Co-operation: three principles for managing tensions

Not a week goes by without rival 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

Setting up a management duo is one of the solutions recommended by the research. LightField Studios / Shutterstock

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, bitter competitors in the sale of coffee, to announce an alliance on the recycling of their capsules.

These relatively counter-intuitive strategies are known as coopetition strategies, and offer numerous benefits. For example, they provide access to complementary technologies to create new products, or to additional distribution channels to expand into new markets. Co-operation also enables development costs to be reduced and financial risks to be shared between competing partners.

Advertising spot announcing the launch of the joint Canal+ and Netflix offer (October 2019).

But cooperating with a competitor is not always easy, and not all coopetition agreements result in a win-win situation. Indeed, this strategy also entails a number of risks. If tensions are too great, they can destroy all the value created by coopetition, resulting either in a win-lose situation or, worse still, a lose-lose situation. But the success or failure of a relationship is not a matter of chance: it mainly depends on the ability of the "coopetitiors" to manage these tensions and risks.

The "stowaway" risk

The main source of risk to which "cooperators" are exposed stems from the temptation for companies to act opportunistically, i.e. to betray their partner.

The risk of opportunism is inherent in any cooperative relationship between organizations, but it is all the greater when the relationship involves competitors, as in coopetition. Indeed, when two competitors cooperate together, they may be tempted to limit their level of cooperation to the minimum, i.e. to play the "free rider", while trying to capture the maximum benefits from the cooperation.

This approach consists of using coopetition as a means of weakening or surpassing one's competitor. At the same time, cooperativists are also aware that, although they are competitors, they must cooperate to innovate, maintain their competitiveness or expand into new markets. Cooperators will therefore accept the risk of opportunism in order to obtain higher profits, but this risk of opportunism will result in multiple tensions at different levels.

Cooperative tensions at all levels

At the organizational level, the main cooperative tension arises from the dilemma between creating and appropriating value. Let's take the example of competing hotels in a ski resort who decide to work together to launch a major communications campaign to attract tourists to the resort. Each hotel must devote part of its budget to this communication campaign for the resort. The higher the budget, the more effective the communication campaign will be, and the more tourists (and therefore value) the resort will generate. At the same time, however, each hotel has an interest in limiting its involvement in this "common" campaign, so as to retain sufficient budget for its own hotel's communications and gain a higher market share in the ski resort. This trade-off in the allocation of budgets, employees and resources in the creation or appropriation of value is at the heart of coopetition, and represents a crucial tension.

The tourism sector in mountain resorts is particularly exposed to the tensions that can arise from coopetition.
Sander van der Werf/Shutterstock

At the operational level, new cooperative tensions are emerging, for example concerning the distribution of tasks. Who does what? According to what criteria? Should tasks be allocated according to their strategic importance, or according to their financial importance?

Other tensions may also arise in relation to the sharing and protection of information. For the Yahsat program (a communications satellite project in the Emirates), EADS (now Airbus) and Thalès, two competing companies, had to work together to win the tender in 2007. To successfully complete the project, they had to share strategic, technical and financial information, otherwise the project could not succeed. But at the same time, this shared information could be used by their competitor-partner on other satellite tenders where they would find themselves in competition. So how do you know which information to share and which to keep to yourself?

Finally, at the individual level, coopetitive tensions may arise among employees involved in these coopetitive relationships. Individuals must be capable of both cooperating and competing with the same partner. They receive contradictory injunctions and are often stigmatized by other employees, who perceive them as "traitors" for collaborating with competitors. This role ambiguity creates cognitive dissonance among individuals and can represent an additional source of stress.

Three principles for embracing coopetition

Since coopetition is by nature paradoxical, we must not try to reduce or deny the tensions that characterize it, but rather embrace them fully. To destroy the tensions is to destroy the dual nature of coopetition, and therefore to eliminate all the benefits that can be derived from it. So how do you manage a cooperative relationship?

How to manage innovation projects with competitors (Xerfi canal, 2016)...

To achieve this, we can recommend, based on our research, that companies combine three principles: a separation principle at company level, a co-management principle at project level and an integration principle at individual level.

At corporate level, the principle of separation is based on the idea that most individuals cannot manage the paradox of coopetition, and that companies must therefore separate the activities in which they cooperate from those in which they compete. This organizational separation makes it possible to compartmentalize the various departments and avoid overlap between activities. In this way, the risks of transferring knowledge from the core business to the co-operator will be more limited.

At project level, companies are invited to implement the principle of co-management. The aim is to work on the organization and structuring of teams by duplicating project team management positions, so as to preserve the fairness of the relationship and the balance of power in decision-making. Each project decision will thus be taken by a pair of managers. This double loop enables decisions to be double-checked, avoiding unintentional transfers of information, but also enhancing the legitimacy of decisions taken. In this way, team members receive their instructions from a manager from their own organization, rather than from the competitor's, thus avoiding any questioning of the decision.

Finally, on an individual level, companies are advised to involve managers in coopetition relationships who are capable of integrating the paradox, understanding the benefits of cooperating with their competitor and acting according to this dual logic. In other words, the success of a coopetitive relationship depends not only on organizational structures, but above all on the presence of people who are able to transcend this paradox and understand when to share with their competitor and when, on the contrary, to protect themselves. But these individuals are rare pearls, and their recruitment or the training of "coopetition managers" is essential to the success of a coopetition strategy.

The management of cooperative relationships overturns traditional management practices. Transformations are needed within companies, in terms of organization and management, to grasp all the challenges of the coopetitive logic and benefit fully from it.The Conversation

Anne-Sophie Fernandez, HDR Senior Lecturer in Strategy, University of Montpellier and Paul Chiambaretto, Lecturer-researcher, Montpellier Business School - UGEI

This article is republished from The Conversation under a Creative Commons license. Read theoriginal article.