1. Collaboration within a constellation tends to enhance the group's competitive advantage, because it allows the group to marshal its internal resources more effectively.
2. By the same token, competitive friction within a constellation usually dulls its competitive edge, by diverting and duplicating internal efforts.
3. Competition between constellations tends to enhance collaboration within them, because it draws members closer together behind a common goal.
4. Conversely, forces that reduce rivalry between groups -- such as common standards or common allies -- tend to hurt the unity of each group by generating split loyalties.
5. Finally, rivalry among members of a constellation, while usually reducing the effectiveness of the group as a whole, sometimes benefits individual members by increasing their bargaining power over other members.
Selected Businesses with Collective Competition, c. 1994
Source: Gomes-Casseres, "The Alliance Revolution"
Do these conclusions apply to your industry? The answer depends on whether collective competition has spread in your business. You have to look carefully at the competitors in the industry and examine how products are developed, manufactured and sold.
Are alliances important in many parts of the value chain? Is the web of relationships in the industry dense and intricate? Are there few companies left that still compete as single entities, relying mostly on internal capabilities and on arm's-length contracts with outsiders? Have constellations changed the terms of competition, such as the scale and scope required for success?
The evidence so far suggests that collective competition has already emerged in a wide variety of environments and will continue to spread. The accompanying exhibit gives a sampling of businesses already in the throes of the new style of rivalry.
A constellation is only as strong as the alliances that link its partners to each other. To win in collective competition, therefore, companies must carefully manage their key alliances. Here are the factors that have made alliances such as that between Xerox and Fuji Xerox successful:
1. Have a clear strategic purpose. Alliances are never an end in themselves -- they ought to be tools in service of a business strategy.
2. Find a fitting partner. This means a partner with compatible goals and complementary capabilities.
3. Specialize. Allocate tasks and responsibilities in the alliances in a way that enables each party to do what each does best.
4. Create incentives for cooperation. Working together never happens automatically, particularly when partners are former rivals.
5. Minimize conflicts between partners. The scope of the alliance and of partners' roles should avoid pitting one against the other in the market.
6. Share information. Continual communication develops trust and also keeps joint projects on target.
7. Exchange personnel. Regardless of the form of the alliance, personal contact and site visits are essential for maintaining communication and trust.
8. Operate with longtime horizons. Mutual forbearance in solving short-run conflicts is enhanced by the expectation of future gains.
9. Develop multiple joint projects. Successful cooperation on one project can help partners weather the storm in less successful joint projects.
10. Be flexible. Alliances are open-ended, dynamic relationships that need to evolve in step with their environment and in pursuit of new opportunities.
Reprint No. 97108
(1) Adam Smith, "An Inquiry Into the Nature and Causes of the Wealth of Nations'' (Modern Library, Random House, 1937), p. 128. Originally published in 1776.
(2) The rise of new competitors was in part enabled by the Federal Trade Commission's antitrust actions against Xerox. In 1973, the F.T.C. charged that Xerox's pricing, leasing and patent-licensing practices violated the Sherman Antitrust Act. It demanded that Xerox offer royalty-free licenses on all its copier patents, that it divest itself of Rank Xerox (its joint venture with Britain's Rank Organization) and Fuji Xerox and that it allow third parties to service copiers leased from Xerox. Xerox signed a consent decree in 1975, in which it agreed, among other things, to license more than 1,700 past and future patents for a period of 10 years. Competitors were permitted to license up to three patents free from royalties, to pay five-tenths of 1 percent of revenues on the next three and to license additional patents royalty-free. Kodak, I.B.M., Canon and Ricoh were among the companies to secure Xerox licenses under this arrangement.