Coopetition

Thanks to my MBA Strategy student Lauren Koch, for bringing me in touch with the word coopetition and its origins.

The word is coopetition. You did not mis-read the word. It is neither competition nor cooperation, but rather a hybrid of the two. The notion arose in gaming theory. Think about it: you are playing a game competitively, but there are moments when cooperation can advance your game.

In the business context, there are many situations where you have a competitor, but through cooperation, you may both have something to gain.

Coopetition as a business idea was described by Barry Nalebuff  and Adam Brandenburger in their book, “Co-opetition,” 1997. It means cooperative competition – when industry participants behave in a way that benefits all.  They coopetate rather than compete.They describe what results as a Value Net.

Many coopetition examples

An example of coopetition, Care Innovations has been formed from a combination of GE Healthcare’s Home Health Division and Intel’s Digital Health Group and aims at being a catalyst for changing health care models. They will create technology-based solutions that give people confidence to live independently. This new business area has yet to be fully defined, and not only is there a growing focus on people taking personal responsibility for wellness (rather than sickness), the US Federal Government is taking steps to see institutional change too.

For instance, the Centers for Medicare and Medicaid Services will start measuring 30-day readmission rates for patients with heart failure, heart attack and pneumonia. Hospitals will face Medicare fee reductions in fiscal 2013 based on preventable readmissions during 2012.

Another current example of coopetition is taking place in a less hi-tech field–parcels. Working in conjunction with the U.S. Postal Service, the United Parcel Service (UPS) now has a program that allows customers of participating retailers to return merchandise by dropping it in any U.S. Postal Service mailbox, or at any post office.

Yelp and CityGrid Media, two of the main internet competitors in local listings and reviews, are working together in coopetition. Yelp is using the CityGrid network to fill any advertising inventory that the company’s salespeople can’t fill themselves.

Using open source licensing for commodity software in cooperation with competitors whilst carefully guarding software that provides a business edge from those same competitors is a classic example of coopetition. Open source offers significant potential for the reduction of costs for in-house development. Achieving these savings does however require that an organisation understand open source and how to operate in a very different development environment.

Coopetition in Services, Too

BDO Seidman, LLP formed the BDO Seidman Alliance in 1994. The alliance is for accounting firms who wish to stay independent, but whose clients can benefit from a wide array of services offered by the international resources, financial services and tax solutions of BDO. James Hannon, a partner with BDO in New York is responsible for the alliance.

The services example of coopetition often quoted is among restaurants, that tend to cluster in the same part of town to benefit from the attraction of dining clients, bu being in a position to offer their differing menus to people who are thinking of eating out.

For amazon.com, the adoption of the coopetition model followed founder Jeff Bezos’s realization that coopetition was a key technique for enlarging their market penetration. It can thereby amortize its software development costs and fixed expenses over a far greater number of items and thus increase its profitability. When it provides fulfillment, amazon receives a percentage of the sale plus a per-tem fee, so it’s an important revenue stream as well.

The Multiple Listing Service MLS used by Real estate Agents is an example of permanent cooperative listing of properties so competitive realtors can efficiently find properties for their clients. In computer companies, long term partnerships, such as Sybase and IBM help them to innovate and ensure that software works the way customers expect it to. In an alliance of HP, IBM, Microsoft, Oracle, and Sun, they cooperate on standards but compete on implementations.

Cooeptition is a Mindsets a Well as a Strategy

If you are a dolphin you see the ocean as a friendly and fun place to be, where collaboration is a norm and violence is rare. That does mean there are no sharks about, but you assume that they mean you no harm. If you are a shark, you assume that everything is food or foe and that mindset results in that being your reality.

In business, your mindset produces your behavior. If you think, “I’m going to beat the competition”, you will most likely indulge in predatory behavior and think nothing of killing competitors if it gives you a bigger bite of the market. On the other hand, if you think, “I’m going to create new opportunities”, chances are that you will find opportunities to collaborate and expand your collective market.

Such a coopetition minset will bring you think about how you can work with others rather than against them. It is not unrelated to the idea of ‘shared value’, a term given new impetus by the strategy guru, Michael Porter.

Creating Shared Value

Michael Porter and Mark Kramer say, “capitalism in under siege…companies are widely perceived to be prospering at the expense of the broader community…” and then go on to describe how “Companies must take the lead in bringing business and society back together…The solution lies in the principle of shared value, which involves creating economic value in a way that also creates value for society by addressing its needs and challenges.”

The two pieces of the jigsaw belong together and since the Industrial Revolution, their has been strong denial of the mutual interests as companies externalized so many costs. The environmental movement has propelled managers into accepting the interdependence.

This is the biggest area of coopetition. Each party has much to gain from the other and if business strategy ignores the fact, not only do mutual benefits result, but sustainability depends upon it. For more on creating shared value, see Startup Owl’s page on Business Bodhicitta.

Sign Up to Get the Insights for Founders newsletter

See copies of previous issues