When bitter rivals should team up: sometimes you ought to cooperate with the enemy

Chief Executive, The, Oct, 2005 by Adrian Slywotzky

General Motors and Daimler-Chrysler have begun working together to design a hybrid engine power train. Ford and Nissan are using Toyota's hybrid technology in their own engines for 2006 models. And Toyota and GM are talking about collaborating on hybrid and hydrogen engine technologies. Five of the world's largest automakers, in other words, have begun cooperating.

We hope it is the first wave of such moves for the automakers. For more than a decade, they have been investing in separate programs to develop successors to the traditional internal combustion engine. These R & D efforts have been expensive and risky. If the automakers had collaborated from the outset, they could have saved billions of dollars. By collaborating on basic engine technology, which is largely invisible to most car buyers, the automakers would have been able to focus their innovation efforts in areas that have more impact on product design and the dealership experience. They would have been able to compete where it counts--where customers care the most.

Vigorous competition among companies for customers, talent and capital serves everyone well, for the most part. But as the experience of the automakers reveals, competition can be harmful, too. When companies fight over things that hold little value to customers, they are wasting time and resources while reducing profits. That helps explain why a wide array of industries, from music to airlines to consumer electronics to textiles, have experienced a steady erosion in profits.

Rethinking the compete/collaborate ratio offers a way out. By joining forces to carry out common and largely undifferentiated functions or processes, companies can avoid redundant expenditures and capitalize on economies of scale and shared expertise. Collaboration can take place at any stage of an industry's value chain. It can take many forms, consistent with antitrust laws, including the sharing of back-office functions, factory production, R & D efforts, marketing and distribution, and repair or return facilities.

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There have, of course, been calls for greater business cooperation before. But most of the literature, such as the 1998 book Co-opetition (Brandenburger, et al) focuses on complementary efforts--on businesses doing different things that complement each other. Strategic collaboration involves working together on the same things.

The notion of joining forces with competitors naturally encounters resistance from many managers who have been trained in a swashbuckling corporate culture. They cling to hope over experience, saying that "the business cycle will turn--we just need to wait it out."

But even bitter rivals have sometimes joined forces to achieve common goals. Two notable examples are the Airbus consortium of European aircraft manufacturers and the Sematech consortium of U.S. semiconductor manufacturers.

In those cases, governments played a role in spurring cooperation. But there are other examples where competitors themselves have taken the initiative. Banks, for example, worked together to launch Visa and MasterCard, sharing payment processing and marketing.

Shifting the compete/collaborate ratio requires a change in managerial mind-set and a practical, objective process for thinking through the opportunities. Each company will have to weight different factors in plotting its collaboration strategy, but all companies should go through a process that answers four crucial questions: Where in our industry's value chain are the greatest collaboration gains likely to be found? What types of collaboration will allow us to best achieve those gains? With whom should we partner? And how do we overcome the "mortal enemies" objection among our own employees? Given the harsh realities of business today, managers should move toward a more productive balance between competing and collaborating--before it's too late.

Adrian Slywotzky is a director of Mercer Management Consulting and co-author of How to Grow When Markets Don't (Warner Business Books, 2003).