Collaborate with Your Competitors and Win
Collaborate with your Competitors and Win Gary Hamel, Yves L. Doz, and C. K. Prahalad Summary This article discusses that collaboration between competitors can be a beneficial experience for all member companies. Three conditions are specified for creating a positive collaborative environment, first that the partner’s goals converge while their competitive goals diverge. If the two firms are working on similar technologies to support different core businesses, then there is a higher chance for successful collaboration and a lower chance for competitive disturbance.
If, both companies are chasing a larger player in the industry, then both companies are motivated to work with each other to stand against the larger player. If both collaborators believe that they can learn key skills from the other collaborator without giving up too much proprietary information, then the chance of success for the joint venture is higher. The article describes how an organization can prepare defences to protect against negative technology transfer to the other firm. The authors discuss how Western culture is prone to sharing while Eastern cultures are more closed.
The ability for technology transfer to occur differs based on the complexity and portability of an idea. If a firm has a better technology where its blueprint can be downloaded onto a disk and emailed to a competitor, then there is a high degree of risk for that firm. If one firm’s advantage is in its holistic process, then this is something that can be identified and studied but not easily replicated. The major findings are that the key to successful collaboration is in an organization’s ability to learn.
It must have the willingness to closely examine the functions of its partner and be able to circulate its learning’s throughout its organization to maximize gain. In this analysis we will be discussing various types of collaborations, the reasons why competitors should collaborate and not collaborate. How to create defences for excessive passage of knowledge amongst competitors and principles of successful collaborations? Table of Contents 1. The Meaning and types of Competitive Collaboration 2. Why Collaborate 3. General Argument 4.
How to Build Secure Defenses 5. Winning through collaboration 6. Questions 7. References Collaboration with competitors Collaboration is a strategic coalition among two firms with the purpose of providing joint profit for each firm. Competitor collaboration is when two companies that are selling similar products and are each other’s competition come together to achieve a similar goal. Collaborating with your competitors with the right approach of give-and-take and without compromising each of the firm’s competitive position in the industry is highly successful.
Sharing between companies is a clever strategy as long as there is clear understanding that the relationship is of give and take and both companies benefit equally without compromising their competitive position in the industry. A few examples of companies collaborating NUMMI (General Motors + Toyota) Sony Ericsson (Sony + Ericsson) Verizon Wireless (Verizon communications + Vodafone) XFL (NBC + World wrestling entertainment) Nokia Siemens Network (Nokia + Siemens AG) A few more… JVC and Kenwood develop car audio and home audio products Siemens and Philips develop semi conductors
Canon supplies photocopiers to Kodak There are four types of competitive collaborations 1. Joint Ventures A joint venture is an entity formed between two or more parties to undertake economic activity together. The parties agree to create a new entity by both contributing equity, and they then share in the revenues, expenses, and control of the enterprise. 2. Outsourcing Contracts Outsourcing is subcontracting a process, such as product design or manufacturing, to a third-party company. The decision to outsource is often made in the interest of lowering cost or making better use of time and energy costs. 3.
Product Licensing business arrangement in which one company gives another company permission to manufacture its product for a specified payment 4. Strategic Alliance A strategic alliance is a cooperative strategy wherein allying firms pool their resources in order to pursue specific market opportunities The analysis of 15 mergers of three main types: four intra-European alliances, two European-Japanese alliances, and seven U. S. -Japanese alliances found that collaboration is often used by successful businesses. Alliances between Asian companies and Western rivals seem to work against the Western partner.
Collaboration is competition in a different form. Companies have to enter collaborations knowing that competition still exists. They must have clear strategic objectives, and understand how their partners’ objectives will affect their success. Harmony is not the most important measure of success. Most winning alliances do not always have win-win circumstances. As competitive competencies expand, disagreement will happen between the associates over who has the right to the rewards of the partnership. Cooperation has limits. Organizations must protect against competitive compromise.
Companies need to ensure that workers at all levels recognize what corporate information is off limits to the collaborator. Providing access to too much information can make one more open to losing market share to your collaborator. Learning from partners is paramount. Remember that Asian companies focus on learning, while Western companies want to demonstrate their superiority and leadership. This provides partners with knowledge that will benefit them in the long-term. You cannot make a Western company want to learn. Western companies have certain arrogance fter decades of leadership that detracts from their ability to learn. Why should one collaborate with competitors? . 1. In order to strengthen competitive advantages or core competencies A competitive advantage is an advantage gained over competitors by offering customers greater value, either through lower prices or by providing additional benefits and service that justify similar, or possibly higher, prices. When two companies collaborate they become more equipped to face the big competitor in the market by gaining access to a unique feature that was missing for them to cater to a huge or a bigger market. . Expand technological evolution at a reasonably low cost Creating a separate team to develop technology adds to a lot of cost, it makes more sense to utilize the technology that is already available in the market and customize it as per your needs. Collaborating with competitors gives easy access to the required technology and also a chance to the collaborator to learn from the other partner’s mistake. 3. Grow market access at a low cost Collaborators can gain easy access to markets through their partners who already have access to desired consumers and markets.
The collaborators can save money and time that they would have otherwise invested on research and development in order to access the same market and to create distribution networks. 4. Gain knowledge of partner’s business practices and strategies Easy access to the knowledge that the partner already possesses. Both parties can easily learn from each other’s mistakes, learn each other’s way of doing business and understand the approach they follow to earn maximum profits. 5. Develop standards through examination of the practices of the partner firm
Risks of Competitors collaborating Competitive Collaboration can strengthen both companies against the competition outside however it has created uneasiness about the long-term outcomes. A company’s competitive position may grow weaker as compared to the partner company through operations or strategic exposure. * Unintentional competencies are transferred or compromised. * Dependence on the alliance firm often increases. * The employees start becoming local while working on the alliance firm’s territory. The dimension and marketplace power of both partners are reserved compared with industry leaders. This usually forces the partners to accept that they are mutually dependent upon each other. Long-term collaboration may be so important to both that neither will risk provoking the other. * Both partners need to consider that there is an equivalent chance for gain. * The alliance firm’s strategic goals meet while their competitive goals deviate. * Each collaborator believes it can learn from the other and at the same time limit access to proprietary skills.
Businesses may think that to collaborate with a competitor to “steal” their secrets and use them to their profit is deceitful. However, forming a strategic alliance is usually advantageous to companies, each sharing what they know and learning what they need to know from the other company to achieve a goal that is not likely otherwise. Competitive partnerships can strengthen both companies against the other big competitors in the market. However at times it has activated unease about the long-term consequences. Western firms usually reveal a lack of strategic aim in collaborative efforts.
Western firm’s primary goal is often cost reductions when entering into collaborative agreements. The strategic intent problem is amplified by the fact that Western firms generally place little or no emphasis on learning from the alliance partner. It is believed that Western firms often seek “quick and easy” fixes to organizational problems when they enter into a collaborative situation. Western firms often take on the teacher role in a collaborative situation and are quick to demonstrate and explain aspects of their business strategies and competitive advantage.
The contribution of a Western firm in a collaboration effort is often in the form of technology and is relatively easy for the alliance firm to transfer. In many instances, Western firms are less skilled at limiting unintended competency transfer than their Japanese counterparts. How to ensure that a strategic alliance doesn’t work against your company * Possibility of transfer is bigger when a partner’s input is easily transported, easily understood, and easily captivated. Limit unintended ransfers at the operating level * Have a “collaboration” division * Control information flows to a partner * Limit the number of gateways * Dispute is to create a balance in a way that it become easier to allocate skills that will create benefit to the partnership and will also prevent an extensive transmit of core skills to the partner. Limit the scope of the formal agreement to cover only a single technology * Part of a product line rather than an entire line * Limit distribution to a few markets at a time Make sure all participating/non-participating employees understand the objectives and risks of the alliance * Agreements must establish specific performance requirements – Establish specific performance requirements with incremental, incentive-based Rewards for effective technology transfer. For example, an agreement between Motorola and Toshiba required Motorola to transfer microprocessor technology incrementally as Toshiba achieved specific semiconductor market share targets in Japan for Motorola. * Restrict access to key facilities and people, Declare sensitive laboratories and factories off-limits to partners.
Partnerships run smoothly when one partner is intent on learning and the other is intent on avoidance, or when one partner is willing to grow dependent on the other. Such sort of arrangement is similar to that of outsourcing, wherein a large company gives a smaller company the information necessary to develop a defined item for the parent company. Examples of this include Siemens buying computers from Fujitsu, or Apple buying laser printer engines from Canon. Japanese firms emerge from cooperation stronger than their Western counterpart because the focus on learning.
NEC enters partnerships to learn about areas in which they lack competence. NEC is the only company in the world that is a leader in telecommunications, computers, and semiconductor markets. Western companies, by contrast, typically enter collaborations to ignore short term investment related to entering a new market or business. Western firms are least bothered about learning a new business or technology. Western firms seek a “comfortable” relationship, forgetting that the merger may not last. Japanese companies always see joint ventures as a way to progress in areas where they are weak.
Mergers fail when doubt and disagreement spoils the relationship. Japanese firms tend to collaborate for very dissimilar reasons than their Western counterparts. Western firms typically have a technology to transfer, whereas Asian companies most often have ability, like manufacturing expertise. There has been very little collaboration between Korean and Japanese companies, since both countries seek to improve their weaknesses without revealing much to the partner. A collaboration in which one side avoids investment and the other side seeks to learn work out the best.
Asian companies protect proprietary information from being shared with a partner. Western firms hardly ever limit the extent of information to be passed to the partner due to lack of communications. Top management and lawyers put together cooperative agreements, but technology transfer takes place within the organization. Asian companies often supply manufacturing skill to a coalition, which tends to be a nontransferable ability. Manufacturing skills often result from a complex web of employee training, workforce involvement, mixing with suppliers, statistical process controls, value engineering and design for manufacture.
Western firms tend to supply a distinct, separate technology that is more easily learned and mastered by Asian partner. Common aspects of successful collaborations * In order for a strategic alliance and collaboration to be successful is for both parties to be able to transfer something distinctive to the other party: basic research, product development skills, manufacturing capacity, access to distribution. * The strategies of the collated companies unite as their competitive goals depart. * In most winning collaborative situations the collaborated firms are relatively small compared to the industry leaders. Every alliance partner is generally certain in its capability to intake knowledge from the other, while at the same time defending against competitive compromise. As a result we understood that the key principles of a Successful collaboration are * Clear Strategic objectives and deep understanding of partner’s objectives. Successful collaborators enter alliances with clear strategic objectives and understand their partners’ objectives. * Harmony is not important measure for success. Occasional conflict may be the best evidence of successful collaboration. * Understand that co-operation has limits.
Must defend against competitive compromise, with on and off-limits knowledge clearly identified and monitored by all employees. * Learning from the partner is the objective (goal). Successful companies view each alliance as a window into their partners’ broad capabilities and build skills in areas outside the formal agreement ; diffuse this knowledge into their own company. Questions * What advantages do competitors get when they collaborate? * In what scenarios strategic alliance can work against a partner? And how can it be prevented? * What are the 4 key factors of a successful collaboration of competitors? References *