Co-opetition: When should you buy in?

by in Marketing

pexels-photo-largeApplicants at professional services firm, Deloitte, face an unenviable fate: only about 4% are hired, an admission rate that rivals even the prestigious Harvard University. Before gaining admission to the coveted “Big 4” member, applicants are asked to predict: “What [the] Fortune500 [will] look like 10 years from now?” In assessing responses, CEO Catherine Engelbert is on the lookout for respondents who appreciate the need to “play nicely with others.” She explains, “There’s no way companies can make it on their own. Instead of competition or cooperation, the new business environment is one of “co-opetition.”

The term “co-opetition,” a coalescing of “cooperation” and “competition” can seem paradoxical. It describes a business strategy that involves two or more competing companies working collaboratively for mutual benefit. The potential advantages of the strategy are manifold. Ritala (2011) highlights three primary benefits: 1) to increase the size of an existing market or to create a new one, 2) to gain efficiency in resource utilization, and 3) to improve a firm’s competitive positioning.

More so than ever before, the Fortune 500 landscape of today and tomorrow presents a ripe breeding ground for co-opetition. Key drivers include increased R&D costs, shorter product cycles, and globalization, all of which increase the pressure for companies to pool resources. Perhaps the most powerful driver of all, however, has been the rise of enterprise collaboration software: Google Drive, WebEx, Trello, Slack, Asana, and the like have lowered the barriers to, and friction associated with, collaboration.

With theoretical foundations rooted in game theory, it’s no surprise that co-opetition can result in a zero-sum game – a winner-take-all outcome. Before making your first move in the co-opetition “game,” ensure the cards are stacked right. Ask yourself the following:

1. Is top management involved? 

It starts at the top. Co-opetition is more likely to ensue in a successful outcome if top management is involved. According to Bengtsson and Kock (2000), if top management appreciates that cooperation and competition can exist simultaneously, and communicates this to the boarder organization, the cooperation-competition tension need not be perceived as dangerous. When senior leaders recognize that co-opetition can lead to mutual benefit, employees are more likely to understand its importance and develop ways to more effectively engage in collaboration.

Unilever has a history of succeeding in the co-opetition game. In a recent example, the company is collaborating with Nestle to enhance its packaging recycling levels. The two competing consumer goods companies have launched a two-year project, REFLEX, which aims to improve the recyclability of food packaging. Not surprisingly, Unilever’s bias in favor of co-opetition started at the top. CEO Paul Polman appreciates that, “In areas where big breakthroughs are needed, we must step up joint working with others.”

2. Is there a common enemy? 

A survey conducted at the Harvard School of Public Health found that nearly half of respondents purport to prefer earning $50,000 in a world where the average salary is $25,000 as compared to earning $100,000 in a world where the average is $200,000. Competition is a powerful motivating force.

Co-opetition efforts can be very successful when they entail fighting against a common competitor. This will reduce the likelihood of your co-opetitor pursuing a zero-sum game (because doing so would limit the success of the effort and reduce all co-opetitors’ abilities to exert advantage over the common competitor. If there’s a mutual interest in warding off a common competitor, the motivation for collaboration is higher. Examples abound among Fortune500 companies; Coca Cola and Nestle, for example, in an effort to take market share away from Japan-based Suntory, have collaborated to distribute heated canned drinks in Japanese vending machines. In another example, Toyota has recently partnered with competitor, Uber, to offer leases to Uber drivers. This co-opetition initiative was sparked by similar co-opetition actions of common competitors, specifically Volkswagen’s investment in Uber rival Gett Inc. and General Motors’ investment in Uber rival Lyft.

3. Are you creating something new? 

There are several inherent risks associated with co-opetition. Especially common is the potential for a firm’s intellectual property to be accessed by the co-opetitor and used to gain market share. If a firm is too cooperative and shares critical proprietary knowledge, it’s likely that it will benefit less from the co-opetition effort than its co-opetitor will.

The key is to manage the tension between cooperation and competition. The best means of doing so is to create something new. Since there’s a shared uncertainty in the final output (because it hasn’t yet been created), it’s more likely that both parties will remain committed to the endeavor and see it through to fruition. As well, because no prior intellectual property is shared, both companies are more likely to benefit equally from the engagement. Airline competitors American Airlines and Delta Airlines, for example, have solicited Boeing to help build a next generation airplane. Recognizing that it is less expensive for Boeing to design a new plane for both airlines together than to design a new plane for each of the companies separately, the airline giants agreed to share the development costs. In another example, GE Healthcare and Intel are collaborating to form Care Innovations with the objective of creating new technology-based solutions to help people live independently.

Co-opetition involves a tug of war of sorts between the term’s two component parts, cooperation and competition. Straying too far towards the cooperation side will result in your co-opetitor gaining an unfair advantage. Straying too far towards the competition side will result in a zero-sum game. By asking yourself the questions outlined here, you’ll be able to assess whether you want to buy in or fold from co-opetition game.

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About The Author

Rebecca Hinds
Rebecca Hinds - View more articles

Rebecca Hinds graduated from Stanford University in 2014 with a M.S. in Management Science and Engineering. In 2013, Rebecca co-founded Stratio, a semi-conductor company developing infrared sensors. The company was selected by the Kairos Society as one of the 50 most innovative student-run businesses in the world.