An Interview With the Authors

A conversation with
Adam Brandenburger and Barry Nalebuff
authors of CO-OPETITION

What is CO-OPETITION?
CO-OPETITION is a new way of thinking about business. Some people see business entirely as competition. They think doing business is waging war and assume they can't win unless somebody else loses. Other people see business entirely as co-operation-teams and partnerships. But business is both co-operation and competition. It's CO-OPETITION. That's why we've chosen CO-OPETITION as our title, a word coined by Ray Noorda, founder of the networking software company Novell: "You have to compete and cooperate at the same time."

How does someone put this idea of CO-OPETITION into practice?
The key is looking at business as a "game." Once you do, you can much more easily spot both the competitive and cooperative aspects of what's going on. Then, after you have a more complete picture of what's going on, there are some simple concepts from game theory that allow you to change the game so you'll do better.

What is game theory?
A branch of applied mathematics that provides a systematic way to develop strategies when one person's fortune depends on what other people do.

How did game theory begin?
Game theory began fifty years ago, with the publication of the book Theory of Games and Economic Behavior by mathematical genius John von Neumann and economist Oskar Morgenstern. The book was immediately heralded as a major scientific achievement and led to numerous technical papers in the fields of economics, politics, military strategy, law, computer science and, even, evolutionary biology.

In 1994, three pioneers in game theory were awarded a Nobel Prize. The Federal Communications Commission has used game theory to design a $7-billion auction of radio spectrum for personal communication services. (Of course, the bidders used game theory too.) Now, we're working with many businesses and consulting firms applying game theory to help them change the game.

So the key to all this is "changing the game?"
That's exactly right. The greatest rewards in business don't come from accepting passively the game you find. Rewards come from choosing the game you want and adapting it to serve your own purposes. A great strategist said "Philosophers have only interpreted the world. The point, however, is to change it." That strategist was Karl Marx.

You can do your job extremely well, work hard, and still find your efforts aren't rewarded. When that happens, your problem isn't that you're playing the game poorly. The problem is that you're playing the wrong game. The answer in such cases is to change the game. That doesn't mean giving up what you're doing. But it probably means going about it differently. Real success in any business comes from making the game you want, not taking the game you find. In CO-OPETITION, we lay out the principles for doing this.

What are the principles?
The first step is drawing a map of the game. After all, you can't change what you don't see. Our map, the Value Net, identifies all the players in the game of business and the interdependencies among them. The second step is changing the game. We have a method called P.A.R.T.S.-which stands for Players, Added values, Rules, Tactics, and Scope. The key is to find a systematic way to change the game. People say "think out of the box." We provide a method for thinking out of the box.

Who has applied these principles?
Many businesses have done it and profited greatly as a result. Our book is full of examples and our clients range from the big companies, such as Bell Atlantic, Citibank, Merck, Proctor & Gamble, and Xerox to smaller companies, such as United Aluminum and Flexmag. Management consulting firms are bringing our approach into their practices. CO-OPETITION is also changing the way people are taught strategy at business schools.

What businesses would benefit most from applying these principles?
We think almost any business would benefit, from a one-person start-up, to a giant multinational, to a non-profit. As word of our work spreads, we are particularly gratified by the wide range of people who find it useful: people at the top of the largest corporations, people who are described as "middle management," even engineers and artists, people who don't naturally think of themselves as strategists.

Can you give me some specific examples of businesses that have changed the game?
The book is full of examples-dozens. Here's a small sample. Many products don't take off because complementary products or services are either too expensive or don't exist at all. Take online services: a key complementary service is local phone service. Online services have yet to take off in Japan. One reason: NTT dominates the local phone market and charges a lot. That makes using online services expensive. By contrast, local calls in the U.S. are free, and this has helped fuel the explosive growth of America Online, CompuServe, and all the Internet-access providers.

Our strategic recommendation: Don't accept the game as it is; change it. Enter the complementary business yourself or, at the least, negotiate more favorable prices for complementary products and services on behalf of your customers. You're typically a bigger, more expert negotiator than your customers. Use your clout and expertise on their behalf.

Many, many businesses can benefit by changing the game this way. The car makers might consider negotiating cheaper auto insurance for car buyers. That would help boost the demand for new cars. Sallie Mae, the largest student loan provider, is helping its students get cheaper air travel, phone calls, and textbooks. That makes Sallie Mae's loans look better than the competition's. As for small business, there's a used-car magazine in Paris that negotiates favorable rates for its readers on various ancillary services, such as financing, mechanical warranties and the like. That business is so successful that it's expanding to Canada, Hungary, Poland, Sweden, Thailand and elsewhere.

Andy Grove, CEO of Intel, is a big devotee of changing the game this way. He's actually getting into complementary businesses himself. One of Intel's big challenges is that existing software applications don't push the limits of existing microprocessors. That's a problem because then Intel won't be able to sell its next-generation chip. Grove's answer: Develop a complementary product that will boost demand for more powerful chips. That's ProShare, Intel's desktop videoconferencing system, which is being heavily subsidized in an attempt to get the system to take off, and the demand for more powerful chips along with it.

How would you sum up your book?
CO-OPETITION is a book that develops a new approach to business strategy, one based on game theory and tested in the field. Competition isn't dead and it isn't dying. But that concept is only half the picture. CO-OPETITION explains how to compete without destroying the pie and how to cooperate without getting your lunch eaten.

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