Joining Forces Work with your competitors--not against them--and soon you'll be succeeding with the enemy.

As a supplier of printing, packaging and in-store displays, James A. Klein competes against every printer, box-maker and display-builder in and around Chicago. But he also buys products and services from 50 or so of these same firms. And if he learns that a promising prospect is already doing business with one of his printers or suppliers, he backs off in a hurry.

"We will not compete against the vendors we use because that would not be fair," says the president of eight-person Diversified Merchandising Inc. in Skokie, Illinois. It also wouldn't be good business practice, say advocates of a half-and-half approach that blends competition and cooperation in a strategy called "co-opetition."

Co-opetition, according to Adam Brandenburger, a Harvard Business School professor and co-author of Co-opetition: A Revolutionary Mindset That Combines Competition and Cooperation (Currency/Doubleday), is a way to avoid destructive competition and to build a market for all participants, including competitors, suppliers and customers. The idea is to work together to discover new markets and expand existing ones rather than endlessly fighting over customers.

Although co-opetition may go against entrepreneurs' instincts, Brandenburger urges them to bury the hatchet and take up the olive branch of peace. "The old world of competitive strategy really misses the picture," says Brandenburger. "[Businesses] fight over the division of the pie, but just as important are strategies for growing the pie."

Origins Of Co-Opetition

The term "co-opetition" is generally credited to RayNoorda, founder of the software networking company Novell Inc., whohas urged others in the information technology industry to findways to compete and cooperate at the same time. Today's brandof co-opetition has its roots in game theory, a mathematical methodof analyzing competitive situations to pick the best course ofaction.

Game theory has long been used in political, economic andmilitary planning, as well as in analyzing strategic games such aspoker and chess. During World War II, Brandenburger says, theBritish Navy used game theory to improve the success rate of planesand warships hunting down German submarines. In recent years, manycompanies in a variety of industries, including Xerox, BellAtlantic and Citibank, have applied game theory ideas aboutco-opetition to business.

Opponents of traditional game theory point out that one of itstraits is that its strategies are counter-intuitive or justdon't make sense. "Game theory can show that it'srational to do some things that are actually very harmful,"explains Gary Fethke, dean of the College of BusinessAdministration at the University of Iowa in Iowa City.

Co-opetition, however, is a case of the reverse--something thatsounds irrational but is actually very beneficial. The keydifference between co-opetition and most business strategies isthat co-opetition assumes there doesn't have to be a loser forevery winner. In other words, business is not a zero-sum game.

Though this goes against some prevailing ideas aboutcompetition, many experts agree. As proof of the harm traditionalbusiness strategies can cause, they point to the air-fare pricewars of the early 1990s, when the airline industry lost more moneythan it had made since the beginning of flight.

"A lot of business strategy has been devised to compete anddrive our competitor out of the marketplace," says Fethke."But the notion of competing has been driven too hard inbusiness."

Key Concepts

Co-opetition is perhaps best illustrated by example.Brandenburger and his co-author, Yale School of Managementprofessor Barry Nalebuff, cite Intel and Microsoft'srelationship as one leading example of co-opetition.

These high-tech giants have some conflicting interests.Microsoft wants computers to be inexpensive, while Intel wantssoftware to be cheap, the authors note. They also have mutualinterests, however. Microsoft's newest software requires fastercomputers, while Intel's latest computers allow customers torun more complex programs. By cooperating in designing new chipsand software rather than competing destructively, the two companiesexpand each others' opportunities.

Many similar cases exist. Bill Meade, an assistant marketingprofessor at the University of Missouri, St. Louis, who specializesin studying co-opetition, cites a small hardware store owner whowas threatened by the arrival of a superstore. In addition tocompeting where possible on price, the small store offered toprovide repair services that the superstore didn't.

Eventually, the superstore outsourced all its tool repair workto the smaller store. That helped the superstore sell tools, to besure, but also allowed the small-time operator to stay inbusiness.

"As soon as you create that positive relationship with acompetitor, you have transformed the competitiverelationship," says Meade. The tactic can be especiallyvaluable to small companies facing large rivals. "Instead ofjust stomping on you," explains Meade, "they're goingto have a moment of doubt before bringing down the boot. Andwonderful things can happen."

One of the basic concepts of co-opetition is that ofcomplementors. A company is your complementor, Nalebuff andBrandenburger explain, if your customers value your product morewhen they also have your complementor's product than when theyhave your product alone. An example is a hot dog vendor whose waressell faster when mustard is available.

Brandenburger considers a business's complementors equal inimportance to its competitors. One key to effective co-opetition,he says, is to look for complementors when possible.

"The players in your business are your traditionalcustomers, suppliers and competitors, but also yourcomplementors," he says, throwing out examples such as"hardware and software, TV networks and TV Guide,bookstores and coffee bars. There is a range of opportunitiesthere."

Co-Opetition Constraints

Co-opetition works well, Meade says, with products that havemany different components and between companies that are peers.Businesses with extremely thin margins and products that are latein their life cycles or have little room for technical innovationare less likely candidates.

In many situations, a different tactic such as outsourcing or astrategic alliance is preferable. A strategic alliance, forinstance, is best when a cooperative arrangement would requirelarge capital investments. And outsourcing may be better when amore formal relationship is needed.

Generally, co-opetition tends to be an informal relationship,often not even acknowledged by one or both sides, Meade says. Andit may primarily or only benefit one side.

Co-opetition can also be risky business. An entrepreneur whodoesn't explain it properly to employees and others riskslooking foolish or, at best, will confuse them by seeming tounexpectedly sell out to the competition. "Even if yousucceed," warns Meade, "you may fail because peoplecan't understand [what you're doing]."

Co-opetition Costs

Co-opetition is more of a mind-set than a sweeping initiative.As such, it doesn't call for much in the way of training orother investments. It's also not as dependent on acompany's size, sophistication or resources as some otherstrategies.

"The idea is to simply think about the complement to yourbusiness," says Brandenburger. "There's really anopportunity there for businesses large and small."

In addition to Nalebuff and Brandenburger's book, Meade saysmany marketing texts refer in some fashion to simultaneouscompetition and cooperation. Formal training opportunities are alsobeginning to appear: Fethke recently hosted a two-day seminar onthe subject at the University of Iowa.

Whether new or old, familiar or strange, the idea thatcooperating may be as important as competing seems to be striking achord even among the most hyper-competitive of entrepreneurs.There's no doubt which of the two James Klein believes is mostimportant. Is he interested in pursuing more co-opetition? "Ifit means cooperating with vendors, yes," he says. "If itmeans competing with them, no."

Contact Sources

Diversified Merchandising Inc., 5225 Old Orchard Rd., #4,Skokie, IL 60077, (847) 966-7766.