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Int. J. Services Technology and Management, Vol. 12, No. 3, 2009 255
Copyright © 2009 Inderscience Enterprises Ltd.
Tug of war in innovation – coopetitive service development
Paavo Ritala*, Pia Hurmelinna-Laukkanen and Kirsimarja Blomqvist Lappeenranta School of Business, Lappeenranta University of Technology, P.O. Box 20, FI-53851 Lappeenranta, Finland E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] *Corresponding author Abstract: Innovative new services are increasingly being developed in close collaboration between different organisations. As part of this development, competing firms have started collaborating with each other. These firms face new challenges arising from the service context and the existence of competitive tensions. We present an explorative case study of Finnish mobile TV service development with a focus on inter-firm coopetition (simultaneous competition and cooperation). Our results carry implications in terms of the nature, the challenges and opportunities involved, and of the management of coopetitive service development.
Keywords: coopetition; competition; cooperation; service development; service innovation; ICT sector.
Reference to this paper should be made as follows: Ritala, P., Blomqvist, K. and Hurmelinna-Laukkanen, P. (2009) ‘Tug of war in innovation – coopetitive service development’, Int. J. Services Technology and Management, Vol. 12, No. 3, pp.255–272.
Biographical notes: Paavo Ritala, MSc (Econ. & Bus. Adm.) is a Doctoral student in Knowledge Management at the School of Business, Lappeenranta University of Technology. His research interests are in the areas of strategic management, knowledge management, strategic alliances and coopetition.
Pia Hurmelinna-Laukkanen, DSc (Econ & Bus. Adm.) is a Senior Researcher in Business Law at the Lappeenranta University of Technology, School of Business, and an Assistant Professor in Marketing at the Faculty of Economics and Business Administration, University of Oulu. During recent years, her research has been focusing on appropriating profits on innovation and collaborative R&D activities.
Kirsimarja Blomqvist, DSc (Econ & Bus. Adm.) is a Professor for Knowledge Management and a Vice-director for Technology Business Research Center at Lappeenranta University of Technology. Her research interests include the emerging theory of trust, R&D and innovation management, strategic alliances and networks. Her research has been published in Research Policy, R&D Management, Technovation, European Journal of Innovation Management, Journal of International Production Economics, Journal of Engineering and Technology Management, Creativity and Innovation Management, Industrial Marketing Management and Scandinavian Journal of Management.
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1 Introduction
Services have become increasingly important in today’s economy, and are therefore crucial to the competitiveness of nations and single companies (Chesbrough and Spohrer, 2006). However, the literature on innovation has mainly focused on products, and the special features of services remain unacknowledged. There are various reasons why the role of service innovations has been overlooked until recently. For example, many services are accompanied by product innovations, and vice versa. Thus, in terms of innovation activities, the focus has often been on products and services have been treated as complementary assets (see e.g., Teece, 1986). In fact, the important role of these assets, and perhaps even more significantly the potential for their active development, has been recognised only recently (Sundbo, 2000; Teece, 2006). As a result, there is increasing interest in the differences in characteristics between product and service innovation.
Innovation in services indeed derives from product innovation in many ways, and this presents new challenges to management. Services are characterised by intangibility, heterogeneity, inseparability, and perishability (the so-called IHIP attributes), for example (Zeithaml et al., 1985; Fitzsimmons and Fitzsimmons, 2000; Alam, 2006; Nijssen et al., 2006). While these characteristics have been under debate (Lovelock and Gummesson, 2004; Vargo and Lusch, 2004), they still promote the idea that services are inherently different from products (Homburg and Fuerst, 2005). Types of services that have been identified include ICT services, banking, consulting, legal activities, transport, hairdressing, entertainment and leisure, repairs and maintenance, education, and gardening, to mention just a few (see e.g., Lovelock, 1983; Sundbo, 2000; and Muller and Zenker, 2001 on different types of service and their categorisations). The IHIP characteristics are the common denominator here, but services also have special distinguishing features. For instance, ICT-related services are relatively cheap and fast to reproduce and deliver – and even copy – while the production of some of the other types of services is inherently limited by the available resources (see e.g., Miles and Boden, 2000 on the categorisations).
Even if the services are very different, producing of them often requires formal and informal collaboration between various parties (Tether and Hipp, 2002). For one thing, the service producer needs to collaborate with its customers in order to ensure the fulfilment of their specialised needs. Secondly, co-producers and other parties are often needed to provide missing resources, knowledge, and service-development capabilities. Especially in innovation and development activities, the need for a more open approach which suggest collaboration with different kinds of outside parties, has been accepted relatively widely (e.g., Chesbrough, 2003). There is therefore a need to understand the nature, the potential, and the challenges involved in collaborative service development.
What makes the collaboration aspect of service production and development particularly interesting and challenging is that competitors are often key partners in the process. For example, sound collaboration between competing firms is crucial for service innovation in the ICT sector (Katz and Shapiro, 1985), and indeed, it seems to be a strategy that many leading firms adopt (Ritala et al., 2008). The main forces driving competitors to cooperate in this industry have been explained in terms of the strong presence of network externalities and the need for interoperability (Fjelstad et al., 2004). The need for interoperability is evident in the case of mobile phones, for example, in that the services cannot be used unless they are properly supported by the network
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infrastructure, handsets, and software applications. Very different yet complementary competencies are needed in order to provide the service to the user. Network externalities mean that the value of new services increases as the numbers of users increase: for example, being able to send video-clips from a mobile-phone set is more useful to the user the more handsets there are on the market with the facility to send and receive. This means that competitors cannot build up new service markets in isolation, and need to cooperate to ensure interoperability through the ICT value chain. If phone handsets and PCs are also compatible, the use of this service will be more convenient from the user’s point of view. In addition to the ICT sector, the importance of inter-competitor cooperation in services has also been acknowledged in security (Bernard, 2005), healthcare (LeTourneau, 2004), and the grocery business (Kotzab and Teller, 2003), for example.
The phenomenon of inter-competitor cooperation has recently been referred in the research literature as coopetition (Brandenburger and Nalebuff, 1995, 1996). It has been suggested that coopetition could increase innovative capacity (Quintana-García and Benavides-Velasco, 2004) and performance (Luo et al., 2007), for example. Some contributions describe how coopetitive activities are generally distributed and managed (see e.g., Bengtsson and Kock, 2000; Walley, 2007), but coopetition is generally considered a risky business (Dowling et al., 1996). Thus, it is essential to have a competent management of coopetition in terms of maximising value and minimising risk in order to ensure competitive advantage (Ketchen et al., 2004). However, the current literature gives only little advice on how the presence of coopetition influences collaboration and its management during the development of new services. Our aim is to narrow this gap by conducting a case study that offers interesting evidence of coopetition in a service-development setting.
Our research focuses on the question: ‘How does simultaneous competition and cooperation manifest in the context of collaborative service development and how can it be managed?’ We aim to answer this by presenting an explorative case study from the Finnish mobile TV services market. The case concerns an ongoing service-development project involving multiple participant organisations with similar but also different incentives. The main challenge is to do with service co-creation among a large number of firms, of which the key players are competitors.
2 Explorative service development and coopetition
As in so many other areas, the focus in the literature on coopetition has been on products rather than services. However, there are differences between these contexts, which influence the ways in which coopetition can be carried out. Thus, for the purposes of this paper, we approach the issue of coopetitive service development by pinpointing its focal differences from coopetitive product development.
2.1 Features of service innovations guiding their creation
Service innovations have certain features that distinguish them from product innovations, and which make creating and profiting from them challenging. First, there is a crucial need for collaboration with outside organisations. Moreover, product innovations are
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often created jointly, but collaboration in services is imperative: co-production with customers (at the minimum) is something that actually defines services. Simultaneity and customer involvement (inseparability) are not the only things that highlight the need for collaboration. For instance, the increasing interest in outsourcing has taken many services out of manufacturing firms, which has also created interdependencies between manufacturing and service organisations (O’Farrell, 1995). However, collaboration is not only vertical but also horizontal: service companies collaborate with suppliers and customers, and also with their competitors.
A strong motivation for cooperating with rivals is the opportunity for all of the parties involved to enhance market growth (Sheth and Sisodia, 1999). In general, firms tend to collaborate with each other because they can share heterogeneous and complementary resources, and thus create more value than they could individually (Dyer and Singh, 1998; Ireland et al., 2002). The role of similar homogeneous resources (e.g., similar interfaces, practices, and services) has also been highlighted. More specifically, competing firms are likely to possess similar basic knowledge and dominant logics (Dussauge et al., 2000), which helps them to find ways of improving the functioning of developing markets. These similar resources may produce better interoperability and external economies, for instance, which play a major role in coopetitive service development (Fjelstad et al., 2004). In addition, supporting the formation of a horizontal market with a sufficient amount of interoperable services will also produce a broad market that enables differentiation as a means of competition in the end.
The second feature that creates challenges is the fact that the role of information and knowledge is very much highlighted both as an input and as an output in service innovation, which increases the level of intangibility (e.g., Hipp et al., 2000). While knowledge has an important role in product innovations as well, it is basically the sole ingredient in service innovations (Leiponen, 2002). Unlike products, which require a large production capability to bring them to market, services can be copied and ‘produced’ in a very short time (provided that the necessary capabilities exist in the firm or are easily accessible). According to Krogh von et al. (2001), alliances with competitors might provide a firm with new knowledge about competitors’ strategies, technologies and personnel resources, thereby enhancing the firm’s internal capability to predict future strategies of competitors. Thus, competitors exchanging strategically important knowledge face the risk that the competition will grow even stronger during the cooperation. With many different actors involved, it is not always certain who will come out a winner, or whether they can generate new services at all. In the worst case, the collaborative endeavour might turn into a ‘learning race’ (Hamel, 1991), which would be detrimental to the development of the new services. Indeed, it has been found that alliances between competitors might lead to the acquisition of resources and capabilities by one party from another, thus changing the competitive positions of firms in coopetition (Dussauge et al., 2000, 2004).
Thirdly, given the special nature of knowledge in coopetition and service innovation, a critical area to discuss in terms of a single firm’s competitiveness is how to make a profit in such a context. It is widely acknowledged that the allocation of rights to intellectual property in collaborative endeavours may have long-term performance effects: if the company is able to secure intangibles, it is more likely to profit from them. However, getting adequate protection from imitation may be challenging as far as services are concerned (e.g., Miles and Boden, 2000). The fact that service innovations involves the development of new concepts and procedures rather than new technology
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(Preissl, 2000; Nijssen et al., 2006) often makes intellectual property rights (IPRs) unavailable to service firms (Miles et al., 2000). For example, it may be very difficult to meet all the requirements for patent protection: novel and inventive steps might be taken, but demonstrating industrial application and technical characteristics may be more difficult. Copyright, in turn, only covers the expression and not the underlying ideas, which makes it less useful in terms of service innovations. There are similar limitations with regard to many other protection mechanisms as well. Thus, the traditional intellectual property protection and contracting often used in product development do not apply equally to service development, and mechanisms such as knowledge tacitness or human-resource management (Zander and Kogut, 1995; Baughn et al., 1997) might be the ones that service firms need to turn to.
Given the distinctive differences between product and service contexts, it is evident that the ways of managing and organising coopetitive product development cannot be applied directly to service development.
2.2 Organising for coopetitive service development
The simultaneous need to create value from knowledge and to protect it from competitors in particular creates a major challenge. In the case of coopetition, it is essential to focus on what knowledge is shared and with whom (Loebbecke et al., 1998). A lot of substantive research has been conducted focusing on the fear of losing business-critical knowledge (McGill, 2007; Oxley and Sampson, 2004). According to these reports, firms in coopetition alter their governance modes or reduce the scope of their collaboration to match the risks involved in such relationships. Those engaged in coopetition in product development are prone to using protective or hierarchical governance modes such as equity joint ventures or strict license agreements. This is partly explained by the fact that these companies often already have ownership or intellectual property rights over some piece of technology, for example, which makes it relatively easy to negotiate about the rights of use.
However, in the context of service innovation involving multiple actors in a complex network of interactions, and when even more intangible assets are under discussion, it is not as easy to make the simple choice between governance modes such as a joint venture or a license agreement. In contrast, coopetitive service development demands a great deal of openness and flexibility from the firms involved. Naturally, some security is needed in the form of IPRs and contracts, for example, but their role is inherently restricted. It is not necessarily wise for firms focused on creating new value from knowledge-based assets to restrict knowledge sharing and reduce the scope of the relationship to a minimum. Creating value in the service context indeed requires increasing the flow of knowledge from various parties (Chesbrough and Spohrer, 2006), which is in line with the recent discussion around open innovation (Chesbrough, 2003). It has been noted that in services in particular, informal modes of collaboration and knowledge sharing are used alongside the more formal (e.g., Tether and Hipp, 2002). Thus, it is becoming increasingly important for firms to participate in collaborative forums and development initiatives in which they can interact with their competitors both formally and informally.
The role of social capital is highlighted in such a complex form of cooperation. Social capital, i.e. trust, shared norms and supporting network relationships, enhances knowledge creation, sharing and transfer among complementary parties (Nahapiet and
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Ghoshal, 1998). Trust may be especially valuable in coopetitive service development, which involves obvious risk and related vulnerabilities (on risk and trust, see Arrow, 1974; Luhmann, 1979; Blomqvist, 2005), because it enhances communication and commitment, and therefore also value-creation possibilities even among cooperating competitors (Lado et al., 1997). In general, trust is considered an efficient governance mechanism in inter-organisational relationships (Bradach and Eccles, 1989; Adler, 2001) as it lowers both ex-ante and ex-post transaction costs and enhances transaction benefits (Blomqvist et al., 2002). Basically, it could be seen as a threshold condition for collaboration and knowledge sharing in the innovation process (Miles et al., 2000). Social capital also functions as a form of social control, which is needed in order to compensate for the lack of strong contractual governance and IPRs. Thus, a sufficient level of trust is required for establishing and managing coopetitive service-development relationships.
The following table illustrates the distinctive nature of coopetitive service development. Table 1 Coopetitive product development vs. coopetitive service development
Coopetitive product development Coopetitive service development
Participating firms Two or few Multiple Focal assets Physical, intangible Intangible Focal knowledge-protection mechanisms
Hierarchical governance modes, IPRs
Tacit knowledge, human-resource management, contracts, trust
Governance Joint ventures, license agreements
Collaborative forums, development projects
3 Research design
A research strategy that supports theory development is ideal for exploring aspects of a new research area such as coopetition and service innovation. Moreover, the case-study method is most appropriate in the early stages of research on a topic (Eisenhardt, 1989). These considerations led us to utilise the case-study method in this study. Furthermore, in line with Stake’s (1995) suggestion, we chose to present the case as a story, a unique illustration of what we are trying to understand. This study covers one single case, which we believe captures the complexities related to coopetition in service development. Our objectives are to understand it thoroughly and to make interesting observations. The method applied in this paper could be described as explorative, as our goal is to develop new propositions for further research (Yin, 2003). The case illustration provides a historical perspective on the development of events, although the evidence was collected within a short timeframe.
The empirical data was gathered through personal interviews carried out in spring 2007 with key informants, i.e. business and technology managers responsible for the mobile TV business in their firms. They were chosen because they had the best possible knowledge of the topic, being active members of the service development consortia explored in this case study. The choice of key informants was made in cooperation with the project manager of Finnish mobile TV in order to make sure that all of the focal
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actors would be taken into account (there were 12 organisations involved at the project at the time the interviews were conducted). Table 2 gives details of the interviews conducted. Table 2 Interviews conducted for the study
Interviewee Role Employer
1 Project Manager Telecom operator 2 Director, R&D Telecom operator 3 Technology specialist Telecom operator 4 Manager, R&D Telecom operator 5 Director, Business Development Media company 6 Head of Department, Tech. Development Media company 7 Chief of Development Media company 8 Service Manager Infrastructure provider 9 Director, Business Development Device manufacturer 10 Director, Sales System integrator 11 Director, Development System integrator 12 Development Manager, Tech. Development Service provider 13 Application Developer Service provider 14 Director, Economic Development Public sector
We used semi-structured interviews that focused on management challenges and paradoxes related to service innovation. The interview guide was based on information gathered from previous literature on these subjects. In particular, the themes focused on the nature of service innovation, the opportunities and threats concerning coopetitive service development, informal and formal networks, cooperation and competition, as well as trust and contracts. We interviewed 14 persons representing 12 organisations. All the key participant companies involved in the service development project were included. The interviews lasted between 30 minutes and two hours, and they were tape-recorded and transcribed. The data was coded and grouped into patterns for analysis. Content analysis was applied, which allowed the identification and thematisation of patterns and structures in different subjects of interest. Our analysis was mainly focused on coopetitive relationships among the total network of relationships between all of the actors who were connected to each other through the same development project. The most direct competing relationships in this case were those between the telecom operators (two operators), and those between the media companies (three media companies). The perceptions of the operators and media companies involved in the coopetitive relationships were utilised in the analysis, as were the perceptions of other firms with respect to issues linked to coopetition and service development. We also analysed the competitive tensions between other types of actors because, in terms of the developing business model, there were many overlapping incentives among all of the actors. We gathered data from public sources such as company and project web pages and public newspapers and news archives in order to obtain a holistic view of the case. Later, the individual interpretations of the researchers were discussed with the focal representatives of the case firms in order to increase the face validity of the study. Because this is an
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ongoing business case, we have preserved the anonymity of the interviewees and the firms they represent.
4 Case description
The case focuses on the development of mobile TV services in Finland. The technology used is DVB-H (Digital Video Broadcasting – handheld), which is especially suitable for transmitting radio and TV signals to handheld devices. The firms that utilise the technology in order to provide services for their customers are linked to each other in various consortiums and forums. The main development project is called Finnish MobileTV (FiMTV), which originally involved seven key companies. FiMTV operates under a larger open innovation initiative called Forum Virium Helsinki, which is funded by a cluster of innovative firms and also by public actors, and which was originally launched in 2005. FiMTV was and still is its largest project, and is linked to many kinds of development communities including large firms, SMEs, and public organisations.
The case was chosen for various reasons. First, given the newness of DVB-H technology, it provided the opportunity to observe service innovation in emerging markets. Because 3G technology is a hot topic in the mobile business in general, mobile TV as a part of this development (DVB-H uses 3G technology as an enabler for end-user interaction) is a very topical issue. Secondly, the telecom cluster in Finland has been a source of national competitiveness in recent years, and 3G development offers new opportunities and challenges (Steinbock, 2001). Thirdly, we focus in particular on the role of coopetition in the service development context. The future of mobile operators in general is connected to the development of services that are attractive to their customers, of which mobile TV is one key element. This creates an interesting situation between mobile operators, as each of them is trying to pursue its own goals in order to ensure its future success in this market, but at the same time they are collaborating intensively in order to ensure the creation of the market. Thus, our case is a valuable illustration of the dynamics between competition and cooperation.
In the following section, we first briefly explain the developments of mobile TV services that have taken place so far, which we then consider in the light of the cooperative and competitive tensions present in this case.
5 The development of Finnish mobile TV – the coopetition perspective
5.1 A short history
The FiMTV project started in the year 2001. The companies involved at that point were big media organisations, mobile operators and a handset manufacturer, thus representing the whole value chain from content (e.g., broadcasting) to delivery (operating the service) and customer interface (mobile phones). There were a few years of technical development and planning in development forums, all of which could be described as pre-commercial and pre-competitive. Four years later, in 2005, the first large-scale experiment called FinPilot was conducted. Moreover, a cluster called forum Virium Helsinki and its leading project, Finnish mobile TV (FiMTV), was formed by a group of innovative companies. One driving force behind this was the ability of the central actors
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to make the expected benefits for each firm visible. The pilot experiment was a success: there was clearly a great deal of customer interest in mobile TV services, and a willingness to pay for them. From the customer side, the key desired characteristics were mobility and interactivity.
However, there have been problems with the commercialisation process. First, because of copyright issues concerning broadcasting rights and fees in the DVB-H network, the broadcasting of regular television feed was prevented. The copyright issues were resolved in mid-2007, and broadcasting will finally start. The interactive services were not prohibited in any way, but they are naturally linked with the success of regular broadcasting. Following this recent development there is a strong feeling in the markets that customers will be attracted to mobile TV services.
Another issue that was, and is, linked to the commercialisation of services is that firms experience difficulty in turning from the cooperation mode to the competitive phase, as both are required simultaneously. In this case, simultaneous competition and cooperation exist mainly among two types of actors – telecom operators, and media companies and other service providers. The competitive position is clearer between the telecom operators because they are competing for the same customers in the developing business model. By and large, the two major mobile operators have been in the key positions concerning the service development. They have access both to customers and to the services provided to them, and thus their stakes are potentially very high. Indeed, according to the project manager of FiMTV, the whole business model could be described as ‘operator-driven, in close collaboration with the media companies’. Thus, we mainly focus the empirical analysis of coopetitive service development on the interaction between telecom operators, and between media companies.
5.2 Turning from cooperation to competition
In the FiMTV case, mobile operators participated in various forums covering the background technology, service piloting, and collaboration in general. Their actions in these arenas could be described as highly collaborative, and the atmosphere was said to be open. The motivation was to reduce risks by sharing the costs and time needed in the development, and also to learn from and with each other. However, operators are highly competitive in the end-product markets, and especially in recent years they have been fiercely battling over customers not only by introducing price cuts for similar services, but also by offering differentiated services.
The operators have quite similar attitudes to the cooperation incentives. They understand that there is a need for close cooperation in order to “create a reasonable horizontal market… and a unified solution”, as one interviewee commented. Competing firms realise that even if their product offering and resources are not differentiated from each other at the beginning, collaboration and co-existence could be beneficial: “No one can afford not being part of it! I cannot imagine markets evolving without operators cooperating”. One interviewee commented that mobile TV was not a means of differentiation at that phase, as it was more important to create the market. Operators understand that coopetition is not a zero-sum game, but that it is rather a way of providing new sources of business and revenue for each party. As one interviewee commented: “…why it is so easy to build trust in the horizontal markets is that when we have market penetration of 100% in any case, the only way to gain market share is to
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steal it from a competitor… …it’s much more reasonable to create new business that benefits everyone…”.
Cooperation was even easier because the operators had complementary resources. One provided a vision and the project management for the whole project, and it was in the interests of all parties for this one firm to clearly take the responsibility. The other, bigger firm provided insights gained in its position as market leader and a technical forerunner. The firms themselves recognised that they had different roles, but they also had similar resources as they strove for a unified solution. They accepted the fact that their offerings could be similar, at least at the beginning of the mobile TV diffusion process when the broad emphasis is on broadcasting.
We found from the case study that experts collaborated through both informal and formal networks in which trust in the other party’s capability and goodwill played a critical role. While contracts were used as well, the need for trust was paramount. Most of the key actors knew each other from earlier collaborative ventures, and the social capital among them clearly supported informal communication and interaction. One of the experts explained:
“Usually you can trust your partner and what they say, think and aim at. Each partner builds his or her own position and then you aim for the shared goal… Finnish managers give honest answers when they can speak for their companies. Sometimes you cannot say anything yet due to company policy, but that is honest too”.
Many of the interviewed experts pointed out that this case was unique in the sense that competing firms were sitting around the same table and talking together about how to build the new markets in a collaborative way. “Trust builds naturally through communication and dialogue, and then you have to slowly learn what the other party wants and what they don’t want”. We thus conclude that the attitudes, experience and actual behaviour of these competing firms show that it is genuinely possible to build trust between competing parties.
Despite the collaborative and trusting atmosphere, individual business incentives naturally came into play. As one representative of a participant firm in the FiMTV project noted, the fact that it had its own incentives affected the willingness of operators to share information in the meetings. The companies were aware of the need to keep their core competitive advantages to themselves: when existing company-specific technologies were made available to others for piloting and testing, strict contracts were drawn up. Similarly, certain strategic issues were never discussed, and the participants chose not to share the information. The situation could be described as genuinely coopetitive because competitive and cooperative issues arose simultaneously in the same settings. One interviewee described it as ‘schizophrenic’ because the company representatives had to maintain competitive and cooperative mindsets at the same time. In addition, the emphasis shifted during the development process, as one interviewee noted: “At the end the collaboration was very good and trusting… …it feels very strange to move to another side of the table when we see each other the next time, and begin competing…”. Experts working in this environment are struggling to learn how to manage the interplay between collaboration and competition: “We’ve been friends, but now we wonder why it isn’t working”. In some instances they felt that they were working for the same goals with other engineers, while sometimes they felt that they were working for their own profit-maximising firm. The interviewees also noted that the competitive tensions
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increased the closer the commercialisation of the services was. In sum, the tension between cooperation in mutual ventures and competition in achieving individual objectives created challenges for both individuals and firms.
The firms and the individuals working in them addressed the aforementioned problems in several ways. First, some experts used different mental models in order to cope with this paradoxical situation. One interviewee described the changing roles of mental models using the metaphor of a hat: “After the pilot, the hats were basically changed again... I’m sure that the cooperation continued with good mutual understanding, but for sure each firm’s individual business plans for mobile TV were secret, and you can’t go back to the old mental models…” Another interviewee similarly described the different roles that one has to take: “…I have tried my best not to mix this (development activities) with our business activity very much. In one sense, it’s impossible, but you have to keep it in mind… You have to realise sometimes that this isn’t necessarily in my firm’s interest, but from a larger perspective…”.
Secondly, the firms were engaged in interaction with each other on different levels. They had a ‘portfolio’ of relationships: dyadic business agreements, active participant positions in development projects, and more passive positions in large collaborative general meetings concerning the bigger picture of mobile TV services. This wide variety in the levels and types of interconnections made it possible for them to cooperate and compete at the same time. The operators and media companies, for example, had their own contracts and ongoing discussions with many potential service – and content-providing SMEs, while at the same time they collaborated with each other on business and development issues. As one interviewee put it with reference to bring up competitive and commercial issues in general development forums: “…how much do you want to bring up your own top innovations? How much do you focus on this pre-commercial context, or do you want to wait for the eventual kick-off?”. Competitors were also aware that they had many mutual interests and collaboration possibilities with regard to other players involved in developing the business model. Some interviewees talked about ‘forming horizontal markets’ in an attempt to defend and build up business opportunities for a distinct part of the value chain. They felt that the clear existence of a shared agenda alongside their own facilitated the building of trust between competing parties.
6 Coopetitive service development – propositions
6.1 The challenge of cooperation vs. competition
Coopetition is a phenomenon involving the simultaneous existence of both competition and cooperation in a single relationship (Luo, 2004). This simultaneity could be said to be particularly strong in service development, much stronger than in R&D and manufacturing because the interaction and inseparability with service development and delivery are high, since complexity and risk in the beginning of the value chain are notable, and because service innovation requires the combining of various assets and resources of very different actors (Tatikonda and Zeithaml, 2001). However, according to many authors (e.g., Bengtsson and Kock, 2000; Luo, 2004), competition and cooperation do not occur simultaneously in the same activities, but rather co-exist in different domains (markets, products, persons) at the same time. According to the results of the
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case study, this is often the case when competing firms collaborate in promoting mutual interests, such as in technology development, and simultaneously do their individual business planning. Our findings also suggest, however, that competition and cooperation can co-exist even in the same domains. As noted, for example, competitive tensions were also present in the collaborative forums. Thus, it could be said that competition and cooperation exist simultaneously in different and sometimes in the same areas, and that one or the other is at the forefront at different times.
Proposition 1 Competition and cooperation co-exist simultaneously in coopetitive service development.
According to an insightful notion put forward by Brandenburger and Nalebuff (1996), firms engaged in coopetition concentrate on creating the market first, and at a later stage they focus on dividing it up. The case study highlighted one major challenge as the service-development phase was moving towards the commercialisation phase: the firms started to focus more on their own business models while maintaining the collaboration. In terms of cooperation, this may be harmful if it creates discontinuities in the process. Indeed, some participants felt that the change in business paradigm had happened too quickly: the market had not yet been created, but some parties were already developing business on their own, and opportunities did not present themselves to all participants simultaneously. This may lead to problems such as the withholding of important information and asymmetric commitment. As observed throughout the case, cooperative and competitive actions existed simultaneously, but the emphasis shifted during the process. This is in line with the original theorising of Brandenburger and Nalebuff (1996). In sum, we propose the following:
Proposition 2 Competition intensifies and cooperation diminishes the closer to commercialisation the business model is in coopetitive service development.
6.2 Organising resources
According to the resource-based theory, firms that possess complementary resources benefit from cooperation because their collective resource pool creates more value than all of them would create individually (e.g., Dyer and Singh, 1998; Ireland et al., 2002). In the case, this is exactly what happened. The telecom operators were both involved in FiMTV, each bringing a slightly different set of unique resources: one as a project coordinator and the other in more of a supporting role. This gives rise to the very intuitive suggestion that value is created through the complementary intersection of unique firm-specific resources that create value when competing firms cooperate.
On the other hand, both telecom operators provided homogeneous resources such as a large customer base and similar existent technologies. Homogeneity in resources has normally been considered to stimulate competition between firms in an industry. However, in the context of explorative service development presented in this case, it provided a solid basis for cooperation because of increasing network externalities. On the supply side, the telecom operators understood that the terminal manufacturers would increase their offerings of mobile handsets if all the major competitors were involved at the forefront of the service development, using the same solutions, interfaces, and interoperable networks. The same thing applied to the customer side as well, as the large
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number of mobile TV services among customers would be beneficial to the whole emerging business model, no matter what company’s offering or network was used. This is in line with the findings of Fjelstad et al. (2004), who suggest that interoperability and external economies are a major driver in horizontal cooperation in the ICT sector. It has also been noted that competing firms, in addition to integrating complementary resources, often cooperate by pooling similar resources, thereby forming ‘scale alliances’ (Dussauge et al., 2000). The case firms felt that they were on the same side, creating a new horizontal market and bringing customer solutions that were interoperable and consistent. As noted, they also felt that they did not always even need to differentiate, at least in the market-creation phase. We therefore propose that it is not only complementary and heterogeneous resources, but also homogeneous resources that are valuable in service development in the context of coopetition.
Proposition 3 It is not only complementary and heterogeneous resources, but also homogeneous resources that create value in coopetitive service development.
6.3 Governance issues
The governance of service development in the FiMTV case was multi-layered and very flexible. It consisted of areas of formal interaction involving each party (the FiMTV forum), developer communities, and dyadic relationships between some firms. Each ‘layer’ had an important role in the development of mobile TV. A forum and a project manager were needed to provide vision and mutual trust between all parties. On the other hand, bilateral agreements between parties were also needed so that each firm could achieve its own competitive objectives. The usage of development forums and other more informal arenas side by side with bilateral, formal agreements allows for cooperation between even the fiercest rivals. This made possible both formal and informal collaboration, which are both important in service innovation (e.g., Tether and Hipp, 2002). Thus, we propose the following:
Proposition 4 Flexible use of different governance structures is beneficial to the management of coopetition in the context of coopetitive service development.
Social interaction between firms and individuals also played a major role, and therefore trusting relationships were considered very important. Trust enables parties to take risks, but also enhances communication, knowledge sharing and commitment, as witnessed in the case. Balancing trust and contracting enhances flexibility, yet builds the explicit rules of the game and the common ground, thus improving both efficiency and value creation (Dyer and Singh, 1998), especially in collaborative innovation (Blomqvist et al., 2005). This is why trust is important in the case of service innovations that are highly intangible and therefore very difficult to manage by means of contracts, and protects against imitation. Furthermore, our findings support the idea that trust is needed in coopetition in both inter-organisational and inter-personal settings (Soekijad and Andriessen, 2003). Therefore, we propose that:
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Proposition 5 Trust is needed in order to complement the contractual framework for managing coopetition in the context of coopetitive service development.
7 Discussion and conclusions
The extant research on coopetition and development activities has so far been focused in the context of technology or product development. In order to address this deficiency, we presented a case study on Finnish mobile TV services that gives insights into the challenges and the potential of coopetition in service development. Services differ from products in many crucial ways, for instance in terms of intangibility, difficult IPR protection, and the need for extensive collaboration. The technological layers involved in technology-based competition in areas such as ICT-based services further increase the challenges given the increased complexity and risks, and the need for close cooperation in order to achieve interoperability among both very different and similar actors. Our case provides an example of technology-based services and illustrates the various challenges in the management of coopetition.
Our results suggest that timing is a critical issue, and many of the challenges are connected to the simultaneous competition and cooperation that give rise to conflicting business interests in the potential future markets. This may result in the withholding of knowledge and other kinds of inertia in the relationship. The results also suggest that cooperation is emphasised in the earlier phases of the service development, just as competition is emphasised in the later phases, which are closer to commercialisation. This creates major challenges for both individuals and organisations.
We also found that collaborating firms need not only complementary heterogeneous resources but also homogeneous resources in order to ensure the creation of a market for the new services. As far as high-technology markets are concerned, issues such as critical mass, interoperability, and finding a common ground become important. Furthermore, in addition to helping to create a horizontal market, the competitive element also increases the willingness of firms to enhance and differentiate their offerings (e.g., Bengtsson and Kock, 2000). Thus, when managed properly, coopetition may enhance market creation, and also increase the speed of introducing new and differentiated services to customers.
According to the case-study findings, the main success factor in the governance of coopetitive service development is flexibility through the interplay of social, organisational and legal governance: this enables effective knowledge sharing and, furthermore, mutual value creation. Firms need this flexibility in order to operate in multiple contexts and on several levels of interaction at the same time. In sum, it could be stated that coopetitive service development follows its own unique logic, which cannot be explained solely in terms of the competitive or the cooperative paradigm.
Our paper carries several implications for managers and experts working in service development projects involving competitors. It is important to understand that in the presence of simultaneous competition and cooperation, there will be situations in which individual and mutual interests collide. According to our findings, competing firms have to be aware of the risks involved. However, trustful inter-personal and inter-firm relationships play a key role in making knowledge sharing and collaboration possible in the first place. This includes not only the formal contracts between firms and membership positions in the same forums, but also the informal and personal relationships based on
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expertise and mutual interest. Trust is founded on the common vision of the emerging market, informal and long-term inter-personal and inter-firm relationships, and the pragmatic understanding of the business needs of each party. In the analysed case, for instance, the firms taking the lead were well able to communicate these issues to the others, and thus to increase their commitment and the stability of the network (Dhanaraj and Parkhe, 2006). In the development of new services, it is important on the individual-expert level to understand what is best for the whole project, and also what is best for the individual firm. Sometimes these interests are aligned. When they are not, it is essential to find a way of supporting the collaboration in order not to cause ‘discontinuities’ in the development process. As the case illustrates, interests become more individual the closer commercialisation gets.
Our study has its limitations, which are discussed in the following. First, our case concerned a development project starting with the development phase and proceeding towards commercialisation. However, many forms of cooperation between competitors do not manifest themselves in this way, and thus the implications presented are not directly applicable to coopetition in general. Collaboration in other business operations (e.g., related to after-sales services) has to be approached differently. Secondly, it must be remembered that the case presented is strictly focused on the ICT sector, which might differ a lot from other industries in terms of the pace and nature of the business. It is also evident that in this case, the services are tightly linked with the enabling technologies and their development. Consequently, service development, and coopetition in general, may well be different in other service sectors. Thus, cases concerning ‘pure’ services could also provide complementary and important evidence of the functioning of coopetition. Differences in coopetitive service development in other sectors could relate, for example, to the need for collaboration in the development and standardisation of services and the related infrastructure, the geographical nature of certain services, restrictions in provision (i.e., limited production capacity), and the nature of knowledge protection in the collaboration process. Nevertheless, it is evident that many of the findings reported in this study might well also be applicable to product industries, mainly because the distinction between products and services is not particularly clear in many contemporary knowledge-intensive contexts. Thus, in order to complement the evidence presented in this paper, further studies based on different methodologies and industries could bring additional knowledge to the complex phenomenon of coopetition.
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