Competition can sometimes get unhealthy
Competition is often celebrated as the lifeblood of free enterprise. But a pair of managing directors at Mercer Management Consulting argue that certain forms of competition are wasteful.
In a provocative new report, Charlie Hoban and Adrian Slywotzky contend that rivals in a variety of sectors would be better off collaborating in basic technology research and competing in areas that matter more to consumers, like product design and sales experience.
''When companies fight over things that hold little value to customers or that offer little potential for differentiation, they are wasting time and resources while reducing profits of their entire industry," Hoban and Slywotzky wrote in a white paper prepared for Mercer's clients. ''As a result, much of the competition in business today is destructive."
Exhibit A is the auto industry, where manufacturers have spent more than a decade pumping money into separate research efforts to develop successors to the internal combustion engine. Such programs have been costly and risky, straining the resources of automakers.
More recently, there's been a change of tune. General Motors and Chrysler said they would team up to design a hybrid powertrain. Ford and Nissan adopted Toyota's hybrid technology for their own engines. And, Toyota and GM were reported to be discussing collaborations on new hybrid and hydrogen engine technology.
Hoban, who along with Slywotzky is based at Mercer's offices in Boston, cited these joint ventures as positive developments.
''These companies end up spending billions of dollars on redundant systems," Hoban said in an interview. ''To think of this kind of research and development as a competitive strategy -- 'we're going to unveil this and no one else will' -- doesn't stand up to common sense."
But companies in businesses ranging from music and airlines to textiles and consumer electronics persist in a go-it-alone strategy that precludes any kind of sharing with competitors, he said.
''Our culture and our economy and our values are all based on competition," Hoban observed. ''We all think it's good because it spurs innovation. But in certain cases it stifles innovation. Companies can make more progress if they collaborate in some areas."
Music companies took big hits in the Napster era because they failed to unite around one system for legal downloads. Separate consortiums rolled out Pressplay and MusicNet, but the services undermined their viability by refusing to cross-license songs.
By contrast, the banking industry was able to capitalize on the credit card boom by cooperatively launching Visa and MasterCard. Other industry consortia -- Sematech in semiconductors, Airbus in aircraft -- have proved similarly effective in achieving common goals.
The real trick is figuring out where to collaborate, and where to compete. Kenan Sahin, founder and president of the technology research firm TIAX in Cambridge, agreed that collaboration can lead to better execution in some areas. But he added that ''in areas where there are multiple discoveries to be made, having many labs leads to creativity and innovation." Sahin said a better focus would be for companies within an industry to team up to develop standards and common platforms.
One issue for companies open to collaboration is learning not to run afoul of the US government, which frowns upon ''collusion" by corporations in a single industry. Hoban said teaming up with competitors will draw the wrath of federal antitrust regulators only if it involves the sharing of pricing information -- that is, price fixing -- or other actions that might prove harmful to customers.
''Some companies say, 'We can't have conversations with competitors about prices, so we don't talk to competitors,' " Hoban noted. ''There are a lot of industries where playing the game the same old way -- competing, competing, competing -- is feeling a lot like a treadmill."
Robert Weisman can be reached at weisman@globe.com. 
