Co-opetition vs Competition
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
Also visit Books-A-Million for an excellent selection of new books, magazines, e-books, audio books and more at low, low prices.
Also visit these related sites:
Co-Opetition Interactive - Learn more about principles of Co-Opetition and the authors, from this Yale University site.
Telexplainer - High speed voice and network technologies explained in simple terms.
Copyright 1998 - 2018 by John E. Shepler. Contact me at: John (at) JohnShepler.com
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First Published: April 26 and May 3, 1998 as part of A Positive Light