Published Work

Keep Your Business Friends Close and Your Business Enemies Closer

It's not too often that Sun Tzu and Al Pacino in "The Godfather" give the same advice. I have long believed this adage is a wise business strategy: You should not only keep track of what your business partners are doing but what your competitors are doing as well.

We also typically use losing and winning against our competitors as a way to keep score in business. Sometimes, though, you also need to work together with your competitor to achieve a business goal.

Adam Brandenburger in his 1997 book of the same name called this "co-optition." Bill Gates has purportedly referred to it as "sometimes the lambs have to lie down with the wolves." In fact, most businesses practice some form of cooperation with their competitors.

Your company winning doesn't mean that your competitor always loses. Conversely, when you fail, it doesn't mean that you totally lose. A few years back in the movie "A Beautiful Mind," John Nash educated me on game theory where "rational decision makers" are involved in a mix of conflict and cooperation.

The best version of co-optition is where an entire industry gets together to solve industry-level problems. Tom Colberg of the TechParGroup gives the example of Covisint, the automotive exchange that was formed as a joint venture between GM, Ford and DaimlerChrysler.

"The goal of these automakers in forming Covisint was to share the cost of creating an industry utility to Web enable procurement activities, support supply chain e-collaboration and facilitate interactive engineering and design functions via the Internet," he said. "Each exchange member used the exchange to carry out its own reverse auctions, communicate with its own supply chain and connect its own engineering and design teams.

"For obvious reasons, the founders did not combine forces to make aggregate purchases of parts and materials. The availability of this utility made each user more efficient but they continued to compete head to head in the area of design, operations, distribution and sales.

"They cooperated to create an e-procurement capability but continued to beat each other's brains out on the showroom floor. The motive for cooperation was to share cost and the area of cooperation was non-competitive. The result is a persistent and successful venture. Covisint is still in operation three years later because it meets important shared needs of its founders."

Colberg points out that the competition between Microsoft and the Liberty Alliance (led by Sun) in the area of identity management and authentication is another example of co-opetition.

"In this category," he said, "competitors believed it was to their advantage to cooperate in the Liberty Alliance against the larger enemy in their eyes (Microsoft and its Passport product). In order to create a critical mass of resources and users that would have a better chance to compete with what they perceived as the Microsoft juggernaut, vendors who might never have teamed up otherwise got together to develop open standards."

Bill Best at A.T. Kearney warns that "co-optition is very much like alliances rehashed." He has spent a large amount of time in Japan unwinding alliances and joint ventures that did not work. He added: "Essentially, the objectives of the partners tend to diverge over time. The rationale for the alliance tends to fall apart as the objectives diverge. Failure rates are in excess of 50 percent."

Ralph Harrington at AFFICIENT is skeptical that cooperation between competitors ever really works. He added: "Even in the best of circumstances, a business partnership is a marriage without love. It is very, very difficult to get to the alter and more difficult to hold it together. Consequently, for most companies, the math doesn't work."

Lynne Baker at the Illinois Coalition thinks co-optition in Chicago is especially important but she also sees warning signs: "Maybe it's just the lawyer in me but whenever anyone mentions competitors cooperating in the marketplace, the word "antitrust" comes to mind. You are likely not talking about an entire industry of competitors cooperating. The antitrust laws can reach just one or two competitors who decide to cooperate on pricing."

John Banta at IllinoisVENTURES thinks entrepreneurs are in general too concerned about the perceived "risks" of working with their competition.

"Virtually all competitor interaction is worthwhile even if nothing commercially tangible comes of it," he said. Banta concludes that this is particularly true in software and IT where "change occurs so swiftly that today's competitor is tomorrow's distribution partner or acquisition candidate."