Your Competitor is Your Customer is Your Partner

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No longer. That system is now creaking under the bureaucratic weight of a mobile workforce, underfunded liabilities, and cost pressures—just as monolithic companies are becoming more and more dispersed. Business and society are growing less comfortable that health and retirement policy are determined as a byproduct of competition between ever-shifting corporate entities.

Perhaps most important, the doctrine of corporate competition doesn't work as well as it used to. Economy of scale is no longer the key issue, as it was 50 years ago. In industry after industry, the cost advantage of volume production has been largely eked out. Indeed, the transaction costs required to achieve that scale—the middle roles played by lawyers, accountants, bankers, brokers, and corporate staff—have begun to overtake the cost savings they were set up to pursue.

The biggest cost advantages nowadays lie not in one megabank getting bigger, but in the art of getting the new nexus to work. The new black is collaboration, not competition.

trust can flow quickly and cheaply

The whole idea behind bigger companies in the old economy was that you could trust people in your own organization more than you could trust outsiders. You could collaborate with, depend on, and not be fearful of people who got their paycheck from the same place, ate lunch together, and whose success depended on the success of the same employer. Being in the same company increased trust, enabling people to share ideas and information—collaborate—thus allowing large economies of scale.

In recent years, it's begun to dawn on business that the collaborative benefits of trust and scale don't depend on a common employment relationship at all—they can be enjoyed with suppliers and customers as well.

• Stephen M. R. Covey's book The Speed of Trust offers chapter after chapter on how trust-based relationships with customers and suppliers yield faster and cheaper results than the traditional contract-based, suspicious, competitive relationships.

• A 2004 Planning Perspectives study showed that U.S. auto suppliers trusted Japanese automakers much more than they did U.S. automakers. As a result, collaboration between U.S. suppliers and Japanese producers was higher, costs were lower, and innovation was greater for the Japanese automakers.

Mistrust is what keeps us from collaborating with others and instead relying on external forces—contracts, external guarantors, collateral—to ensure a result. But when trusted relationships are at hand, not only do we need fewer external forces, we feel freer to exchange ideas and information and to take small risks—to collaborate. Collaboration creates the opportunity to lower costs and increase speed, thereby creating value rather than simply splitting the difference.

Outmoded beliefs drive flawed actions

We used to think that our competitors, customers, and partners were all distinct entities. Now the same company can be a competitor, a customer, and a partner all at once. Our biggest obstacle in making business sense of this new world is not software, talent, or resources. It is, oddly enough, our antiquated beliefs.

Beliefs drive actions. Too many of our beliefs are from the prior era. That disconnect shows up not only in costs, but in select new-era issues.

• MBA programs mainly teach collaboration in marketing or ethics courses. If they're also teaching competitive strategy down the hall, it's hard to take collaboration seriously.

• We can't figure out how to deal with intellectual property (competitive) in a world that increasingly demands that communal property be shared.

• We struggle to integrate privacy concerns with social networks.

The dominant model in business is still to see everything in competitive terms. If that's your hammer, then your customers, suppliers, and so forth look like competitor nails to you. The world has changed. Our beliefs have not. They are now a drag on productive business behaviors.

Charles H. Green is founder of TrustedAdvisor Associates and the co-author of The Trusted Advisor (Simon & Schuster, 2000). He is a 1976 graduate of Harvard Business School.

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