Co-Opetition

About the Author

Adam Brandenburger and Barry Nalebuff are renowned scholars in the field of business strategy. Adam Brandenburger is a professor at the Harvard Business School, while Barry Nalebuff is a professor at the Yale School of Management. Together, they have combined their expertise to introduce the concept of co-opetition, a groundbreaking approach that blends competition and cooperation in the business world.

Main Idea

Co-opetition combines the advantages of both competition and cooperation into a new dynamic which can be used to not only generate more profits but also to change the nature of the business environment in your own favor. Real long-term business success comes not solely from competing successfully within your current industry, but also from being an active participant in shaping the industry’s future. That way, you can create opportunities for future success the way you want them to be, rather than simply making do with the way things currently are. To actively change the game of business, you need a strategic framework within which to work, and co-opetition theory provides just such a framework. That way, you can change not only the way you play, but which game you play as well for maximum benefit.

Table of Contents

• Part 1 - Co-opetition and the Game of Business
• Part 2 - Changing the Game of Business
• Part 3 - Applying Co-opetition Theory in Practice

Co-opetition and the Game of Business

In its purest form, business can be considered as a game in which money represents points won or lost. The person or company which gathers the greatest number of points wins. The biggest opportunities in business don’t come from playing the game better than everyone else—they come from changing the fundamental nature of the game itself to your advantage. Business strategy, and the concept of co-opetition, is designed to provide a framework by which companies can gain a sustainable competitive advantage by changing the game to their own advantage.

Concept of Co-opetition

Co-opetition is part competition and part cooperation. It describes the fact that in today’s business environment, most companies can achieve more success in a dynamic industry than they ever could working alone. Specifically, when companies work together, they can create a much larger and more valuable market than they ever could by working individually. Companies then compete with each other to determine who gets the largest share of that market.

Co-opetition allows for the real-world business situation that there can be multiple winners in the marketplace. Business, unlike war, is not a winner-takes-all proposition. The objective is to maximize your return on investment—regardless of how well or how poorly other people or other companies perform.

The Value-Net

To visualize the business environment, consider the following value net:

• Suppliers: Provide resources to all companies within your industry.
• Competitors: From the customer’s perspective, are all those companies whose products or services make whatever your company offers seem less valuable.
• Complementors: Again from the customer’s perspective, provide products or services that add value to whatever your company offers. Example: computer hardware and software companies are complementors—their individual products are worth more when combined.

The biggest commercial opportunities and greatest profits don’t come simply from playing the game better than everyone else. They actually come from expanding the game from whatever it is at present to a new game that is bigger, better, and more valuable for everyone involved.

To change the game of business, you have to alter one or more of its five basic elements:

• Players: You can alter the mix of competitors or complementors for your company.
• Added Values: Whichever company adds the most value to the value net holds the power. Change the added value of the various players and you change who holds the power, and the game itself.
• Rules: If you can change the rules by which the game is played you can influence who will be most successful. In business, the rules are negotiable.
• Tactics: By altering the players’ perceptions, you can change the outcome of the game. Perceptions are shaped by tactics.
• Scope: By understanding how other commercial games influence this game, you can take advantage of any implicit boundaries other parties are using to improve your own competitive position, and change the game.

Changing the Game of Business

Element #1: Players

Any time the players in a value net change, the overall market value of the entire net is either worth more or less. Therefore, before you enter any new value net, stop and ask “Which of the current participants in this value net has the most to gain by my participation?” Then find a way to get that player to pay for your participation.

The objective is to create as big a value net as possible. The more customers, competitors, complementors, and suppliers there are, the more the entire value net will be worth, and the more your percentage of the overall value net will be worth.

To encourage more competition, customers can:

• Offer to subsidize any capital investment that would be required for a new company to enter that industry.
• Provide a guaranteed sales contract if a new company will commit the resources required to enter that market.
• Offer a last-look provision—in which a new company can match whatever is the best price offered by competitors.
• Provide better access to information to a potential newcomer.
• Link initial market entry business with additional future business opportunities.
• Supply a potential newcomer with a price at which he is prepared to give them the business.

To increase the number of customers in the value net, companies can work together or individually to:

• Educate the market about product benefits.
• Be prepared to lose money on early customers in order to build market momentum.
• Subsidize customers who buy complementary products—the more of those they buy, the more they also buy of your own product.
• Become their own customers by setting up new companies to buy and use their own products.

To increase the number of suppliers in the value net, companies (again working by themselves or with others) can:

• Pay companies to establish operations in that supply industry, thus offsetting their capital costs.
• Form a buying coalition in which companies pool their orders to create a viable market penetration level for a new supplier.
• Become their own suppliers by setting up new companies to guarantee supply and to stimulate competition.

To increase the number of complementors, companies can:

• Form a buying coalition with customers to steer them towards the lowest-priced complementors, or towards new complementors.
• Pay companies to develop complementary products.
• Become your own complementor by establishing manufacturing capacity and business operations for a suitable product.

Large companies frequently become their own competitors by launching a number of brands for similar products. The competition keeps everyone performing well. Similarly, the other way to expand the value net is to introduce new competitors, by:

• Aggressively licensing your technology to other companies—generating license fees and forcing your company to continue to develop newer and better versions.
• Creating second sources of your products—so buyers won’t be concerned about being dependent on just one source of supply.
• Creating your competition in-house by creating standalone brands that compete aggressively for market share.

All of these strategies are designed to increase the total market value of the value net by adding more players in the form of more customers, more suppliers, more complementors, or more direct competitors.

From the perspective of a company that has not yet entered any specific value net, they should ask that critical question: “Which of the current participants in this value net has the most to gain by my participation?” The answer to that question will be the group who will offer the best financial incentives for your company to enter that value net. You should then approach them, and structure some way they can pay you to enter. On the other hand, if your company doesn’t add overall value by entering any specific value net, and can’t find any rationale for the current participants to pay them to participate, it will make more sense to sit on the sidelines.

Element #2: Added Values

Every value net has a total commercial value, which is made up of the sum of the added values of each participant in the value net. Therefore, if a new participant joins the value net, the amount by which the value of the whole net increased is that participant’s added value. The objective, in business, is to maximize your own company’s added value.

Suppliers would prefer the value net to always be kept in a state of under supply—that is, that your company, your competitors, and your complementors will not be able to get as much product as they’d like because production is at full capacity already. The advantages of this are: