Trust in Capitalism March 30, 2010, 2:07PM EST

Your Competitor is Your Customer is Your Partner

The competitor-centric model of business is outmoded, argues Charles H. Green. Companies should focus on trust as the competitive advantage

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Our beliefs drive our actions. Too often, our beliefs harden and persist long after they're no longer in sync with the world, driving behaviors that are no longer appropriate.

An example of the potential danger posed by old beliefs lies in business's response to such trends as globalization, outsourcing, social networks, "flat" organizations, collaboration, values-based leadership, and multicorporate supply chains. The response is shaped by the old, deeply seated belief that business is fundamentally about competition—a belief at odds with the new reality.

In the late 1960s, the intellectual leadership of business moved from such "wisdom" authors as Peter Drucker to strategists, economists, and consultants such as Michael Porter and the Boston Consulting Group. The newcomers noted that higher-volume production meant lower costs, lower costs meant lower prices, and lower prices meant even greater volume. Finally business could be played like a game with crystal-clear rules and winners and losers.

This volume-cost-market-share pattern was exhaustively quantified by study after study in business after business by the consulting firms, and personified by high-tech companies such as Intel (INTC). The definitions of strategy and of success were expressed in terms of one's relationship to one's competitors. Michael Porter neatly summarized this trend in 1978 in his seminal book, Competitive Strategy. An industrial economist-cum-MBA-DBA, Porter described the Five Competitive Forces that shape business. Two of them are the competition between a company and its suppliers and that between a company and its customers.

At the time, it seemed insightful—and certainly reasonable. The competitor-centric model of business fit neatly with two other big beliefs. One was U.S. antitrust law from the first half of the century. Antitrust law was also about the presence or absence of competition: Its presence was deemed good and its absence—monopoly—was bad.

Bigger was Better after World War II

The tremendous economic success of the U.S. after World War II made this business-as-competition model seem like natural law. Belief was ratified by the performance of the U.S. economy as a whole. At the industry level, the story was repeated: Business was viewed as something done by distinct corporate competitors operating within a clearly defined industry, such as the automobile industry.

Viewing business through the prism of competition made sense a half-century ago. The issues were about gaining (and managing) large-scale production and distribution—nationally, then globally. Bigger really was better, just as the competitive theory suggested.

Things look different today.

The pursuit of scale has led not to monolithic companies, but to integrated supply chains involving many companies. There is no longer a clear "industry" called "automotive," with a small number of distinct companies. When one thinks about cars, there are now dozens of industries that overlap and intersect, selling to each other here, competing with one another there, joint-venturing elsewhere.

To mirror Sun Computer's old tagline, the network is the company. And when you're in an interdependent network, Porter's idea of competing with your suppliers suddenly looks enormously wrong. The pressing need is no longer to compete, but to collaborate. The old strategies seem keenly inappropriate.

corporate shifts sap social programs

This deep belief in competition has also led us astray when it comes to social policy. Fifty years ago it was still true that "what's good for General Motors is good for America." It was so true, in fact, that we hitched many social programs—unemployment, Social Security, health-related, environmental—to the delivery system of corporations. At a time when the "Nifty Fifty" largest companies were touted as growth stocks, this was a safe bet.