Co-opetition

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The Value Net

A player is your complementor if customers value your product more when they have the other player’s product than when they have your product alone.

A player is your complementor if it’s more attractive for a supplier to provide resources to you when it’s also supplying the other player than when it’s supplying you alone.

A player is your competitor if it’s less attractive for a supplier to provide resources to you when it’s also supplying the other player than when it’s supplying you alone.

The position in the Value Net merely represents a role someone plays, and the same player can have multiple roles. It’s counterproductive to typecast someone as just a customer or just a supplier or just a competitor or just a complementor.

Changing the Game

We don’t mind being a little revolutionary in thinking that success comes from playing the right game.

The biggest opportunities—and the biggest profits—don’t come from playing the game differently. They come from changing the game itself. If you’re playing the wrong game, you need to change it. Even if it’s a good game, think about creating a better one. Changing the game is the essence of business strategy.

Go through all of PARTS in a deliberate way, and you can be confident of spotting all the possibilities.

What’s new is being able to generate strategies systematically. PARTS does more than exhort you to “think your way out of the box.” It provides the tools for finding your way out of the box.

Once you start considering what you’re currently doing from the perspective of game theory, you’ll stop taking many features of your business for granted. You’ll realize you don’t have to accept the game you find yourself in. This realization is itself extremely liberating. It allows you to see beyond the constraints of your immediate situation and frees you to seek the greater rewards that can come from changing the game.

Changing the game is not something you’ll want to do once and then forget about. It’s best viewed as an ongoing process. No matter how successfully you’ve seized your current opportunities, new ones will appear that can be best utilized by changing the game again. No matter how secure your current position, challenges will arise that can be best met by changing the game further.

The more you ask yourself PARTS questions, not just casually, but in an orderly, disciplined way, the more opportunities you’ll find for improving your game. It’s important to think methodically about changing the game. That’s the great strength of the game theory approach: it helps you to see the whole game.

What you don’t see, you can’t change. By identifying all the players and all the interdependences, game theory expands your repertoire of strategies for changing the game. At the same time, it helps you to evaluate each proposed change more exhaustively and, hence, more reliably. It encourages you to try out the perspectives of other players in order to understand how they’ll respond to your new strategies. Out of this more comprehensive vision comes a set of strategies that is richer and more dependable.

Players

Becoming a Player

The reason is that anytime you enter a game, you change it. You don’t have any choice in the matter. It’s a new game because you’ve joined the cast of players. People often miss this effect.

In physics, this effect is known as the Heisenberg principle—you can’t interact with a system without changing it.

Generally, if you want to play, you have to pay.

sometimes the most valuable service you can offer is creating competition, so don’t just give it away. That’s especially true when providing competition is costly: Competition is too valuable and too costly to give away. You need to get paid to play.

A prospective player should always ask Cicero’s question: Cui bono? Who stands to gain?

Players Questions 
Have you written out the Value Net for your organization, taking care to make the list of players as complete as possible?
What are the opportunities for cooperation and competition in your relationships with your customers and suppliers, competitors and complementors?
Would you like to change the cast of players? In particular, what new players would you like to bring into the game?
Who stands to gain if you become a player in a game? Who stands to lose?

Seven Ways to Get Paid to Play 
Ask for contributions toward bidding expenses, up-front capital costs, and other costs of entering the game. 
Ask for a guaranteed sales contract.
Ask for a last-look provision. 
Ask for better access to information. 
Ask to deal with someone who will appreciate what you bring to the table. 
Ask to bid on other pieces of business, in addition to the current contract. 
Ask the customer to quote a price at which he would give you his business.

Eight Hidden Costs of Bidding 
You’re unlikely to succeed—there are better uses of your time. 
When you win the business, the price is often so low you lose money. 
The incumbent can retaliate—you end up trading high-margin for low-margin customers.
Win or lose, you help establish a lower price—your existing customers will then want a better deal.  
You set a bad precedent—new customers will use the low price as a benchmark. 
Competitors will also use the low price you helped create as a benchmark. 
It doesn’t help to give your customers’ competitors a better cost position. 
Don’t destroy your competitors’ glass houses—if they’re a little vulnerable, they’ll be less likely to go after your accounts.

Bringing in Other Players

It’s a good idea to bring more customers into the game. One benefit is obvious: it’s a bigger pie. More customers lead to more sales, which, in turn, lead to more profits. There’s another benefit. With more customers, no one customer is as essential. Bringing in new customers lowers the added values of all the existing ones. That puts the seller in a stronger bargaining position with respect to its customers. So, for the seller, it’s a double win: the pie grows and he gets a bigger share.

Yet another way to bring in more customers is to identify and stimulate complementary products.

Finally, consider becoming your own customer.

Becoming your own customer is a way to develop the market, assure demand, and achieve scale.

Bringing in Customers 
Educate the market.  
Pay them to play. 
Subsidize some customers, and other full-paying customers will follow. 
Do it yourself: become your own customer to develop the market, assure demand, and achieve scale.

don’t rely on others. To develop two complementary markets hand in hand, it’s usually better to do it yourself.

Sometimes people object to the idea of entering a complements business themselves. They say: “We won’t be able to make money there.” That misses the point. You can’t look at two complementary businesses separately and insist that they each make some “target” rate of return. If the accounting rules say you’re falling short in the complements market, that’s okay. Just think of it as your right hand paying your left hand to play the complements game. The only question that really matters is whether you will make more money overall.

People sometimes object to playing the complements game on another account. They say: “It’s not our business. We should stick to our knitting.” But it’s no good clicking your knitting needles if there’s no demand for sweaters. You’d better get out of your rocking chair and prod the market.

Changing the Players

Before you enter a game, assess your added value. If you have a high added value, you’ll make money in the game; so go ahead and play. But if you don’t have much added value, you won’t be able to make much money in the game.

Even if you can’t make money in a game, you may still be able to make money by changing the game. Ask Cicero’s question: Cui bono? Figure out who stands to gain from your entry. Those players may be willing to pay you to play.

Once you’re in a game, you can try to change who else is in the game. Go around the Value Net and consider bringing in customers, suppliers, complementors, even competitors.

Added Values

Added value measures what each player brings to the game.

Take the size of the pie when you and everyone else are in the game; then see how big a pie the other players can create without you. The difference is your added value.

It’s hard to get more from a game than your added value. Intuitively, what you can take away from a game is limited by what you bring, and what you bring is your added value.

Thinking in terms of added value helps you see the strength of your position. To calculate your added value, ask: if I enter this game, what do I add?

You have to envisage what the world would look like without you. That’s worse than reading your own obituary. It’s like reading the newspaper one year later and seeing how the world got along without you.

Added Value Questions
What is your added value? 
How can you increase your added value? In particular, can you create loyal customers and suppliers? 
What are the added values of the other players in the game? Is it in your interest to limit their added values?

Added value of a Monopoly

Added value of a Competitive World

Added value of a Relationship

When you don’t have much added value, you can’t sustain much of a premium over cost.

You can do more. You can actively promote strong relationships with your customers—and with your suppliers, too, of course. And even if it’s not love at first sight, you can help turn the first date with a customer or supplier into a lifelong romance.

Nine Tips on Saying Thank You to Build a Relationship
Say thank you in kind, not cash. 
Save the best thank-you for your best customers. 
Say thank you in a way that builds your business. 
Don’t say thank you too quickly, or too slowly. 
Say you’re going to say thank you. 
Recognize that you may have to compete for loyalty. 
Allow your competitors to have loyal customers, too. 
Don’t forget to say thank you even if you have a monopoly.  
Say thank you to your suppliers as well as to your customers.

Imitation

Antidotes to Unhealthy Imitation
Collect customer feedback to customize your product—competitors can’t copy you because they don’t have the information. 
Create a brand identity. 
Build volume to move down the learning curve.  
Compete aggressively for volume so that competitors can’t follow you down the learning curve.

Added value is the primary source of power in a game, but it’s not the only source.

Rules

To anticipate other players’ reactions to your actions, you have to put yourself in their shoes and imagine how they’ll play the game. You look forward into the game and then reason backward to figure out which initial move will lead you where you want to end up. This principle applies to any game with a specified sequence of possible moves and countermoves.

Rules Questions 
Which rules are helping you? Which are hurting you?
What new rules would you like to have? In particular, what contracts do you want to write with your customers and suppliers?
Do you have the power to make these rules? Does someone else have the power to overturn them?

Contracts
Contracts with Suppliers
Mass-Market  Rules
Government Rules
Changing the Rules

Tactics / Perspectives

When I am getting ready to reason with a man I spend one-third of my time thinking about myself and what I am going to say, and two-thirds thinking about him and what he is going to say. - Abraham Lincoln

Different people view the world differently. Just as the players’ added values and the rules are important elements of a game, so are the players’ perceptions. The way people perceive the game influences the moves they make.

Thus, any description of a game must include how people perceive the game—even how they believe other people perceive it, how they believe other people believe the game is perceived, and so on. There is no such thing as a game separate from the way the players perceive it.

Two people can both be rational and yet perceive the game quite differently. One person may have better information than the other. But if the second doesn’t know what the first knows, he’s not being irrational in seeing things differently. The difference in information naturally leads to a difference in perceptions, even to misperceptions. People can guess wrong and still be rational. They’re doing the best they can given what they know.

People don’t just look at the dollars. They’re motivated by many things—pride, fairness, jealousy, spite, vengefulness, altruism, and charity are just a few of the possibilities.

Simply dismissing someone as irrational closes the mind. Much better is to work harder at seeing the world as the other person sees it. This is a mind-expanding exercise. Trying to understand what motivates the other person, what drives him, can help you anticipate what he’s going to do in the future or how he’s going to respond to something you do.

More important is remembering to look at a game from multiple perspectives—your own and that of every other player. This simple-sounding idea is possibly the most profound insight of game theory.

Many people view games egocentrically; they focus on their own position. The insight of game theory is the importance of focusing on others—namely, allocentrism.

Allocentrism

To assess your added value, you have to put yourself in the other players’ shoes and ask what you bring to them. To understand how a rule affects the play of a game, you have to put yourself in the other players’ shoes to anticipate how they’ll react to your move. To take account of differing perceptions, you have to put yourself in the other players’ shoes and see how they look at the game. The underlying principle is the same: you have to put yourself in the other players’ shoes. You have to be allocentric.

This doesn’t mean you can ignore your own position. The skill lies in putting the two vantage points together: in understanding both the egocentric and the allocentric perspectives. Putting yourself in other players’ shoes does not mean: how would you analyze the game from their perspectives? It means: how would they analyze the game from their perspectives? It means putting yourself in their heads as much as in their shoes. It means adopting their views of the world.

As part of that exercise, you also need to imagine how they perceive your view of the world. How will they put themselves in your head? Or rather, how do you think they will? And that’s not the end. You even need to imagine how other players imagine you perceive their view of the world. How do they think you will put yourself in their heads? Or rather, how do you think they think you will? And so on. None of this is easy.

Tactics Questions
How do other players perceive the game? How do these perceptions affect the play of the game? 
Which perceptions would you like to preserve? Which perceptions would you like to change? 
Do you want the game to be transparent or opaque?

You can change the game by changing people’s perceptions. This is the domain of tactics. In some sense, everything is a tactic. Everything you do, and everything you don’t do, sends a signal. These signals shape people’s perceptions of the game. And what people collectively perceive to be the game is the game. You need to take account of perceptions to really know what game you’re in and to be in control of how you change it.

Games in business are played in a fog—not von Clausewitz’s fog of war, perhaps, but a fog nonetheless. That’s why perceptions are a fundamental element of any game.

The job of managing and shaping competitors’ perceptions is an essential part of business strategy.

The domain of perceptions is universal. Everything is a matter of perception, even perceptions themselves.

Change people’s perceptions, and you change the game. Shaping perceptions is the domain of tactics. By “tactics,” we specifically mean actions that players take to shape the perceptions of other players. Some tactics are designed to lift a fog, others to preserve a fog, and yet others to stir up new fog.

Lifting the Fog / Sending Signals

Credibility doesn’t come free. You have to put your money where your mouth is. The same logic applies when it comes to convincing customers and suppliers that you are what you say you are. The tactic is to put on a display that makes sense only if you’re the real McCoy. It’s a display that imposters can’t, or wouldn’t choose to, match. That’s why the display means something, and that’s why it succeeds in changing perceptions.

Betting on yourself is a display of confidence. So if you really can deliver the goods, bet on it.

Intentional or not, everything you do sends a signal to others. For the same reason, everything you don’t do sends a signal, too.

you can learn just as much from the things that don’t happen as from those that do. You have to learn to listen for what it is that you haven’t heard.

Preserving the Fog / Protecting Information

The goal/game of protecting one's own ego aids in the act of protecting information/preserving the fog. For example the fear of being proved wrong leads people to move in herds. Whether the herd succeeds or fails, it protects the person's ego and doesn't reveal them as being a fraud

Economic forecasters all seem to come up with remarkably similar predictions—and, most often, all remarkably wrong. One reason is that they all use similar models and the same historical data. Another reason is that forecasters fear going out on a limb and being proved wrong.

If you follow the herd, you’ll succeed or fail along with the herd. The fog is preserved. You’ll never stand out if you’re right, but you’re also less likely to get eaten alive if you’re wrong. If it turns out that you’ve made a bad decision, you can say: “Who could have known? Look at all the other people who made the same decision. At the time, everyone thought it was the best thing to do.” With luck, no one will question your judgment.

The desire to preserve the fog can cause otherwise-hard-to-explain behavior.

In a negotiation, what you know and what other people know aren’t the only things that matter. Do you know what others know? Do others know what you know? Do others know how much you know about what they know? The fact that you know something that others know, too, has very different consequences when others know that you know it.

Stirring up the Fog

Simplicity is a virtue—sometimes. Other times you need to make things complicated, even unpredictable. You need to create a fog. A simple game quickly becomes transparent, and you may not always want people to see through what you’re doing.

In poker, you’re unlikely to win a big pot if you bet only when you have a strong hand. That’s because, after a while, the other players will see through what you’re doing. There’ll be no fog. They’ll realize that whenever you raise, it’s becasue you have a strong hand, and so they’ll fold. That gives you an opportunity to bluff and win more small pots. You can raise with a weak hand and trick the other players into folding, but you don’t want to get caught bluffing. Or do you?

Boundaries / Scope

In principle, a game has no boundaries. There is really only one big game—extending across space, over time, down generations.

Analyzing individual games in isolation is treacherous. You risk mistaking what is really only a part of the game for the whole. Every game is linked to other games: a game in one place affects games elsewhere, and a game today influences games tomorrow. The problem is that mental boundaries are not real boundaries.

No game is an island. Even so, people draw boundaries and divide the world up into many separate games. It’s easy to fall into the trap of analyzing these separate games in isolation—imagining that there’s no larger game. The problem is that mental boundaries aren’t real boundaries—there are no real boundaries. Every game is linked to other games: a game in one place affects games elsewhere, and a game today influences games tomorrow. Even the mere anticipation of tomorrow’s game influences today’s.

Scope Questions 
What is the current scope of the game? Do you want to change it?
Do you want to link the current game to other games?
Do you want to delink the current game from other games?

Links between Games

Start with Players. Anytime there’s a player in your game who’s also a player in another game, the two games are potentially linked.

two games can be linked for no other reason than that someone perceives them to be linked. Thus, Tactics, by changing perceptions, can change the links between games.

Links through Added Value

Links through Added values can arise whenever your customers or suppliers participate in more than one market.

Links through Rules

Links through Tactics

Two games are linked anytime someone perceives them to be linked. The two games become one larger game when someone believes that what will happen in one of them is contingent on what happens in the other. By creating or destroying these perceptions of linkage, tactics change the boundaries of the game. Threats and promises are the classic examples of creating a perceptual linkage. They are designed to persuade other people to do something—or not do something—based on how you say you’ll respond.

Larger Games

The most important lesson of this chapter is that every game takes place in a larger context. This is what allows a game’s boundaries to be expanded or simply moved. Even when a player seems to be narrowing the scope of a game, it’s the player’s power in some bigger game that makes this maneuver possible. You may think you know what game you’re playing, but that game is invariably part of a larger one. That’s a good message to end with.

There’s always a LARGER game.

Starred

Dunk (exclude from study)

Co-opetition

Review Questions

Todos

Sensemaker