Para­doxes of Coope­ti­tion

Business a.m. - - FRONT PAGE - Dovev Lavie & Jef­frey J. Reuer

BUSI­NESS RI­VALRY IS RARELY pure. In­dus­try growth is of­ten de­pen­dent on some level of mu­tual ac­com­mo­da­tion amongst key play­ers. But thanks to the dig­i­tal economy’s over­whelm­ing pres­sure to be all things to all cus­tomers, more ri­vals are re­al­is­ing that they can­not go it alone.

BUSI­NESS RI­VAL RY IS RARELY pure. In­dus­try growth is of­ten de­pen­dent on some level of mu­tual ac­com­mo­da­tion amongst key play­ers. But thanks to the dig­i­tal economy’s over­whelm­ing pres­sure to be all things to all cus­tomers, more ri­vals are re­al­is­ing that they can­not go it alone. To suc­ceed in a grow­ing ser­vice-based dig­i­tal ecosys­tem, th­ese firms re­quire a strat­egy that blends com­pet­i­tive and co­op­er­a­tive ap­proaches – a bal­anc­ing act that has been dubbed “coope­ti­tion”.

The need for coope­ti­tion may be clear, but how to man­age the ten­sions it raises isn’t. Man­agers must clearly de­fine the bor­der be­tween col­lab­o­ra­tive and com­bat­ive be­hav­iours, lest the firm ends up en­gag­ing in one when the other is called for. At the same time, they must al­low enough flex­i­bil­ity for the two-pronged strat­egy to cre­ate max­i­mum value. In a re­cent spe­cial is­sue of Strate­gic Man­age­ment Jour­nal ded­i­cated to the in­ter­play of com­pe­ti­tion and co­op­er­a­tion, we iden­tify

the four main mech­a­nisms by which com­pa­nies can try to mit­i­gate the ten­sions of coope­ti­tion.

Or­gan­i­sa­tional sep­a­ra­tion

Un­der the or­gan­i­sa­tional sep­a­ra­tion ap­proach, firms cre­ate buf­fers be­tween co­op­er­a­tion and com­pe­ti­tion us­ing their or­gan­i­sa­tional struc­ture. This of­ten means that one or­gan­i­sa­tional unit treats a firm as a com­peti­tor, while an­other unit of the same or­gan­i­sa­tion treats it as a part­ner. Think of the am­biva­lent re­la­tion­ship be­tween Ap­ple and Sam­sung: While the two com­pete tooth-and­nail for smart­phone mar­ket share, Sam­sung sup­plies com­po­nents to Ap­ple in such high quan­ti­ties that the Korean con­glom­er­ate re­port­edly stands to reap US$110 from each iPhone sold. This way, sup­ply chain ex­perts from both com­pa­nies col­lab­o­rate while the lawyers and sales ex­ec­u­tives com­pete.

Tem­po­ral sep­a­ra­tion

An­other way to drive a wedge be­tween com­pe­ti­tion and col­lab­o­ra­tion, and thereby re­duce ten­sion in­volves tem­po­ral sep­a­ra­tion. Firms us­ing this ap­proach will try to re­strict their ac­tiv­ity to either col­lab­o­rat­ing or com­pet­ing at any one time, switch­ing back and forth be­tween the two as needed.

Take air­line al­liances. Air­lines did not join th­ese al­liances out of the good­ness of their hearts: they had no choice be­cause their com­pe­ti­tion had been too in­tense in the past. Hence, in this in­dus­try, com­pe­ti­tion was fol­lowed by co­op­er­a­tion. When air­lines exit their al­liances, they re­sume their ri­valry with each other. Most of­ten as they leave one al­liance and join an­other, their for­mer com­peti­tors be­come part­ners, while their erst­while part­ners turn into ri­vals.

Do­main sep­a­ra­tion

A third ap­proach places col­lab­o­ra­tion and com­pe­ti­tion in dif­fer­ent do­mains (e.g. prod­uct lines, geo­graph­i­cal mar­kets or value chain ac­tiv­i­ties). For ex­am­ple, Amer­i­can and Ja­panese man­u­fac­tur­ers can share the costs of earlystage in­no­va­tion by join­ing pub­lic-pri­vate R&D con­sor­tia. Once the pre­lim­i­nary tech­nol­ogy has been de­vel­oped, con­sor­tia mem­bers will com­pete to take it to the mar­ket­place.

This can work if there is suf­fi­cient dis­tance be­tween the do­mains. But when, as of­ten hap­pens, do­mains start to con­verge, the lines blur and ten­sions re­cur. For ex­am­ple, one ar­ti­cle finds that firms serv­ing on stan­dard­s­set­ting sub­com­mit­tees in the com­put­ing in­dus­try co­op­er­ated to agree on the com­mon stan­dards when they ex­pe­ri­enced a high de­gree of prod­uct-mar­ket com­pe­ti­tion. How­ever, they were less co­op­er­a­tive when the tech firms had in­vested heav­ily in com­ple­men­tary prod­ucts or ser­vices that com­mon stan­dards have ren­dered un­nec­es­sary.

Con­tex­tual in­te­gra­tion

A fourth ap­proach, which we term con­tex­tual in­te­gra­tion, re­lies on syn­the­sis rather than sep­a­ra­tion to con­tain ten­sion. Man­agers fol­low­ing this ap­proach wear both co­op­er­a­tive and com­pet­i­tive hats to­ward the same firm at the same time, em­ploy­ing ap­pro­pri­ate mech­a­nisms and or­gan­i­sa­tional rou­tines to main­tain co­her­ence.

While con­tex­tual in­te­gra­tion de­mands a lot more man­age­rial at­ten­tion than the other three ap­proaches, the re­sults can be ben­e­fi­cial for play­ers in nascent in­dus­tries. Based on an in-depth in­duc­tive field study of the U.S. so­lar in­dus­try, an­other ar­ti­cle finds that coope­ti­tion is nec­es­sary but not suf­fi­cient to achieve success in bur­geon­ing in­dus­try ecosys­tems. The best-per­form­ing firms prac­tice a com­plex mix of com­pe­ti­tion and co­op­er­a­tion – “sus­tain­ing the dia­lec­tic ten­sion at the edge of chaos”, as the au­thors term it -- so as to con­cen­trate col­lec­tive re­sources on re­solv­ing spe­cific bot­tle­necks con­strain­ing ecosys­tem growth.

Lessons for man­agers and busi­ness schools

Most man­agers are un­com­fort­able with the con­tra­dic­tions im­plicit in the very con­cept of coope­ti­tion, which is why they pur­sue some form of sep­a­ra­tion to man­age the ten­sions in­volved. As the busi­ness en­vi­ron­ment grows more com­plex, the abil­ity to in­te­grate com­pe­ti­tion and co­op­er­a­tion will be­come a key dif­fer­en­tia­tor for tal­ent. For their part, busi­ness schools should be­gin pre­par­ing stu­dents for a world where success de­rives just as much from strate­gic al­liances as from win­ning the zero-sum game of cut­throat com­pe­ti­tion.

An­drew Ship­ilov is a Pro- fes­sor of Strat­egy and the John H. Loudon Chaired Pro­fes­sor of In­ter­na­tional Man­age­ment at INSEAD. He is a pro­gramme di­rec­tor for Blue Ocean Strat­egy and In­no­va­tion and Growth, two of INSEAD’s Ex­ec­u­tive Ed­u­ca­tion pro­grammes. He is the co-au­thor of Net­work Ad­van­tage: How to Un­lock Value from Your Al­liances and Part­ner­ships. You can fol­low him on Twitter @ship­ilov.

Werner Hoff­mann is a Pro­fes­sor and Head of In­sti­tute of Strate­gic Man­age­ment at WU Vi­enna Univer­sity of Eco­nom­ics and Busi­ness.

Dovev Lavie is a Pro­fes­sor of Man­age­ment at Boc­coni Univer­sity.

Jef­frey J. Reuer is the Guggen­heim En­dowed Chair of Strat­egy and En­trepreneur­ship at the Leeds School of Busi­ness, Univer­sity of Colorado.

“This ar­ti­cle is re­pub­lished cour­tesy of INSEAD Knowl­edge(http://knowl­edge.insead.edu). Copy­right INSEAD 2018

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