Linking arms with one's enemies

Excerpted from Transcompetition, by Harvey Robbins & Michael Finley, McGraw-Hill/Business Week Books, 1998

(c) by Harvey Robbins & Michael Finley

When we were in Brazil in September of 1997, an executive of a plastics company asked us a poignant question:

"How do you collaborate with someone you have always considered an enemy?"

The question is especially tough when the enemy is someone you have been doing battle with for years. A company you have held rallies to taunt and denounce, that hired away some of your best people over the years, and that obtained inside information about your company and its plans.

There is no love lost when elephants do battle, and much grass trampled. And patching together a peace afterwards is no sure thing.

The problem is especially acute in a society like the United States, where supercompetitiveness is given free rein, where there are no collegial keiretsus or chaebols (Korea's equivalent of the Japanese network) setting ground rules for combatants, and where corporate cultures vary widely.

Apple and IBM

Head-to-head warriors Apple and IBM were given very little hope of success when they entered into a joint venture with Hewlett-Packard in 1992 to create a common operating system, nicknamed "Pink," and sure enough, the project was a bust, even after spinning off the new technology to jointly-owned Taligent Corp. The venture cost the three companies $100 million, and ended in squabbling over who gets what.

But despite predictions of many industry observers, the reason for the failure ultimately had little to do with the clash of corporate cultures.

Apple had always defined itself as the opposite of whatever IBM was. If IBM was East Coast, suit and tie, middle-aged, and business-savvy, Apple took pains to be West Coast, jeans and T-shirt, twentysomething and more interested in technology than business.

Taligent went belly up, and no one ever made any money off "Pink," But the collaboration proved a powerful point to the two former competitors, and was the genesis of a new kind of relationship between the two companies.

First, the two companies found out they are both global, and both middle-aged. The cultural differences were not so important as people thought they would be. Second, the two staunch competitors had a reason to come together: to join forces to hold off and even more fearsome competitor, Microsoft, which had stolen IBM's dinner right off its plate, and which treated the Macintosh standard with condescension and contempt.

The operating system joint venture went nowhere, but it laid the groundwork for a more profound alliance involving microprocessors. Eventually, Motorola, IBM and Apple would join together to create the PowerPC chip, which came the closest of any chip in the mid-1990s to competing against Intel's Pentium chip. And IBM and Apple would find common cause with a large number of other companies that were alarmed at the Microsoft/Intel relationship: Novell, Netscape, Adobe, Sun Microsystems, Symantec, and ADM. In a sense, they became an American keiretsu, joined arm in arm to defend themselves against a common enemy.

Collaborative rationalization

The answer to the question "Why should competitors collaborate?" is that you do it out of self-interest. Nemesis wars are wars of mutually assured destruction. Unless the fix is in (you hit us, then we hit you, but we take pains not to actually do one another any damage), head-to-head competitors exact a terrible toll of one another in resources, resilience, and rationality. It becomes a habit, and not a happy one, and from that point on it is simply a game in which two dummies slug one another.

When enmity is high, rationality is low. You must rein in these extremes or you risk going over the deep end.

It seems heretical to say this, but even in the din of battle, nemesis competitors need one another. Apple and IBM, even as they struggled to outdo one another, profited greatly from one another's existence. Apple inspired IBM to participate in the small systems market, and IBM legitimized Apple's participation in it.

If there is not a battle, consumers may never know about your product. The Apple/IBM War was a spectator sport, and millions of people around the world looked up to see how it was going -- more than would have tuned in to an informational commercial about the Apple II.

Head to head competitors have found that they can compete, while at the same time cooperating on marketing initiatives. In Mike's sleepy urban neighborhood of Merriam Park in Saint Paul, there is a street called Selby Avenue. For years, there were a handful of antique dealers and furniture restorers scattered along the length of three blocks. Antiquing is a low-margin business, but the people who go into it want to succeed as much as anyone. The shopkeepers will tell you that when a customer went into one shop instead of theirs, they bit their knuckles out of jealousy.

But it was not until 1996 that they decided that their competition was a blessing. They formed a merchants alliance with one another and renamed their stretch of the neighborhood Antique Row. They painted murals between shops, promoted joint events, and reached out to any nearby business that had tangential interest to join them -- coffee shops, bike shops, used clothing shops, a bank. Now when a customer goes into one shop instead of another, the proprietor may still bit his knuckle. But at least the customer found her way to Antique Row. Chances of getting a visit from that customer were much greater than if the customer had never come by.

COME ON, BABY, DO THE CoLOCATION

Colocation is a phrase that arose from collaborative practices of the last few years. Teams function better when they are in physical proximity to one another (within reason). So whenever possible, and the personalities and schedules of the principles mesh, they are put together to work.

Colocation works best when it is done with respect for team differences. Putting a bunch of avid supercompeters together in a room may make for interesting viewing from behind the two-way mirror, but quickly dissolves in a frenzy of high-fiving.

"Putting them together in a room" is poor colocation, anyway. People -- most people -- need some degree of privacy. Visioning teams as a barracks experience in which everyone inhales everyone else's exhalations is an invitation to team ennui, not to mention room freshener.

More interestingly, however, colocation works just as well among fierce external competitors as among internal team members.

Consultant and author Michael Porter is regarded as a god among competitive strategic thinkers. All his books have competitive in the title. But one of his latest uncovered the peculiar insight that competitors do better, and reach a new plateau of intra-industry collaboration, when they colocate in the same zip code or locale.

It works within countries as well. Thus is New York the center for advertising, publishing and finance; Seattle for aircraft equipment and design; Cleveland for paint and Carlsbad, California for golf equipment.

Companies need to be aware of and influence this geographical determinism. If you want your region to be competitive, invite in other competitors. Take an active role in improving local infrastructure and schools. Work with associations to strengthen intercorporate bridges, and to speak to government in a single voice. For its part, government can provide stability, predictability, an economic vision, and assistance in building industrial clusters.

The first paradox is that in a global world, locale still means something. Not only do companies do better in some places than others, but they do better by marketing locally to the different needs and tastes of those markets.

The second is that companies compete more when they are surrounded by competitors. "Trust networks" can spring up laterally where professionals from different industries work in the same area.

Exult in surrounding yourself with competitors without freaking out. Point out strategic thinker Michael Porter's findings that successful organizations are always to be found in zones of their own industry, getting along more or less amicably: Silicon Valley in California for computers, Minnesota for biomedical equipment, San Diego for golf equipment, Italy for shoes, Britain for high-performance cars. All the companies in these global industries exist within a few miles of one another. Having lots of competition nearby, living and breathing the same air as you do, boosts everyone's profit potential,

Identifying gaps

But the main reason enemy businesses are reaching out to one another in our time is that there are gaps in the competition -- markets where the two organizations are not engaged in death-struggle with one another. Where these gaps exist, or where a compelling other reason exists, such as joining together to fight an even more despised enemy, opportunity also exists.

It happens often at the large corporation level: Apple and IBM and Motorola deciding to make a new chip; the Defense Department and McDonnell Douglas and a thousand other large weapons subcontractors; Hitachi of Japan and Olivetti of Italy, to open up markets to one another in their respective continents; NEC of Japan with Bull of France, joining together to get NEC in the mainframe business; Peugeot and Renault's decision to make electrical cars together.

It occurs at the smaller company level as well, Paragon Decision Resources is a 60-employee service company based in Irvine, California that specializes in relocating people. It's really two businesses: it published a newsletter about employers for employees, and another newsletter about employees for employers. Many of Paragon's employees work at client sites, working out details for people who must move from one locale to another, buying and selling homes, solving problems relating to schools and eldercare.

But Paragon, which often competes harshly against other relocation firms to win jobs, often turns around and gives referral business to the same competitors it beat out -- or that beat it out. Why? Because they often have areas of strength that Paragon can't match, such as local real estate know-how.

It doesn't matter to Paragon if they hand off occasional small jobs to competitors, provided the end-customer is still happy it contacted Paragon first. The long-term customer relationship, not the sideshow competition with other firms, is where paragon's best interests lie.

"And why not," asks Wall Street Journal columnist Thomas Petzinger, Jr. "Competition and collaboration are merely two aspects of the same wealth-creation process." Where the mantra of used to be "location, location, location," Petzinger said, "those days are gone. Now it's 'connection, connection, connection.'"

The answer is that you can't, not overnight. The geometry of trust is a steep isosceles triangle. The sides leading to its peak are steep and require a long, steady climb. One misstep, one deception or betrayal, or reversion to the supercompetitive ways of the past, and you start over again at the bottom. Or you just walk away, determined never to be made a fool of again. This is the common experience of most high-level alliances.

Transcompetitive Tips

There are four strategies for hammering swords into into transcompetitive ploughshares.

• Trustbuilding. Lifelong rivals have ample reason to be distrustful. Each side knows things the other side desperately needs to know. So long as the atmosphere is contaminated by this distrust, there is little chance of effectively working together. Sharing information communicates the idea that mutual gain is a possibility -- that I don't have to succeed by making you fail.
• Does this mean that the transcompetitive company promptly hands over all sensitive information to prospective partners? No.
• It does mean that negotiators must prioritize their concerns. They are not at the table to keep secrets or to gain personal credit for being "tough," but to make good deals. If sharing information moves the process forward, it is a sensible strategy.
• Likewise, if the objective of partnering is to create opportunities that would not otherwise exist, both sides will need information to work from the biggest picture possible. Without information, there can be no collaboration.
• The whole idea of partnering is to agree to be open -- to imagine the walls now dividing you are gone.
• That's why you must meet in the transcompetitive zone, where you fight for common ground, but verify everything.
• Inquisition. The ideal partnership is one in which you already have all the information you need -- then you don't have to worm it out of your partners. The problem is that your data bout them is never as good as their own data about themselves. Their data are more accurate, more reliable, and more balanced. Why not just ask them, pointblank, for the information?
• You will say, "Why should my competitor answer my questions?" The answer is that your chances of getting information are greater if you ask than if you don't ask.
• True, your prospective partner may not want to divulge information on sensitive issues, such as the cost of capital, what their alternative plans are, etc. But by giving them a chance to divulge, you learn what points are sensitive to them, and that is valuable information, too.
• When dealing with a lifelong adversary, it is very difficult to keep an open mind. It is easy to get distracted with hostile challenges, or thinking of what we will say in reply. At such times it is critical to favor listening over replying.
• Unite. Alliances require some sort of structure, whether it is tight or loose. Most collaborations between equals are loose, with every measure subject to the approval of every member of the alliance, or the measure doesn't carry.
• This form is called a confederacy, and it is the preferred American way of uniting, going back to the strong feeling Americans have for local control. When Indian tribes united as in the Adirondack area in the 18th century, they formed loose coalitions. The United States' first government was based not on the Constitution but the Articles of Confederation. When the Civil War began, Southerners reverted to this loose format. It is noteworthy that the South, which lacked the ability to tax itself as part of its confederate structure, lost the war.
• Different authorities disagree on loose vs. tight. Economist Lester Thurow believes that the European Union will have a big advantage over NAFTA because unions are tighter and better able to police themselves. The natural fractiousness of Americans will be their undoing. Others say the opposite, that a quarrelsome, individualistic union will be more flexible and more open to new ideas. Confederacies like Saint Paul's Antique Row are probably the best way for small players to compete against their corporate cousins. The form has extended the lives of independent grocers in the IGA "chain," the coop members of Farmland USA, the brotherhood of franchisers in the Hardware Hank family, and the various statewide associations of independent bankers.
• Disclosure. Give something valuable away, some tidbit of information that shows you mean business. Strange things happen when you divulge information. You can see it in the expressions on the other side's faces. Astonishment, relief, something close to joy. Not the lawyers' faces, though -- never look a lawyer in the face.
• We're not saying Coke should blurt out its sales strategy to Pepsi, or that McDonalds should confess to Burger King the ingredients of its secret sauce. But there are things they are dying to know that will cost you nothing. Why not tell them, to get the ball rolling? You will likely find that the gift is reciprocated. If it isn't, slow down -- their hesitation is a sign they are not as ready do work together as you are.
• Explore. The biggest mistake rivals make in partnering is building a firewall around the partnering project. Instead of protecting the enterprise against further partnering, you should be looking for other areas to collaborate on. The catastrophic alliances that make news are those limited their interactions to such a narrowly defined pilot that they were swamped by the bad blood that dominated the companies' historic relationship. The cure for bad blood is new blood -- new ideas, multiple projects, the support of a broad base of leaders on both sides.

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