Co-Opetition - Adam M. Brandenburger [13]
Many companies are both competitors and complementors with respect to their suppliers. Compaq and Dell, for example, compete for the limited supply of Intel’s latest chip. But the two companies are complementors as well as competitors with respect to Intel. Between development costs and building a new fabrication plant, Intel will spend well over a billion dollars to develop the next-generation chip. Intel will be able to spread that cost among Compaq, Dell, and all the other hardware makers, which means that each one of them will pay less to have Intel inside.
American and Delta compete for landing slots and gates. But although they are competitors for airport facilities, they are complementors with respect to Boeing, a key supplier. When American and Delta decide to commission the next-generation airplane, it’s much cheaper for Boeing to design a new plane for both airlines together than to design a new plane for each of them separately. Most of the development costs can be shared, and the greater demand helps Boeing move down the learning curve faster, too.
The same principle applies to fighter planes, although the U.S. Congress may have discovered this a bit too late. The F-22 fighter jet complements and is complemented by other defense programs that share common development activity, such as avionics and navigation. Kill one of these supply-side complementors and you may shoot down the F-22 without meaning to. William Anders, former chairman and CEO of General Dynamics Corporation, explains the problem:
The F-22 is being recognized as one of the most successful, best managed next-generation weapons system development programs currently under way. However, as demand continues to fall in other defense programs served by the F-22 team, a portion of the fixed and overhead costs formerly supported by those programs automatically shifts over to the F-22. The danger is that this model program could ultimately become unaffordable because of the growing overhead and fixed cost burdens.10
In cutting back defense programs that it decides it can do without, Congress inadvertently endangers programs that it wants to keep. With complements, it’s sometimes all or nothing. There may be no halfway.
As we continue moving into the information economy, supply-side complementarities will become increasingly the norm. There’s a big up-front investment in learning to make something—whether computer chips or airplanes—and then variable costs are relatively modest. There’s huge leverage. The more people that want a knowledge-based product, the easier it is to provide.
In the case of computer software or drugs, essentially all the costs are up-front; then it’s gravy. For Microsoft, all the real cost comes in the intellectual step of writing the computer code for a new program. Copying the disks costs only pennies. So the bigger the market, the more the development costs can be spread out. The mass-market program is better and cheaper than what any one person could commission on his own. That’s the nature of markets for knowledge-based products.
Recognizing Symmetries
The Value Net reveals two fundamental symmetries in the game of business. On the vertical dimension, customers and suppliers play symmetric roles. They are equal partners in creating value. But people don’t always recognize this symmetry. While the concept of listening to the customer has become a commonplace, the same isn’t true when it comes to suppliers. We’ve all heard people tell their suppliers: “You’ve got the specs. You don’t need to know what the product’s for. Just get it to me on time at the lowest price.” Imagine talking to customers that way! Only recently have people begun to recognize that working with suppliers is just as valuable as listening to the customer.
Supplier relations are just as important as customer relations. In one labor negotiation, we heard the head of human resources exclaim: “I have to get my employees to understand that the customer comes first.” Seeing the Value Net helped change his mind and made