Cooperating with Competitors

cover image of The New Economics

W. Edwards Deming included this example of businesses cooperating with competitors in The New Economics for Industry, Government, Education:

My automobile, sitting in front of my house, would not start. I called Bill at the Exxon station not far away. When the man from the Exxon station came, I noted that he was in a truck owned by his competitor across the street.

How smart these people are, I perceived. Each station owns one truck. By borrowing the competitor’s one and only truck, if it be idle, both stations provide to their customers service equivalent to ownership of perhaps 1.8 trucks, at the cost of owning only one. Advantages: these stations both retain business of customers at lowest cost. Even further cooperation: one station stays open late one night, the other stays open late the next night.

It is a great example, showing how it is possible to find solutions that help business and customers by thinking in unconventional ways. These types of cooperation are not unheard of but I think we could benefit from more thought given to ideas that initially make us think it is an unworkable and crazy idea.

I was actually reminded of this idea by a headline on two American football teams being willing to share a new stadium near Los Angeles if they can’t get individual stadiums built (with huge funding from taxpayers) near their current location.

Now in the stadium example I fear it is mainly a negotiating tactic to back their current cities into providing huge concessions. The concessions local governments grant for stadiums are widely seen by economist as foolhardy: I agree. But if the choice is between wasting lots of taxpayer money on 2 stadiums or doing so on 1 stadium, closing 1 stadium they share is the lessor of two bad options. The correct option is to let them build the stadium if it is economically wise without taxpayer giveaways. The New York Giants and New York Jets share a stadium in New Jersey.

The idea of finding cooperative solutions with competitors is something I support. As with most any strategy there are considerations that impose limits on how far things can go. Cooperative solutions have to be found that benefit each competitor and also that benefit customers. In the USA, and most other places I would imagine, there are legal limits on collusion to harm consumers with anti-competitive agreements.

In a previous post we discussed how, in applying Deming based management principles as a business strategy, Hallmark Building Supplies cooperated with customers (some of which were also competitors). That post also includes a webcast of Louie Paynter discussing his experiences.

I think examples of these cooperative solutions with competitors from our readers would be of interest to all of our readers. Please share examples from your organization with us by including a comment below.

Related: Tyranny of the Prevailing Style of ManagementDr. Deming Video: Managing the Organization as a SystemManaging the Supplier Relationship (a systems view)

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1 Response

  1. Eric Christiansen says:

    I had a personal experience with this concept back in the 80s:

    My parents owned one of the largest video store chains in Boise, Idaho. At this time, much of the renting public still needed to rent video players and on various occasions we would run out of players.

    My natural response was to tell the customer “sorry, we don’t have any players but maybe you can find one somewhere else like 7-Eleven” and send them on their way.

    My dad taught me it was better if I picked up the phone, called our competitor and checked if they had any units available for rent. If they did, I would either hand the phone to the person in our store or transfer the person on the phone to the competitor so they could complete the reservation.

    Did we lose some business? Sure, on that one transaction. But almost every single time that customer came back to us to rent the movies at our store and we would see them again and again as repeat customers.

    We also expanded this service to movie titles as well — if we didn’t have a particular title in, we would call around to our competitors to see if they had the title in.

    It definitely helped build a dedicated and loyal customer base. Their video store chain outlasted all the local competition and when Blockbuster came on the scene, they were able to gracefully exit out of that business.

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