Magazine article Management Review

Colluding with Competitors Is a Dead End

Magazine article Management Review

Colluding with Competitors Is a Dead End

Article excerpt

The object of joining in strategic alliances is to marry two companies that complement each other. Colluding with rivals is an abuse of a powerful management tool. ast month I argued that trying to "crush" competitors-- or just obsessing on "beating" them--is both counterproductive and futile. I noted that, among other problems, the "crush the competition" mind-set closes the doors to the possibilities of valuable partnerships.

Paradoxically, this now brings us to a new problem. Too many executives of rival organizations are beginning to jump on the partnership bandwagon, but for the wrong reasons. They believe they can skirt healthy, legitimate competition, painlessly solve their own management problems and easily protect their personal backsides by hastily joining forces under the banners of "strategic alliance" and "synergy." In reality, these marriages are simply ones of opportunistic collusion. (I use the word "collusion" generically, not legally, as a means to describe these self-serving motives and behaviors.)

The noble idea of partnership is grossly abused when managers leap to make poorly conceptualized acquisitions and expedient partnerships. We've seen this scenario unfold all too often. Company X is faced with sinking earnings and dwindling market share. The reasons can usually be traced to second-rate if not obsolete products, inept if not arrogant customer service, crummy distribution systems, outdated technology, slow, bloated bureaucracy, or unimaginative entrenched management--if not all of the above.

So rather than bite the bullet, management looks for the magic bullet. Rather than take some personal responsibility for the problems and fix them, however painful that might be, top management looks for the quick fix. And what could be a quicker fix than joining forces with another company which, on paper, doesn't seem to have the same difficulties, or which theoretically (or wishfully) will mask the problems of Company X so the latter doesn't have to do some really serious changing? And if the other company is a rival, all the better, for then one no longer has to confront the unpleasantness of competition in a free market, or at least that's the fantasy.

It doesn't work. Expediency and opportunism, however fluffed up with business babble buzzwords like "strategic alliances" and "global synergy," can neither ensure competitive vigor nor enhance shareholder value in free markets for long. One cannot simply bring a bunch of investment bankers, lawyers and CEOs to a public relations fiesta, grab the mike and announce "synergy!" between two corporate rivals--and then automatically expect good things to occur. Just ask the architects of the soured Northwest-KLM and Continental-SAS "alliances." Or examine the dismal track record of many of the mergers and acquisitions in the banking industry. Or chat with those who hold a significant equity stake in Time Warner. Till the day of his untimely death, CEO Steve Ross was trying to justify to skeptical investors the validity of the colossal Time-Warner merger, which (pardon my cynicism) had been consummated in the light of the two individual firms at the time being grossly undervalued and being very attractive targets for takeover and breakup.

Marriages of Convenience

In my own backyard, I can point to the debilitating impact of the Joint Operating Agreement (JOA) that the San Francisco Chronicle and the San Francisco Examiner initiated in 1962. The JOA eliminated head-to-head competition between the newspapers; they began to share operations, and the Chronicle continued as a morning daily while the Examiner moved to the afternoon. Sounds very "synergistic" and cost-efficient, as do many such cozy deals in other businesses. But as journalist Richard Rappaport notes: "The Chronicle and the Examiner seemed content to snap at each other's heels, each preventing the other from investing the kind of money in promotion and editorial that wins new readers and advertisers. …

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