Productivity. Performance. Success

Compete or Cooperate: Which makes better business sense?

Compete or cooperate which makes better business sense? Coopetition

 

Richard Koch defines cooperation and competition in his latest book (The 80/20 principle and 92 other powerful laws of nature) as such:

  • Cooperation is how we create value: how we create the pie.
  • Competition is how we capture value: how we grab the slice of the pie.

 

 When building or developing a business, terms like competition and cooperation are never far from our discussions. However, have you ever wondered when is it in our best interest to ‘compete’ or to ‘cooperate’?

Some subscribe to the idea that humans are fundamentally competitive and pursuing our self-interest is the best way to get ahead. Others may lean towards Matt Ridley’s (author of The Origins of Virtues) notion that we have been “built by selfish genes” but evolution has made us “social, trustworthy and co-operative”. Hence, we cooperate, but only in pursuit of entirely selfish ends. In other words, we have learnt that it’s in our best interest to collaborate.

But how do we know when we should cooperate and when we should compete? I say – cooperate with the competition! It may sound like a paradox but it really isn’t. Here’s my theory.

 

What game are we playing?

In Game Theory, a zero-sum game is a mathematical representation of a situation in which each participant’s gain (or loss) is exactly balanced by the losses (or gains) of the other participant(s). To simplify, in a zero-sum game, one party can become better off only if another is made worse off.

In contrast, a positive-sum game describes a situation in which the interacting parties’ aggregate gains can be more than zero. Thus, in a positive-sum game, one part can become better off without another being made worse off, i.e. there is a “win-win” situation.

A lot of business collaborations fail because deep down we assume that success must come at the other party’s expense, a zero-sum game. However, if we instead assume a positive-sum game, we often realize that we can become more competitive by cooperating with other players. Traditionally, the cooperative role tends to be fulfilled by customers and suppliers. Increasingly, competitors are encroaching into this role, blurring the lines.

 

So, who’s my Competitor? 

Brandbenburger and Nalebuff (authors of Co-Opetition) introduced the ‘Complementor’ as a counterpart to the competitor.

  • A company is a complementor if your customer value your product more if they also have the other company’s products.
  • A company is competitor if your customer value your product less if they also have the other company’s products.

 

I find this definition extremely helpful. Now, list all the players in your industry and ask yourself if your customers would value your product more or less if they also have the other players’ products. Did you learn something new?

 

Can we really cooperate with our Competitors?

Coopetition is a strategic situation that involves elements of both competition and cooperation. The concept is a new approach for companies to maintain a competitive advantage. The basis of the strategy consists in assessing the advantages of competitors joining forces and working together, in order to gain more market share.

Often, we have a clearly defined set of competitors that we have been competing with for a long time and, in many cases, the strategic focus revolves around “beating” these competitors at any cost. However, even between direct competitors (with a lot of overlapping areas) we can often find win-win situations.

Consider the case where two competitors are fighting a third one, and both are losing. Your competitor may have complementary strengths. Why not consider a partnership? Cooperating could be a good business tactic between two businesses that can lead to expansion of the market.

 

Discussion

 There are a lot of examples of failed business collaborations everywhere. Maybe you have experienced one yourself? Where there is money to be made, sometimes self-interest prevails, thus trumping cooperation in the process.

 I’m not saying that it’s always better to cooperate (sometimes we need to grab our slice of the pie). Rather, we need to learn when and how to strike the right balance between competition and cooperation in order to improve long-term performance and maximize success in business and life.

Let me know what you think about this article. For me, I always keep an open mind to explore collaborations with suppliers, customers, complementors and competitors. In a positive-sum game, there are (almost) always an opportunity to create a win-win situation if both parties are willing to cooperate – even with your direct competitors!

Leave a Comment

1 Comment

  1. Aga Aga
    January 20, 2016    

    I strongly believe in sharing a pie is key to move forward. Unfortunately cooperation is very challenging process. Its like choosing a spouse. Thank you for sharing.

JONAS LIND is a co-founder of two IT companies, one in Sweden and one in Malaysia. He has been in the IT industry since 2000. He currently resides in Malaysia with his family.

Subscribe to the Blog

Enter your email address to subscribe to this blog and receive notifications of new posts by email.