The Best of Both Worlds
More and more companies are joining forces - even with the
competition - to gain collective market strength. But the most
successful are strengthening their individual identities, too.
By Jessica Lipnack and Jeffrey Stamps
from Inc. Magazine, March,
Most managerial gurus today herald the coming end of boundaries
- between divisions within a company, between companies and their
suppliers or customers, and between companies and their competitors.
Many agree with General Electric's CEO, Jack Welch, who has written,
"Our dream for the 1990s is a boundaryless company...where
we knock down the walls that separate us from each other on the
inside and from our key constituencies on the outside."
But we hold that the contrary is true. The fact is, corporations
need boundaries to distinguish themselves in the marketplace. Their
ability to cross those boundaries and still maintain their own distinctive
identity as they develop their own core competence becomes their
To meet the challenges of dry capital markets, high costs or research
and development, new technology, state-of-the-art training, and
the opening up of global markets, a growing number of small companies
are creatively cooperating with their competitors. They are forming
networks that enable them to benefit from the economies of scale
available to larger corporations while they retain the benefits
of being small. Companies adopting such a strategy also resolve
a crucial tension: how to retain one's own identity while working
cooperatively with others. The most effective networks-
- Are organized around a well-defined joint project and have simple
shared goals that keep members from overshooting and failing.
- Identify a core group that operates not as a merged identity
but as one that strengthens the independence of each participating
- Establish rich communication links that enable the members to
build and develop relationships.
- Reduce the number of bosses and increase the number of leaders.
Since no single person is in charge of cooperating competitors,
everyone involved needs to assume some aspect of leadership to
make the network successful.
- Involve people at all levels of the cooperating companies, so
communication can flow quickly and smoothly.
For a large working model of the system, look at Denmark. In 1989
Denmark's small businesses started to form into teams of three or
more companies working together to create new brands, expand product
lines, and conquer the export market. Within 18 months, 3,500 Danish
businesses -from textile and furniture manufacturers to lawyers
and landscaping companies -were operating in those networks.
The results were impressive. For the first time in 32 years Denmark
reversed its negative balance of trade with Germany. Even more remarkable,
it was the only European country to do so, enabling it to claim
title to the world's highest per capita trade balance in 1992.
Similar cooperative structures are appearing in the United States.
In 1986, for example, Harry Brown took over as president of Erie
Bolt Co., a Pennsylvania bolt maker on the brink of bankruptcy.
With 38 employees, annual revenues of $3 million, and dilapidated
equipment, the company was on the dreary path to Rustbelt extinction.
Brown aggressively formed strategic alliances with 16 other companies.
In some cases he struck deals with competitors who could make certain
parts more cheaply; in others he lent engineers and equipment to
suppliers to help them improve their production processes. Today
EBC Industries, as the company is now known, has 100 employees,
state-of-the-art equipment, and revenues of $8 million.
Howard Norberg, CEO of Minnesota's Tri-State Manufacturers' Association,
provides another successful example. In the association's buying
cooperative, companies that are competitors jointly purchase manufacturing
supplies and sophisticated training. If each company were to do
ISO 9000 training alone, it would cost $900 per employee plus travel
costs, Norberg estimates. By jointly importing a trainer, the cooperative
cut per-employee costs to $300, with minimal travel costs.
To survive and prosper, small companies must learn to work together.
A network of companies has the power to compete globally while maintaining
the speed and independence that come with being small.
In today's new economy, it is not enough for companies to simply
ask, "What business are we in?" The critical follow-up
questions are, "How do we redeploy assets and re-think strategy
in response to the competitive environment? How do we enter relationships
with companies we traditionally competed against - while fundamentally
thinking who we are?"