How to Cooperate With the Competition

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.

This was not enough. Our lawyer had me and my team role play meetings with potential partners until we were comfortable that we could discuss the legal ramifications of our idea. Getting the legal team involved early also ensured their participation when it came time to negotiate with our partners.

Step 2: Find the Right Partner

Now that the legal coast was clear, I went out to find a coconspirator. I looked for a CIO with similar needs—and, more important, with the right attitude. The key to success in this step was to collect our ideas into a short and precise discussion note to use in our pitch. We had to make sure that our basic assumption—that the problem is universal—was valid and that our solution would be attractive to another company. We got lucky. Our counterparts at our largest competitor, Universal Music Group, were as determined to do this as we were. Joe DeTullio, Universal’s CIO, and Marjorie Feldman, the company’s royalty executive, became our best friends and allies as we convinced our companies to join together.

Step 3: Build a Business Case

We built the case gradually, starting with the current cost of operations versus the planned cost post-implementation. We went on to show the cost of alternatives, with “do nothing” always a viable alternative. Since the business process for managing royalties under the proposed joint venture was similar to what we were doing in-house,

we added the costs and benefits of outsourcing not just the technology but the entire royalty administration process. The business case was sealed.

We de-emphasized the revenue-generating upside, because it was not guaranteed and this project was not conceived as a moneymaker. To our surprise, our corporate leaders—from the heads of business units to our CEO—got the cost-savings argument immediately and spent most of the time trying to understand the upside opportunities.

Step 4: Fight FUD

Fear, uncertainty and doubt, also known as FUD, is a common tool of skeptics. With any new initiative, it’s easy to start playing a “what if” game, spinning disaster scenarios. I had to make sure we were prepared. I challenged my staff to help me create negative scenarios along with the positive examples of how the system would be used. To encourage debate, I sometimes made an absurd statement and waited for reactions.

This is the time when your staff is critical. You need ideas and someone to challenge your thinking. We didn’t have a formal process for such exercises, but whenever anyone threw a challenge on the table, an ad hoc team was assembled to address it. Many times during these exercises we found gaps in our thinking that helped us solidify our case.

Step 5: Enlist Supporters

Rather then engaging in mass presentations to anyone who might have an opinion, we assembled a core team of “JV Supporters” between the two labels.

Our teams met individually with the key people within our companies, including the CFOs and the heads of each label. This was how we made sure that we dealt with everyone’s concerns and that nobody would surprise us with questions out of left field during the formal presentation to our executive leadership.

Good to Go

It took about four months, but we got clearance. The joint venture was established at the end of the third quarter of FY04. We are on schedule, on budget and nearing alpha release of our jointly developed royalty administration system. It’s not time to celebrate yet, not until we are in full production next year.

But we’ve learned that co-opetition is possible, provided you exercise the leadership and persistence necessary to achieve it.

Tsvi Gal is CIO at Warner Music Group. Send feedback about this column to leadership@cio.com.