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 relatively 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 “coopetitors” to manage these tensions and risks.
The "free-rider" risk
The main source of risk to which “coopetitors” are exposed stems from the temptation companies may have 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 trying to reap the maximum benefits from the cooperation.
This approach involves using coopetition as a means of weakening or outperforming one’s competitor. At the same time, coopetitors are also aware that, although they are competitors, they must cooperate to innovate, maintain their competitiveness, or expand into new markets. Coopetitors will therefore accept the risk of opportunism to achieve greater benefits, but this risk of opportunism will lead to multiple tensions at various levels.
Co-competitive tensions at all levels
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 resort-wide marketing campaign. The more each hotel contributes to the campaign, the more effective it will be, and the greater the number of tourists visiting the resort (and thus the value created). At the same time, however, it is in each hotel’s best interest to limit its involvement in this “joint” campaign in order to retain enough budget for its own marketing efforts and secure a larger market share within 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 co-competitive tensions 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?
Other tensions may also arise in connection with the sharing and protection of information. 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 to win the contract in 2007. To carry out this project successfully, 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 bids where they would find themselves competing against each other. So how could they know what information to share and what to keep to themselves?
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 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 minimize or deny the tensions that characterize it; on the contrary, we must embrace them fully. To eliminate these tensions is to destroy the dual nature of coopetition and thus forfeit all the benefits it has to offer. So how do 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 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 associated with coopetition and, 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 helps prevent overlap between activities. In doing so, the risk of knowledge transfer from the core business to the coopetitor is minimized.
At the project level, companies are encouraged to implement a co-management approach. The goal is to improve team organization and structure by duplicating management roles within project teams in order to maintain fairness in relationships and a balance of power in decision-making. Each decision related to the project will thus be made by a pair of managers. This dual oversight mechanism allows for a double-check 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 helps prevent the decision from being questioned.
Finally, at the individual level, it is recommended that companies 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, while the success of a coopetition relationship certainly depends on organizational structures, 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 themselves. But such individuals are rare gems, and recruiting or training “coopetition managers” is therefore essential to the success of a coopetition strategy.
Managing coopetition relationships 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) 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.