Coopetition: three principles for managing tensions
Not a week goes by without competing companies announcing cooperation on some of their activities, while remaining in competition.
Anne-Sophie Fernandez, University of Montpellier and Paul Chiambaretto, Montpellier Business School – UGEI
So in September 2019, to everyone's surprise, Canal+ announced an agreement with Netflix, its worst enemy in video-on-demand distribution. At the end of November 2019, it was the turn of L'Or and Nespresso, fierce competitors in coffee sales, to announce an alliance on the recycling of their capsules.
These relatively counterintuitive strategies are known as coopetition strategies and offer numerous benefits. For example, they provide access to complementary technologies for creating new products or additional distribution channels for expanding into new markets. Coopetition also reduces development costs and allows financial risks to be shared between competing partners.
But cooperating with a competitor is not always easy, and not all coopetition agreements result in a win-win situation. Indeed, this strategy also carries a number of risks. If tensions are too high, they can destroy all the value created by coopetition, resulting in either a win-lose situation or, worse, a lose-lose situation. But the success or failure of a relationship is not a matter of chance: it depends mainly on the ability of the "coopetitors" to manage these tensions and risks.
The risk of "free riders"
The main source of risk to which "coopetitors" are exposed stems from the temptation that companies may have to act opportunistically, i.e., to betray their partner.
The risk of opportunism is inherent in any cooperative relationship between organizations, but it is even greater when the relationship involves competitors, as in coopetition. When two competitors cooperate, they may be tempted to limit their level of cooperation to a minimum, i.e., to act as "free riders," while trying to reap the maximum benefits from the cooperation.
This approach involves using coopetition as a means of weakening or surpassing one's competitor. At the same time, coopetitors are also aware that, although they are competitors, they must cooperate in order to innovate, maintain their competitiveness, or expand into new markets. Coopetitors will therefore accept the risk of opportunism in order to obtain greater profits, but this risk of opportunism will result in multiple tensions at different levels.
Coopetitive tensions at all levels
At the organizational level, the main cooperative tension stems from the dilemma between value creation and value appropriation. Take, for example, competing hotels in a ski resort that decide to collaborate on a major advertising campaign to attract tourists to the resort. Each hotel must devote part of its budget to this advertising campaign for the resort. The more money the hotels spend on the campaign, the more effective it will be and the higher the number of tourists visiting the resort (and therefore the value created). But at the same time, it is in each hotel's interest to limit its involvement in this "joint" campaign in order to retain enough budget to promote its own hotel and gain a higher market share in the ski resort. This trade-off between allocating budgets, employees, and resources to creating or appropriating value is at the heart of coopetition and represents a crucial tension.
Sander van der Werf/Shutterstock
At the operational level, new cooperative tensions are emerging, for example regarding the distribution of tasks. Who does what? According to what criteria? Should tasks be distributed according to their strategic importance or their financial importance?
Other tensions may also arise in relation to information sharing and protection. As part of the Yahsat program (a communications satellite project in the United Arab Emirates), EADS (now Airbus) and Thales, two competing companies, had to cooperate in order to win the tender in 2007. To carry out this project, they had to share strategic, technical, and financial information, without which the project could not succeed. But at the same time, this shared information could be used by their partner-competitor in other satellite tenders where they would find themselves competing. So how could they know what information to share and what to keep to themselves?
Finally, at the individual level, cooperative tensions may arise among employees involved in these cooperative-competitive relationships. Individuals must be able to both cooperate and compete with the same partner. They receive conflicting instructions and are often stigmatized by other employees who perceive them as "traitors" because they collaborate with competitors. This ambiguity of roles creates cognitive dissonance in individuals and can be an additional source of stress.
Three principles for embracing coopetition
Since coopetition is paradoxical by nature, we should not try to reduce or deny the tensions that characterize it, but rather embrace them fully. Destroying these tensions would destroy the dual nature of coopetition and thus eliminate all the benefits that can be derived from it. So how should we manage a coopetitive relationship?
To achieve this, based on our research, we can recommend that companies combine three principles: a principle of separation at the company level, a principle of co-management at the project level, and a principle of integration at the individual level.
At the company level, the principle of separation is based on the idea that most individuals cannot manage the paradox associated with coopetition and therefore companies must separate the activities in which they cooperate from those in which they compete. This organizational separation makes it possible to compartmentalize different departments and avoid overlap between activities. In doing so, the risks of knowledge transfer from the core business to the coopetitor will be more limited.
At the project level, companies are encouraged to implement a co-management principle. The aim is to work on the organization and structuring of teams by duplicating the management positions of project teams in order to preserve fairness in relationships and balance of power in decision-making. Each decision relating to the project will thus be taken by a pair of managers. This double loop allows for double-checking of decisions, avoids unintentional transfers of information, and also improves the legitimacy of the decisions taken. Team members thus receive their instructions from a manager from their own organization rather than from the competing organization, which avoids the decision being questioned.
Finally, at the individual level, it is recommended that companies involve managers who are capable of embracing the paradox, understanding the benefits of cooperating with competitors, and acting in accordance with this dual logic in coopetition relationships. In other words, the success of a coopetition relationship certainly depends on organizational structures, but above all it depends on the presence of people who are capable of transcending this paradox and understanding when to share with competitors and when, on the contrary, to protect themselves. But such individuals are rare gems, and recruiting them or training "coopetition managers" is therefore essential to the success of a coopetition strategy.
Coopetition relationship management is revolutionizing traditional management practices as we know them. Companies need to undergo organizational and management transformations in order to fully grasp the challenges of coopetition and reap its full benefits.
Anne-Sophie Fernandez, Senior Lecturer in Strategy, University of Montpellier and Paul Chiambaretto, Professor, Montpellier Business School – UGEI
This article is republished from The Conversation under a Creative Commons license. Readthe original article.