toyota brand in the European market. Toyota, which had recently discontinued its own European light truck, will still have an offering for its customers, and Peugeot Citroen will have a market for its technology.

Businesses must account for the self-interest of others. In a traditional collaboration, you’re getting 1+1=2.  In many circumstances, forming co-opetitions is better than traditional collaborations because they create transparency about motivations, agendas, and goals. So instead of asking, “What’s in it for me?” or “What’s in it for us?” … ask your competitor, “How can 1+1=3?”

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Categories: HBR, Insights

Tags: competition, Competitor analysis