Comment: Friend or foe? Collaboration or competition?

Are digital technologies leading us to a collaborative sharing economy or to a bitter battleground where technology platforms are fighting for domination? Is the road to national prosperity paved with multilateral alliances and trade, or are we better off pursuing bipartite deals?

Our operating environment has arguably changed, and the pace of change is unlikely to slow down in the near future. However, the basics of striking the right balance between competition and collaboration have not changed – and it all boils down to understanding your context from four perspectives: game type, time, complexity, and uncertainty.

Zero-sum games call for competition

Economic situations can be roughly divided into zero-sum games and positive-sum games.

Zero-sum games usually take place over genuinely finite resources, have a clear winner and loser, and thus call for distributive bargaining: you are doing everything in your power to secure as large a slice of a pre-determined pie as possible. In positive-sum games, on the other hand, the parties do not have a direct conflict of interest and it is possible to reach a win-win outcome through integrative bargaining – you are baking a bigger pie together, or at least agreeing when or how the pies will be baked.

So far so easy: zero-sum games such as bidding for a building site require competitive strategies whereas positive-sum games such as creating a new technological standard require collaborative strategies. However, things get more complicated when we broaden our analysis to include time, complexity and uncertainty perspectives.

Collaboration increases with long-term perspective, complex networks and uncertainty

Being a ruthless competitor is all fine and dandy when the situation is one-off: you won, they lost, game over.

But what if the game is repeated again and again? Squeezing your suppliers for even lower prices will improve your profitability in the short term, but bankrupting them may be bad for business. In a similar vein, adding more parties to the equation tends to tilt the scales towards a more collaborative approach to business.

Interestingly, many strategy frameworks depict extremely simplified situations: two competitors, or a customer choosing between two suppliers. However, the reality of business is more akin to multiple, overlapping networks of individuals and organisations. If you think you are being a shrewd strategist by excluding your competitor from an innovation network, it is unlikely that you have cut them off from viable innovation partners – your competitor will simply go somewhere else, with one crucial difference: you no longer have a clue what they are doing.

The final perspective to the competition-collaboration dilemma is the level of uncertainty. Under true uncertainty, causal relationships become invisible to us. Forget about trying to estimate probabilities for different outcomes – it will be impossible to tell what will be the likely outcomes from a particular course of action. Carrying out competitive strategies requires being able to assess likely outcomes in advance, and thus strategies under times of uncertainty – such as technological disruption – tend to take more collaborative forms.

Nuanced approach needed

As so often in strategy, it is horses for courses when determining whether to compete or collaborate. In practice, most contexts have both collaborative and competitive elements in them – and thus it is not surprising that many strategy researchers are interested in understanding co-opetition. Unfortunately, most of the strategy teaching still overemphasises traditional competitive strategy – perhaps because they are simpler and thus more ‘teachable’ than collaborative and creative approaches.

However, we all ought to remember that using Donald Trump and Tony Schwartz’s Art of the Deal as our guidebook in a positive-sum game environment, with repeat games, complex networks and genuine uncertainty, is likely to be a recipe for disaster.

Associate Professor Suvi Nenonen is director of the Graduate School of Management. These views are her own and do not necessarily reflect those of the University.