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How to Cooperate With the Competition

By Tsvi Gal

August 15, 2005 — CIO — We CIOs are loyal to our companies. But when we attend conferences, we find ourselves face to face with IT executives from the competition. Then, a funny thing happens—we discover we share a common language and common challenges. This leads to the question of whether we could cooperate on some things even as we compete on others.

There’s a term for this kind of cooperation: "co-opetition." Coined in 1996 by Adam Brandenburger from Harvard Business School and Barry Nalebuff from Yale School of Management, it’s the idea that businesses can benefit from the judicious mixture of competition and cooperation. There were many such ventures formed during the dotcom bubble, but few of them worked out. Once you decide to trust someone you were ready to destroy in the marketplace, it takes committed leadership to make that collaboration successful.

The music industry is notorious for its egos and its inability to cooperate. So when my IT department and I decided to preach cooperation—in the form of a shared royalty administration system—among the companies that record and publish music, we took a risk of being handed our heads.

Royalties are the payments we make to our artists. We sell music, collect the proceeds and disburse them to the artists. However, life is not that simple; each contract is unique. So although we could have developed a new royalty system to support these contracts, several factors led us to co-opetition.

First was the cost. Developing the system ourselves would have meant a massive investment at a time when the industry is contracting. Next came the need for standards. Music companies cross-license their products, and it would be easier to exchange information if we all followed a single application program interface. Finally, co-opetition presented a new revenue opportunity. We could set up an independent joint venture that would sell access to the system to other companies in the industry—kind of like what ADP does for payroll.

Now came the hard part: convincing my CEO. In the process, we distilled five steps to collaboration in which consistent, determined CIO leadership is critical.

Step 1: Call the Lawyers

We needed to ensure that whatever we did would not conflict with antitrust laws, so my first step was to meet with our general counsel. I acknowledged that I was aware of antitrust laws and had no intention of breaching them. I promised to share the minutes of all meetings with the CIOs from the other companies I planned to work with.

 

 

 

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