Why Your Company Should Partner with Rivals
There’s a flawed belief that your only ‘friends’ in business are the enemies of your enemy. At one time, this axiom held true. But in today’s interdependent world, this flawed belief is proving a thorn in the balloon that would otherwise raise many companies’ future commercial success. Indeed, the true paradox that smart, trailblazing companies are solving is how to outperform their competition by collaborating with their competition. Here’s how and why this matters to you.
Recently the CEO of a very well known consumer brand nearly scared the wits out of me. His company is quite respected in the sustainability community both for its progressive social equity policies and for green technology that limits the environmental impacts of his company’s manufacturing activities. So I asked: Do you foresee a time when you’d willingly provide access to your leading green technology to your competitors? His blunt response: No.
What scared me was not the answer itself — it’s indicative of conventional logic. If you have a competitive advantage, you generally don’t share it with rivals. Rather it was the forcefulness with which the answer came forth. While the answer was simply ‘no’, the manner it was delivered said ‘There is no way my answer will ever change.’ That’s unfortunate for this company’s shareholders. This company is investing in bio-fuel facilities that turn the waste culled from the materials it consumes into useable (and thus ‘free’) material that it then feeds to its bio-fuel facility via its green manufacturing technology.
If the company did share access to its revolutionary technology with its competition, the company would gain financially in at least two or three ways.
First, the company would increase the amount of free source material for its bio-fuel facility, which would lead to lower per-unit cost of bio-fuel energy, expediting a positive return on its investment.
Second, the company could decide to charge its competition for access to its proprietary green technology, leading to a new revenue stream. That strategy could be especially effective if the company priced access at the point just below the competitions’ ‘go/no-go’ price for developing similar technology.
Third, the company could earn goodwill from the local communities in which it manufactures its products.
There’s a fundamental belief about competition that is becoming obsolete. The basic goal of competition — companies need to out-compete in order to out-perform — is now holding back companies from financial success, such as the protected one described above. It is true that this axiom has long enriched companies that showed they were different from their competition in ways that matter to consumers and then consistently delivered this differentiation. But it also over-emphasized the importance to companies of ‘going it alone’.
The thinking behind this axiom began to be challenged in the mid-1990s, with the publication of smart, highly-regarded competitive strategy books, such as Co-opetition by Barry Nalebuff and Adam Brandenburger. By translating game theory into pragmatic business strategy, Co-opetition cleverly showed companies a new path to revenue growth: It’s better to own 20 percent share of a $10 billion market than it is to own 75 percent share of a $2 billion market. This insight shaped and informed venerable brands’ efforts to collectively develop new geographic markets while maintaining their competitive differences.
Stakeholders are scrutinizing the ways companies deliver value to consumers. Their voice, and therefore impact, is amplified by critical mass adoption of social media as a shaping influence over individuals’ decisions. As a result, companies are being held accountable for the ways they manufacture their products. Therefore it’s time to extend the concept of game theory to upstream activities too.
Consider Nestle Waters North America (NWNA), the owner of bottled water brands such as Poland Springs. The company’s financial success is in part dependent on collecting and re-using as much recycled plastic as possible. But in the US less than 30 percent of used plastic bottles are collected from consumers. The other 70 percent winds up in landfills. If the industry can collect and process enough post-consumer plastic, it can drive the cost of manufacturing recycled plastic bottles below virgin plastic bottles, reducing costs for all involved. So NWNA is building a consortium of rivals to develop an alternative to the current fragmented and overall ineffective packaging recycling system.
NWNA will benefit from lower manufacturing costs while also reducing its environmental footprint by collaborating with rivals. Companies within industries ranging from energy to food to pharmaceuticals to shipping are similarly beginning to reshape their industries’ models of competition.
So what is the lesson we should learn from the efforts of NWNA and other trailblazing companies? Your company needs to either evolve its competitive strategy to embrace selective collaboration with rivals downstream and upstream, or prepare to become obsolete.
This post was originally published by the Harvard Business Review blog network on March 12, 2012.
Eric Lowitt is an independent consultant who helps companies grow, innovate, and become more agile and competitive by embracing sustainability. His first book, The Future of Value, releases through Jossey-Bass/Wiley in September, 2011. Eric can be reached at firstname.lastname@example.org
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