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Working with the Enemy

Originally published in Pima Insights, Spring 2022 Issue

Companies are working with competitors more than ever before. According to research we conducted last year, 75% of companies compete with their business partners some or a great deal.1 Shifting consumer demands and new digital solutions have been transforming the insurance industry in recent years, and many firms have leaned into the disruption. Insurers have long leveraged an extensive network of agents and partners for sales and distribution, with a preference for partners that have little or no competitive overlap with the insurer. Now, those same companies are also collaborating with partners on integrated marketing and delivery models, joint product innovation, and customer support alliances. Hiscox partners with the AI-enabled platform company NOW Insurance to improve distribution of medical malpractice insurance. Uber works with digital MGAs to make it easier for their drivers to select and purchase insurance. Intel now offers business insurance through their Quickbooks product. Over the past five years, the number of business relationships between insurtech and traditional insurance companies has grown by 298%.2

Can collaboration with competitors work? 

All of this collaboration is likely to benefit the companies involved. In a 2021 study on innovation practices, Vantage Partners found that companies who report that most or a great deal of their innovation comes from collaboration with third parties drive nearly twice as much revenue growth as those who do not.3 In a separate research study conducted in 2020, we found companies that rely primarily on internal assets and capabilities underperform their peers both in stock price growth and revenue growth.4

Why do so many coopetition-based partnerships fail?

If past patterns hold true, 50 – 60% of today’s partnerships across the insurance industry will fail.5 Why? Because the challenges of working across company lines and dealing with competitive tension will prove too difficult for many teams. And, unlike many other business disciplines, our research indicates that companies are unlikely to improve their success rates simply through increased experience.6 We have been unable to find any statistical relationship between the extent to which companies report engaging in collaboration with competitors and being effective at managing coopetition.

What separates the winners and the losers?

Is it merely luck or perseverance? No. While companies that are effective at managing coopetition-based partnerships employ different business models and strategies, they are united by a similar mindset. Rather than viewing collaboration with competitors as a last resort, they view it as a pervasive feature of business relationships and a challenge that can be systematically managed (see Figure: Contrasting Coopetition Mindsets).

Contrasting Coopetition Mindsets

Companies that are not effective at managing coopetition
Companies that are highly effective at managing coopetition
View partnerships with competitors as a last resort, and embark on them with one foot out the door
Regularly consider coopetition as a strategic option, and commit themselves to success when they partner with competitors
Expect partners to act counter to their own self-interest
Expect that any partner will, and should, act to maximize their own success
Do not fully explore how competitive overlaps will be managed, and fail to align around clear rules of engagement with partners
Define clear rules of engagement to prevent competitive interactions from undermining collaboration
Attribute problems to partner actions, and competitive overlap with partners
Attribute problems to the inherent difficulty of partnerships in general, and to marketplace challenges
Evaluate the results of partnerships with competitors against unrealistic, and often vague, expectations
Evaluate the results of coopetition-based partnerships against clearly defined goals and realistic alternatives
Assume that an increase in competition with a partner indicates failure
Assume that the scope and intensity of competition with a partner is likely to change over time, and might well increase


Ironically, it turns out that companies who fear coopetition and regard it as a last resort actually create conditions for failure. Leaders at these companies often enter coopetition-based partnerships out of desperation or from a position of weakness, set vague or unrealistic expectations, and attribute problems to a lack of good-faith collaboration by their partners. They are frustrated by differences and disagreements with their partners, instead of focusing on the reasons why both companies are stronger through working together. By contrast, companies who are comfortable with coopetition enter their partnerships from a position of strength. They take time to explore differences with partners, ensuring that differences are understood, respected and valued. And they put governance systems in place to manage differences systematically.

While most companies across the industry have embraced the need to work with competitors in new ways, not enough have made the mindset shift necessary to ensure the success of these collaborations. Fortunately leaders can employ practices that make success more likely. These include:

  1. Modifying strategic planning processes to require an evaluation of collaboration with competitors for every major initiative
  2. Developing measurable goals for each partnership, and reality-testing those goals by comparing them against internal initiatives
  3. Establishing a quarterly process to assess challenges with coopetition-based collaborations and develop remediation plans
  4. Regularly reviewing the portfolio of partnerships, with an expectation that each year some will fail, and some will reach a major transition point

Not just surviving, but thriving

The insurance industry is at an important inflection point. The industry is growing at a rapid pace. Customer needs and expectations are shifting. New opportunities and competitive threats are emerging from adjacent and non-adjacent markets. Leaders who view this environment as zero-sum, where anything that benefits a competitor harms themselves, allow fear and frustration to shape their thinking and blind them to scenarios where collaboration with competitors can deliver mutual benefit. Alternatively, leaders who embrace the disruption of the current ecosystem, and assume a competitor’s advantages can also benefit them, can expand their strategic options and improve their ability to capture and maintain a strong market position.

Notes:
1. Vantage Partners coopetition research, 2020. 
2. CBInsights, Insurtech partnerships report, May 2021. 
3. Vantage Partners research on innovation, comprising 165 responses from more than 150 companies, June 2021. 
4. Vantage Partners coopetition research, 2020.
5. Vantage Partners State of Alliance Management research, to be published in fall 2022.
6. Vantage Partners coopetition research, 2020.

Categories:

Strategies for Growth & Coopetition, Blog