Use Co-opetition to Build New Lines of Revenue; Examples of high-profile failed business collaborations are everywhere

Use Co-opetition to Build New Lines of Revenue

by Marquis Cabrera  |   1:00 PM February 10, 2014

Examples of high-profile failed business collaborations are everywhere. From the WordPerfect-Novell acquisition that led to bankruptcy, to the misfires of the Target-Neiman holiday experiment, it’s clear that despite the plethora of management literature on how to launch a successful partnership, collaborations often go bust. It turns out, where there is money to be made, self-interest prevails, thus trumping cooperation in the process.

Traditional collaborations fail because deep down, stakeholders assume their success must come at others’ expense, which is clearly a zero-sum game. The way forward is co-opetition, in which entities in the same industries act with what everyone recognizes as partial congruence of interests.

As management professors Adam M. Brandbenburger and Barry J. Nalebuff have written in their book Co-Opetition, businesses that form co-opetitions become more competitive by cooperating. For example, LinkedIn co-founder Reid Hoffman, who practices co-opetition by partnering and competing with headhunters, said in a New York Times article, “[No] one can succeed by themselves. The only way you can achieve something magnificent is by working with other people.  There [are] lots of co-opetitions.”

Unlike traditional collaborations, instead of coming together to do something and pretending you’re not competing, co-opetition leverages your competitor’s strength in order to thrive together. Recruiters use LinkedIn to find prospective candidates and employment opportunities, and, in order to increase product-users, LinkedIn relies on recruiters to use their professional networking platform — while each group would surely like a greater percentage of the recruitment pie for themselves, the pie as a whole is larger because of the involvement of both. So – how do you protect your own interest while cooperating with your competitors in order to create (and maximize) value?

Agree to share information. Sharing information and expertise is a great way to build trust with your competitors. One example is a Memorandum of Understanding (MOU), a non-legally binding partnership, like the one Ford entered into with Toyota. They’re now talking about joint ventures to develop a lightweight-hybrid truck.  In order to avoid getting burned, they’re taking it slow. As with any relationship, as it progresses you’re inclined to share more. When information-sharing is profitable for both partners, you can see some pretty strange bedfellows. For instance, Microsoft and Apple developed a partnership that stunned the tech community, Apple licensed their mobile “look-and-feel” patents to Microsoft, but they have an anti-cloning agreement. Apple makes money through licensing and Microsoft gets help in their mobile development department. Developing memorandums or licensing patents are only some examples of how sharing information with competitors can link to greater success down the line.

Focus on building something new. Co-opetitions work especially well for businesses that create the “latest- and-most-gadgeted” technologies and innovations because R&D is expensive. For example, in the airline industry, American Airlines partnered with Boeing to retrofit“76 Next Generation 737s.”If these firms had not embraced the idea of working together, they would not have the fiscal resources and manpower to renovate and build new airplanes. When creating an expensive technology or service, go to your competitors and say: “We both make X, but we have limited resources, however. Your company is awesome at doing A. My company is awesome at doing B. If we configure AB, instead of just creating X, we can create X2.”

Choose partnerships where you each bring something different to the table. Bartering with a similar company – but not one that’s too similar — is the best way to leverage and create win-win relationships. For example, online retailer Wayfair (disclosure: I used to work there) partnered with Amazon to leverage their brand recognition to increase sales conversions — and in turn gave them a cut of the profits. While Amazon and Wayfair are competitors, in this deal they both profit. In another example, Peugeot Citroen will supply Toyota Motors light-weight trucks to sell under the Toyota brand in the European market. Toyota, which had recently discontinued its own European light truck, will still have an offering for its customers, and Peugeot Citroen will have a market for its technology.

Businesses must account for the self-interest of others. In a traditional collaboration, you’re getting 1+1=2.  In many circumstances, forming co-opetitions is better than traditional collaborations because they create transparency about motivations, agendas, and goals. So instead of asking, “What’s in it for me?” or “What’s in it for us?” … ask your competitor, “How can 1+1=3?”

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: