Zero sum competition – “I grow by taking market share from you” – has served as the basis for competitive strategy since the dawn of capitalism. In 1602, the Dutch East India Company became the first, and largest, chartered company to trade spices in East Asia. Competition arrived in the form of the English East India Company’s second voyage to the area in 1604. The voyage presented the Dutch East India Company with a choice: do we collaborate with this new entrant in order to build the market larger for all, or do we take action to protect our market share? Predictably the Dutch East India Company presented great resistance to this voyage. Thus zero sum competition was born.
Over the subsequent decades, zero sum competition exemplified the choice entities had to make: should we work in concert to jointly grow or should we seek to debilitate, if not destroy, the competition? Implicit in this choice is the belief that an entity could command and control its own destiny; the choice of next step was theirs to make alone. Consider GE’s mantras in the 1980s: “Be number one or number two in your market, or we exit the business”; “We annually fire the employees whose performance ranked in the bottom ten percent”; and “The CEO’s mandate is to maximize shareholder value.”
The vexing challenges (e.g., climate change, massive population growth, wealth disparity, stagnated living standards, etc.) that threaten to rip apart our world are also bringing it together. Access to natural resources, once reviewed myopically and solely through the callused lens of commodities trading, is now much more complicated. Entry into local communities, by opening a megastore, manufacturing plant, or mine for extraction, now requires the proof of a business case that far exceeds a mere bump in municipal tax revenue. Our global infrastructure is crumbling, with pundits calling for $45 trillion in investment by 2030 worldwide, just to keep highways, bridges, and ports operating as they are today. Companies need resources, they need entrée into local communities, and they need reliable infrastructure.
Now the interest of the commons is in the commons’ interest. More and more companies are reaching the same conclusion. As a result, collaboration – intra-company, intra-industry, cross-industry, and cross- sector (private, public, civil) – is on the rise. And as my most recent book The Collaboration Economy demonstrates, companies are beginning to conclude that working in concert with rivals is an approach to create competitive advantage – because being a part of the team that addresses pressing local and global challenges provides access to all of the components of an individual company’s successful 21st century value chain.
So companies are embracing a third path to performance: work with the competition to address joint challenges, thus securing access to all of our value chain needs, and then fiercely competing to earn consumers’ trust and dollars. Consider the retailers and consumer goods companies involved in the Consumer Goods Forum. As a group these companies, ranging from Unilever to Walmart to Coca-Cola, earn over $3.3 trillion in annual revenue. They have jointly committed to specific steps to lower their environmental footprint. For example, the Consumer Goods Forum participants have pledged to:
“Mobilize resources within our respective businesses to help achieve zero net deforestation by 2020. We will achieve this both by individual company initiatives and by working collectively in partnership with governments and NGOs. Together we will develop specific, time bound and cost effective action plans for the different challenges in sourcing commodities like palm oil, soya, beef, paper and board in a sustainable fashion.”
To carry out their individual commitments to the Consumer Goods Forum, companies must adjust their procurement policies and supply chain practices, as well as their product and packaging designs. As any involved in the heart of operations will say, these are neither easy nor non-disruptive changes. But because multiple companies are carrying out the same challenges, the problem of asymmetric competitive disadvantage – “I’m electively suffering from disruptive change while my competitor benefits from its inactivity” – is rendered moot.
The company that adjusts first, at the lowest cost, can still win in the short term. And over the long term the markets that the companies might have destroyed, through irresponsible business practice, will be protected. Leaving the companies that collaborate together to compete individually, in a way that all involved can win.
This article appears in MISC Winter 2014, The Balance Issue