Co-Opetition - Adam M. Brandenburger [47]
What options did Harnischfeger have for changing the game? One possibility was the classic win-lose approach: kill the competition. Kranco was a cash-hungry leveraged buyout while Harnischfeger had deep pockets. An extended price war might have starved Kranco to death. In the meantime, though, Harnischfeger would have starved itself, too. There was a better way to change the game: find more buyers.
Instead of competing for a small set of existing buyers, Harnischfeger could have worked to create some new ones. The cost savings from a portal crane come only if a woodyard is configured to process tree-length logs. But the vast majority of woodyards had been designed before tree-length technology came along: they used short logs, and so portal cranes offered no savings. Harnischfeger could have expanded the market dramatically by showing wood-yards the benefits of the new tree-length technology.
But what if all these new buyers had purchased from Kranco? Then Kranco would have been the big winner. Wouldn’t that have been a problem? No. It would have been win-win. With more customers of its own, Kranco would have been less desperate to go after each and every customer that approached Harnischfeger. And buyers couldn’t have played the two sellers off against each other. With each customer, Harnischfeger and Kranco would have been likely to capture more of the $5-million savings.
No more price war. Kranco didn’t have to lose for Harnischfeger to win.
In fact, the win-win would have been a big win for Harnischfeger. Kranco had only limited crane-building capacity. It couldn’t have absorbed that many new buyers. This is one of those cases where the competitor had only a few bullets in its gun. And once those few bullets were spent, Kranco could do no more damage.
What actually happened? Harnischfeger opted to continue the price war—a win-lose approach that ended up lose-lose. Kranco declared Chapter 11. But it didn’t disappear. It was acquired by Kone, a leading Finnish engineering company, and today Harnischfeger faces a more formidable competitor.
Elements of the Harnischfeger story can be found in many other businesses. Take airplanes, for example. Orders for new planes are large and infrequent, and so the airframe manufacturers, Boeing and Airbus, view each one as a must-win. Commercial airlines are able to play Boeing and Airbus off against each other. Anything that either manufacturer could do to bring a few more buyers into the game would make a big difference. It’s even okay for Boeing if those new buyers go to Airbus. The reason is that there’s limited manufacturing capacity. If Airbus wins several consecutive orders, it starts getting a large backlog. Now Boeing will be able to promise faster delivery and thus be better positioned to win the next few orders. If there are only a few buyers, not enough to create a backlog, then Boeing can’t afford to let Airbus win one. Every lost order puts more pressure on Boeing’s overhead. Competition heats up until neither Boeing nor Airbus makes money. Just a small shift in the number of customers, one way or the other, can make a big difference to the balance of power in the market. It’s the Card Game again. Just a small change in the number of black—or red—cards is all that it takes to shift the balance of power in the game.
Bringing more customers into the game is a good idea. That’s true when you have no competition and can be even more important when you do. As for how to bring in customers, we’ve already explored some options. One way is to educate the market, as Harnischfeger might have done. Another is to pay them to play, an idea we explored in the first part of this chapter.
Sometimes, paying customers to play, especially early adopters, is essential. You need to get the ball rolling. The classic example is