Coopetition: Three Principles for Managing Tensions
Not a week goes by without rival companies announcing a partnership in certain areas of their business, while continuing to compete with one another.
Anne-Sophie Fernandez, University of Montpellier and Paul Chiambaretto, Montpellier Business School – UGEI
So in September 2019, to everyone’s surprise, Canal+ announced a deal with Netflix, its archrival in video-on-demand distribution. In late November 2019, it was the turn of L’Or and Nespresso, fierce competitors in the coffee market, to announce a partnership to recycle their capsules.
These strategies, which are somewhat counterintuitive, are known as coopetition strategies and offer numerous benefits. For example, they provide access to complementary technologies for creating new products or to additional distribution channels for expanding into new markets. Coopetition also helps reduce development costs and share financial risks among partner-competitors.
But cooperating with a competitor isn’t always easy, and not all coopetition agreements result in a win-win situation. In fact, this strategy also carries a number of risks. If tensions run too high, they can destroy all the value created by coopetition, leading either to 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 primarily on the ability of the “co-competitors” to manage these tensions and risks.
The "free-rider" risk
The main source of risk facing “coopetitors” stems from the temptation companies may feel to act opportunistically—that is, to betray their partner.
The risk of free-riding is inherent in any cooperative relationship between organizations, but it is all the more pronounced when the relationship involves competitors, as in coopetition. Indeed, when two competitors cooperate, they may be tempted to limit their level of cooperation to a minimum—that is, to act as “free riders”—while still trying to reap the maximum benefits of the cooperation.
This approach involves using coopetition as a means of weakening or outperforming one’s competitor. At the same time, coopetitors also recognize that, although they are competitors, they must cooperate to innovate, maintain their competitiveness, or expand into new markets. Co-competitors will therefore accept the risk of opportunism to achieve greater benefits, but this risk of opportunism will result in multiple tensions at various levels.
Co-competitive tensions at every level
At the organizational level, the main coopetitive tension stems from the dilemma between value creation and value capture. Consider the example of competing hotels in a ski resort that decide to collaborate on a major marketing campaign to attract tourists to the resort. Each hotel must allocate a portion of its budget to this marketing campaign for the resort. The more the hotels invest in it, the more effective the campaign will be, and the higher the number of tourists at the resort (and thus the value created) will be. But at the same time, it is in each hotel’s interest to limit its involvement in this “joint” campaign to keep enough budget for its own marketing and secure a larger market share in the ski resort. This trade-off regarding the allocation of budgets, employees, and resources toward value creation or value capture lies at the heart of coopetition and represents a crucial tension.
Sander van der Werf/Shutterstock
At the operational level, new tensions between cooperation and competition are emerging, for example regarding the allocation of tasks. Who does what? Based on what criteria? Should tasks be allocated based on their strategic importance or their financial importance?
Additional tensions may also arise regarding the sharing and protection of information. As part of the Yahsat program (a satellite communications project in the United Arab Emirates), EADS (now Airbus) and Thales, two competing companies, had to cooperate to win the contract in 2007. To carry out this 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 partner-competitor in other satellite tenders where they would find themselves competing against each other. So how does one know what information to share and what to keep to oneself?
Finally, at the individual level, coopetitive tensions may arise among employees involved in these coopetitive relationships. Individuals must be able to both cooperate with and compete against 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 role ambiguity creates cognitive dissonance among individuals and can be an additional source of stress.
Three Principles for Embracing Coopetition
Since coopetition is inherently paradoxical, we should not try to minimize or deny the tensions that define it; rather, we must fully embrace them. To eliminate these tensions is to destroy the dual nature of coopetition and, consequently, to forfeit all the benefits it offers. So how do we manage a coopetitive relationship?
To achieve this, based on our research, we recommend that companies combine three principles: a principle of separation at the organizational level, a principle of co-management at the project level, and a principle of integration at the individual level.
At the corporate level, the principle of separation is based on the idea that most people cannot handle the paradox inherent in coopetition and that, therefore, companies must separate the activities in which they cooperate from those in which they compete. This organizational separation allows for the compartmentalization of different departments and prevents overlap between activities. By doing so, the risk of knowledge transfer from the core business to the co-competitor is minimized.
At the project level, companies are encouraged to adopt a co-management approach. The goal is to refine team organization and structure by duplicating management roles within project teams to ensure fairness in relationships and a balanced distribution of decision-making authority. Each decision regarding the project will thus be made by a pair of managers. This dual oversight allows for double-checking of decisions, prevents unintended information leaks, and enhances the legitimacy of the decisions made. Team members thus receive their instructions from a manager within their own organization rather than from the competing organization, which prevents the decision from being questioned.
Finally, at the individual level, companies are advised to involve managers in coopetition relationships who are capable of embracing the paradox, understanding the benefits of cooperating with competitors, and acting in accordance with this dual logic. In other words, the success of a coopetition relationship certainly depends on organizational structures, but it depends above all on the presence of people who are capable of transcending this paradox and understanding when to share with a competitor and when, on the contrary, to protect oneself. But such individuals are rare gems, and their recruitment or the training of “coopetition managers” therefore becomes essential for the success of a coopetition strategy.
Coopetition management is revolutionizing the traditional management practices we are familiar with. Companies need to undergo organizational and managerial transformations in order to fully grasp the challenges of the coopetition model and reap its full benefits.
Anne-Sophie Fernandez, Associate Professor (HDR) of 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.