Corporations can thrive if they collaborate behind the scenes with other businesses © 123RF
Corporations can thrive if they collaborate behind the scenes with other businesses © 123RF

Why you should consider working with your competitors

14 July 2017

Sometimes working together can be best for all parties, even rivals. What role can procurement play here?

It was 20 years ago when two academics wrote a book heralding a new era of collaboration. Co-opetition pronounced that the old rules of competition were dead. By using business relationships and working with rivals, everyone could win, argued authors Adam Brandenburger and Barry Nalebuff. Supporting their strategic vision, they cited numerous examples of corporations thriving because they had already collaborated with other businesses.

They may have been ahead of their time. It’s fair to say that in the intervening 20 years the revolutionary shift did not happen – but now there is growing evidence that Brandenburger and Nalebuff’s ideas are starting to be embraced by businesses. Even the famously secretive Apple announced this year that it would be joining some of its biggest rivals, including Google and Microsoft, to explore the future of artificial intelligence.

So, if more rival companies are going to be collaborating for the greater good, how will it affect procurement? And how can supply chain professionals lead in this area?

In some sectors, especially those with a heavy manufacturing focus, the benefits of embracing collaboration are already being realised. “High-value manufacturing supply chains are used to collaborating to drive innovation and accelerate entry to new or developing markets,” says Roy Williams, managing director at supply chain firm Vendigital. “In the aerospace sector this trend is also driven by the fact that development costs, which are increasing, can be shared.”

It’s a similar situation in the automotive industry, which has seen healthy collaboration between rival companies for years, according to Toby Munyard, vice president at procurement consultancy Efficio. A recent announcement from JLA, Ford and Tata shows an ongoing collaboration with self-driving technology.

“We’ve seen joint collaboration associated with design and collaboration around how to value-engineer products,” he says. “Some automotive companies have also been sending improvement consultants into their suppliers, so that the suppliers can improve and they can gain the benefits.”

Financial services have also begun to capitalise on the benefits of working with rivals behind the scenes. The strict regulatory regime surrounding the sector dictates that companies must collect due diligence information on third-party suppliers, a process that can be labour-intensive, time-consuming and expensive – as well as needing specialist expertise. So, financial services businesses need to collaborate, says Joe Bakowski, director of procurement at Metro Bank.

“Banks are starting to recognise that supplier risk is not an area of competitive advantage, but an opportunity for collaboration,” he says. “That means ‘utility’ or ‘community’ models are starting to grow up in the industry.”

One such model is the recently created Financial Services Supplier Qualification System (FSQS), which is operated by Helios and paid for by members of the scheme. “Under FSQS, members agree one common set of due diligence questions that we ask suppliers,” says Bakowski. “The benefit to member banks is that we get high quality due diligence information at a fraction of the cost that it would take us to collect ourselves, and often much faster. We’re able to draw upon the expertise of Helios and other banks to share best practice.”

Retailers have adopted a similar approach through Sedex, a global not-for-profit collaborative platform that allows members to share factory audits with one another. This can make the fight against modern slavery more effective: at a recent Good Corporation lunch at the House Of Lords, Baroness Young of Hornsey begged the companies present to “forget about competition momentarily” and collaborate to tackle the issue.

The telecoms sector is also doing joint audits, says Ninian Wilson, Vodafone’s global supply chain director. “It’s easier for one audit team to go rather than 15 companies,” he points out.

“This is not just about being able to cater for customer demands,” believes Duncan Grewcock, chief operating officer at cloud supply chain software provider Adjuno. “One of the drivers for this type of collaboration is the cost benefit. Conducting their own factory audits, or paying for a third party to do so, can be very expensive. Being able to review audits of factories shared with their competitors takes away the need to regularly incur this cost. Additionally, depending on the results, this can also help retailers to maintain or increase their profit margin as some retailers will be in a position to charge a premium on their products, because they can market themselves as a ‘trusted’ retailer with principled values.”

Corporate responsibility and sustainability concerns are also driving companies that rely heavily on raw materials like palm oil, rubber and forestry to collaborate, says Bastien Sachet, chief executive of The Forest Trust. The global non-profit organisation is working with companies like Nestlé, 3M and Mars to drive responsible sourcing to eradicate deforestation and exploitation.

“Collaboration is happening because we’re finding that companies are sourcing their raw materials from the same landscapes – for example, the Cerrado in Brazil and West Kalimantan in Indonesia – and when you are tackling issues like deforestation, companies are realising this is better done through a partnership rather than working in isolation,” explains Sachet. “Right now we are working with two companies who’ve decided to collaborate because they source from the same landscape and community in Indonesia. One company is sourcing palm oil and is asking the community to preserve forest, but that same patch of forest, sourced by the other company, is being cleared for rubber. As both have similar ‘No deforestation’ commitments, they are talking, aligning their message and sitting at the same table with the communities to discuss a win-win way forward for all. Both agribusinesses compete on palm oil at an international level.”

Where there are shared interests between rival suppliers, it makes perfect sense for collaboration to occur. Similar dynamics are at play when it comes to setting standards, argues Keith Baranowski, global vice president and general manager of direct materials sourcing at US-based IT and software firm SAP Ariba.

“Some readers may not be old enough to remember the wars between VHS and Betamax or the multiple DVD standards, and how the lack of standardisation delayed the adoption of new technologies in the market,” says Baranowski. “These delays hurt all companies involved. Now competitors will often work together to set a standard and overcome the challenge.”

He adds he is seeing higher levels of collaboration between rival companies who want to join forces and leverage their respective strengths to drive innovation for the whole market.

“A great example of this is the recent partnership between SAP Ariba and IBM, through which they will partner to deliver cognitive procurement solutions that redefine the source-to-settle process,” explains Baranowski. “The companies will also launch a cognitive performance hub where they’ll further the development of intelligent procurement solutions and services, working side-by-side to explore applications of emerging technologies, including blockchain.”

Companies with extensive supplier networks can also work to encourage collaboration between competitive firms within their supply chains for the greater good. Vodafone started collaborative workshops for suppliers two and a half years ago, mainly to encourage discussions around safety. While this is not, says Wilson, “a competitive area”, there were still barriers to break down. “For the first few meetings, it was hard,” he recalls. “Everyone sat quietly and people didn’t want to share. But once we started on joint projects, collaboration started.” He adds: “Some areas will always be competitive and we don’t want [our suppliers] to share, but there are things that are for the common good.”

Time and cost savings, faster delivery of goods and standards to market, the development of design ideas and new ways of working are all benefits that companies have enjoyed through collaboration. It appears to be a no-brainer. So why haven’t we seen more companies embracing the concept?

“Academics love the idea of collaboration and [the idea of] ‘everyone should love one another,’ but that’s not the commercial real world,” says professor Alan Braithwaite, executive chairman at LCP Consulting. He believes many industry sectors fear that collaborating means giving up their competitive advantage.

“Retail in particular is a heavily competitive market. The idea of giving away details of product sources, product ranges and pricing will be approached hesitantly,” says Grewcock.

That’s why the highly competitive grocery sector is particularly cautious when it comes to collaboration. “We see much more collaboration between own-label suppliers and retailers,” says Paul Harvey, associate director at consultancy Newton. “The need to build stronger relationships with more transparency is essential to allow a manufacturer to invest and gain stability, yet the industry rarely sees collaboration between branded manufacturers and retailers, due to margins generally being much higher. The need to protect these margins often prevents open discussions from happening.”

That’s not to say there hasn’t been any collaboration. Braithwaite says it’s something grocery rivals are looking at, but adds: “The emphasis is on the back office because they’re under pressure from a cost and environmental point of view.”

Facilities management (FM) companies are also starting to explore the benefits of collaboration, but Colin Kenton, managing director of FM services at engineering firm KBR, believes that much more could be done. “To achieve greater collaboration we’re going to need some forward-thinking industry leaders in FM to bring businesses together,” he says. “That will tend to be led by the client insisting that their supply chain works more collaboratively. But supply organisations have a role to play. What needs to happen is that clients write collaboration into contracts through the use of cooperation agreements. Then use open forums, where organisations can share ideas and be transparent.”   

The logistics sector too is seeing more collaboration, although it is early days. Peter Fuller, business unit director at XPO Logistics, says: “We’re seeing a change in attitude in terms of companies working with [rival] businesses. This usually starts with sharing transport, a trend driven in part by vehicle emissions regulations, and also encompasses the sharing of warehousing and colleagues.”

One supply chain director at a high street fashion chain told SM that she is doing just that with other retailers. “You fight the battle at the tills,” she says. “There’s no harm in sharing the basics.”

Zupplychain, a website that matches companies that want to store pallets with warehouse owners who have space, was created by its managing director Martin Elgood early last year, largely to capitalise on this trend. He says that many of the “easy ideas” for collaboration were spotted first and this trend is trickling down into other areas where opportunities to collaborate are less obvious. “While collaboration has a long way to go in our sector, we shouldn’t forget pallet networks are collaborative and they started over 20 years ago,” he adds.

A lot of the low-hanging fruit may have already been picked off, but that doesn’t mean that all of the big opportunities have been tapped. One of the key areas where experts believe there is still plenty of scope for greater collaboration is sustainability. Martin Chilcott, CEO of 2degrees, says the United Nations has identified a $12tn opportunity through achieving the organisation’s global goals for sustainable development.

“Meeting the challenges of a rapidly changing climate, switching to a circular economy and adopting new technologies and practices to make the most of our finite natural resources and meet the needs of a global population forecast to reach nine billion people by 2050 – these create massive risk to business and markets as well as huge opportunities,” says Chilcott. “They affect supply chains above all and because these are often challenges that are common across whole industries and regions, the only way they can be addressed is through greater collaboration.”

To this end, the organisation launched Manufacture 2030 in March – a global digital platform that brings brands, retailers and manufacturing suppliers together to cut costs, risks and environmental impacts through cross-industry collaboration.“It helps achieve manufacturing excellence through improved resource efficiency by encouraging those along the supply chain to work together to help solve challenges,” says Chilcott. “By encouraging cooperation along the supply chain, knowledge can be shared to help make the best use of resources, save costs and reduce risks and impacts.”

The initiative has already attracted major manufacturing brands such as Johnson & Johnson and Mars and is accessible to business of all sizes. But although large competing businesses have signed up to this and others like it, that doesn’t necessarily mean that competition is dead.

“Competition is the essence of the free market,” says Bakowski. “However, there is plenty of room for collaboration alongside competition, where there is no competitive benefit to be derived. Working together definitely leads to mutual advantage.”  

And where a mutual advantage can be gained, you will be sure to find a steady stream of rival companies willing to enter into collaborative arrangements so that they reap the rewards of co-opetition. 

Where to collaborate and where to compete

There are no hard and fast rules as to when it makes more sense to collaborate than compete, but industry experts have a few ideas about what works best.

Bastien Sachet, chief executive of The Forest Trust, thinks there are two ways you can establish when it makes sense to collaborate. “When you feel the challenge is too big to tackle on your own,” he says, “and when you know there is little differentiation to be expected from your collaboration because you are meeting a market need or expectation.”

Duncan Grewcock, chief operating officer at Adjuno, concurs, adding that collaboration makes sense “outside of areas of competitive advantage, or in competing areas where information is shared confidentially and win-win savings can be made”.

Making a decision on whether or not to collaborate becomes much easier for many businesses when it surrounds dealing with common problems, according to Martin Chilcott, CEO of 2degrees. “Some industries will push past their competitive restraints and work together in an effort to prevent over-regulation, for example,” says Chilcott. “Collaborating openly increases transparency and becomes a form of self-regulation.”

And ultimately for many rival businesses identifying the opportunity to collaborate rather than compete is the easy part. The hard part is overcoming the “cultural and emotional” hurdles that exist because it’s human nature to “compete, to be the best and rally behind defeating a common enemy”, says Keith Baranowski, global vice president and general manager of direct materials sourcing at SAP Ariba. As a result, he believes: “Rival companies must build enough trust and confidence in each other to overcome the natural inclination to compete.

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