In life, a competitor is someone who you compete against in order to win. They are seen as enemies and ultimately, there can be only one winner whilst the other loses. But in business, is this always true? Sure, you have competitors in the marketplace, at your place of work even; but is there a way competitors can work together for the end prize?
Enter co-opetition, a concept which combines the advantages of cooperation and competition. Co-opetition provides a new dynamic which will not only generate more profits but also change the way you do business. Sounds appealing, doesn’t it? Let’s take a closer look.
In this summary readers will discover:
- How co-opetition works
- The ‘Game of Business’
- How to play the game
Key lesson one: How co-opetition works
Let’s consider competition in the business world. It’s best described as a competition whereby you win if you get the edge over your opponent or if they mess up along the way. However, the theory of co-opetition is based on the fact that competitors stand to benefit if they support each other instead of trying to beat each other. Breaking down the word back to its separate forms, cooperation will lead to the creation of a larger pie (market) and competition will lead to dividing that pie. With only competition, the pie will be smaller and the slices received will be dominated by the stronger competitor. But with cooperation, both competitors come out with reasonable slices due to the bigger pie. Therefore having a co-opetition mindset will allow you to look for ways to expand the business and find newer and better ways to compete
The first concept to understand is the Value net. This divides businesses into four main groups: suppliers, customers, competitors and complementors. The first three groups are widely understood in the business world. It is the fourth group – the complementors – which need to be carefully considered. Complementors provide products or services that add value to the products your company offers. A simple example of complementors is hardware and software manufacturers. They both depend on each other. The hardware cannot work without the software and, without the hardware, the software would be irrelevant.
It is worth noting, however, that complementors can also be competitors. Which is where co-opetition finds its roots. Complementors add value to your product, but they are also competing in the sense that that added value needs to be divided between the two of you. It may seem confusing at first, but being aware of this fact will help you develop an effective business strategy.
Key lesson two: The Business Game
To understand how co-opetition can work in your business you first have to consider what the authors call ‘The business game’. The apply game theory to explain all the different players and how they influence the game of business. The acronym PARTS is used for this purpose.
P – players in the game (as defined by the value net)
A – added value that a company can bring to the players
R – rules of the game/business
T – tactics of influencing perceptions of your business within the game
S- the scope of the business
The way these five elements work together will determine the way in which the game is played and ultimately, the outcomes. Changing any one of them changes the game. Knowing how to make changes to your own advantage makes the game worthwhile. Each player adds value to the game. If some have more added value than others, this means they have more power and thus, more influence on the game and its results.
Key lesson three: How to play the game
Players
First of all, you have to make sure that the game is worth playing because, at the end of the day, you have to pay to play. To avoid this, you have to consider the players in the value net and determine where your business fits in. You can thereafter figure out who will benefit the most from your participation. If they recognize the value you bring and how it benefits them, you might be able to get them to pay for your participation. This sounds crazy, but it works. Consider scenarios where customers pay upfront for your participation or get them to work with you later on. In contrast, if you can’t find a player who benefits from your participation, it will be sensible to step away from that particular value net.
If you successfully enter the game, you can further enhance your position by bringing in new players that will increase your existing value. This will put you in a better position to negotiate with other players in the game and give you more power. An important point to remember is that any time the players in a value net change, the overall market value of the entire net is either worth more or less. The objective is always to create as big a value net as possible.
Added Value
When it comes to added values, there are three main strategies discussed for changing the value you bring to the game. The first is applicable if you are in a non-competitive environment. This means that you are a monopoly supplier. You simply limit the supply of your product which will increase the value of your product.
If you are in a competitive environment, you can look for ways to increase the value of your product and simultaneously cut production costs. This is called trade-ons. The other strategy which should be implemented in a competitive environment is the development of customer relationships. This creates added value to the customer with little cost to the company. In addition, customer loyalty is beneficial and guarantees added value.
Rules
The rules of your business can be changed to get the game going in your favour. Of course, it has to be remembered that if you change the rules, you change the game. In general, company rules are put in place to ensure that everything related to it is done fairly. The more specific rules that exist within a value net, the more likely that there will be a framework of contracts between all players. Contracts with customers, for example, take two forms.
The first is the Most Favoured Customer Clause (MFC) which guarantees that the customer receives the best price. This has some implications though. If you have MFCs with multiple customers, once you lower the price for one, you are contractually obligated to lower the price for all. Also, as a company with MFCs, you cannot offer discounts to attract new customers like other companies without MFCs can. This usually results in the company keeping prices higher because they have to keep these factors in mind.
The second form is the Meet the Competition Clause (MCC) which stipulates that if a competitor comes in with the lower price, you will get a chance to match it. This means that your company will have the last say as to whether you will retain the customer or lost to the competitor. Sometimes, however, competitors can use MCCs as a way to get you to lower your price.
These types of rules change the balance of power between the players in the value net.
Tactics
The way players perceive the game will ultimately influence the way they play it. So changing perceptions can inadvertently or deliberately change the interactions between players. Everything you do will send a signal which will influence others perceptions, so you can use this as a powerful tool to your advantage.
It is referred to as the business fog in the book and you can choose to clear it up, maintain the fog or stir up new fog. For example, clearing up the fog could entail offering pay-for-performance style contracts, meaningful guarantees or free trials of your product or service. Maintaining the fog includes hiding information or following a general consensus to ensure that everyone is in the same boat. Lastly, stirring up new fog introduces complexity in the form of disguising changes and putting up a front to misdirect other players. Basically, you can decide what you wish to share and what to withhold from other players in order to influence their actions.
These tactics each have their own advantages and disadvantages for every player in the value net, if you master them, you will master the game.
Scope
It is important to realise that no value net exists in isolation. Some people are so focussed on their current value net that they are unable to see the other games in play. If you don’t acknowledge them, you will be unable to tap into them.
Scope refers to the links that exist between the game of business that you are currently playing and the other games being played by those in your Value net. The game is not limited to just your current value net if you understand the links that exist you can extend the scope of your game.
But the scope of any value net can also be altered by other factors. For example, new players can drastically change the scope of the game depending on the added value they bring. The scope of the game can even be influenced by the set of rules that are enforced.
Considering all the PARTS, you can greatly influence the value net of which you and your company are a part of. Understanding how each factor influences players and their actions can be your greatest advantage.
The key takeaway from Co-opetition is:
When it comes to business, competition does not have to be a bad thing. If you embrace the fact that competition is essential for success, you can offer to co-operate with your competitor to ensure that everyone succeeds and gets a slice of the pie. Comparing co-opetition to game theory effectively explains how players can compete and co-operate at the same time. Understanding the elements of the business game will allow you to completely play the game to improve your position. Each element offers ways in which you can change the value you bring to the game as well as the scope of the game. Take the time to understand the value net you wish to join and how each player contributes. It will ensure that you become an expert player in the business game.
How can I implement the lessons learned in Co-opetition:
Firstly, understand that competition is necessary for business. Co-opetition will allow you to grow your business by getting you to understand how to get the value net working in your favour. Ensure you know whether it is worth being a player before you join a value net. The strategies and tactics you use can influence the other player’s perceptions of the game and therefore their actions. Remember to use this to your advantage at all times and extend the scope of your game.
