Introduction
How can firms manage alliances with competitors (i.e., coopetition relationships) to create superior value? It is obvious that alliance management in general is both complex and challenging, especially when considering the high rate of alliance failure (Lunnan & Haugland, 2008; Park & Ungsson, 2001). Alliance capability is therefore crucial for the creation of value together with others, which, in turn, is a source of competitive advantage (Anand & Khanna, 2000; Ireland et al., 2002). Research on alliance capability has explored its several important dimensions, such as coordination, communication, bonding (in terms of the extent of interpersonal liking between partnering firms), and learning (Schreiner et al., 2009; Wang & Rajagopalan, 2015). Other dimensions include relational governance, inter-organizational capabilities (Zollo et al., 2002), relational capital, and integrative conflict management (Kale et al., 2000). All these capabilities serve to create a conducive environment for achieving beneficial outcomes. However, as many alliances between competitors are prone to fail due to the complex, paradoxical, and challenging nature of such relationships, we argue that besides general components of alliance capability, firms also require specific and complementary coopetition capability.
We propose that an essential precursor to the development of alliance capabilities is senior managers’ ability to deal with paradoxical tensions embedded in and emerging from the very nature of the coopetition paradox inherent in alliances between competitors. It is not enough to have the capability to create conditions that favor cooperation, because competition activities also happen concurrently. Firms therefore need coopetition capability to enable them to work with the paradoxical contradictions inherent in such alliances (Bengtsson et al., 2016; Raza-Ullah, 2017a, b). In this chapter, we first discuss the paradoxical nature of the coopetitive relationship, the tension involved, as well as how tensions affect coopetitive alliance performance. Based on such understanding of alliances that involve coopetition, we thereafter propose the concept of coopetition capability and further develop the concept along the three dimensions: analytical, balancing, and emotional. We conclude with a discussion on the boundaries of coopetition capability as an additional dimension of a firm’s overall alliance capability and outline directions for future research.
Coopetition in horizontal alliances
Coopetition is paradoxical
Coopetition relationships between firms are unique because they embody the paradox of simultaneous cooperation and competition (Bengtsson & Raza-Ullah, 2017; Fernandez et al., 2014; Raza-Ullah et al., 2014). Whereas cooperation is about creating a bigger pie, obtaining mutual gains, and moving toward a positive-sum game, competition includes maximizing private gains, behaving opportunistically, and commencing a zero-sum approach (Das & Teng, 2000). The pursuit of such contradictory yet interrelated logics of interactions simultaneously makes coopetition a complex, emotion-laden, and managerially challenging paradoxical phenomenon. Researchers note that despite the proliferation of coopetition relationships, above fifty percent of all collaborative arrangements between competitors fail (Harbison & Pekar, 1998), which further highlights the inherent complexity of coopetition and thus draws attention to the need to properly manage coopetition relationships.
The first step to manage coopetition is to understand its paradoxical nature as well as the underlying mechanisms and processes that influence performance. Coopetition research has already proposed a two-continua approach to understand coopetition’s paradoxical nature. Such an approach can be expressed on a 2x2 grid with cooperation (ranging from low to high) on the vertical and competition (ranging from low to high) on the horizontal axis (Bengtsson et al., 2010). Further, coopetition is in its most managerially challenging form when both cooperation and competition are high (i.e., strong paradox). Alternatively, when either competition or cooperation largely overrides the other, the paradox as such would be weak (Bengtsson & Raza-Ullah, 2017). Moreover, coopetition researchers argue for the both/and nature of the coopetition paradox, which suggests that both cooperation and competition are pursued simultaneously. Thus, cooperating for a certain time period in which firms do not compete, or competing in another period without collaboration at the same time, would either mean cooperation or competition in isolation and not coopetition (Luo, 2007).
Paradoxical tension resulting from coopetition
The coopetition paradox consists of several, often intertwined, contradictions. The most commonly noted contradictions are value creation versus value capture (Lavie, 2007), knowledge sharing versus knowledge leakage (Ritala et al., 2015), and getting close versus keeping distance (Gnyawali et al., 2016). As the coopetition paradox becomes salient, it is cognitively and emotionally experienced by the actors engaged with the inherent contradictions. Managers’ experience of the contradictions and the resultant cognitions and emotions creates what Raza-Ullah (2017b) names as experienced paradoxical tension. As the actors, and particularly senior managers, are often entangled with such contradictions, they find difficulty in both cognitively and emotionally dealing with the simultaneous contradictory demands. For example, on one hand managers need to ensure that knowledge is shared with the other firm to solve a joint problem or develop a new product. However, on the other hand, managers are very much concerned about the unintended leakage of important knowledge to the partner, which may cause harm to the focal firm in terms of, for instance, losing competitive advantage. Especially when the paradox is strong and the need to both cooperate and compete is intense, managers feel cognitively torn between the contradictory demands of what to share and what not to share, and thus experience high tension.
The contradictory conditions in coopetition also give rise to a blend of positive and negative emotions, which further exacerbate the level of experienced paradoxical tension. For instance, whereas positive emotions are felt when actors appraise coopetition as beneficial for their firm, negative emotions may arise when managers find that the partner is very opportunistic or attempts to steal sensitive knowledge (Raza-Ullah, 2017b). As actors become exposed to multiple contradictions in coopetition, they feel torn between several conflicting impulses and thus experience emotional ambivalence (Raza-Ullah et al., 2014). The individual cognitive resources to deal with the cognitive and emotional overloads created by a strong coopetition paradox become scarce as managers are required to attend to multiple, simultaneous, and intensely conflicting demands. Paradoxical tension therefore builds up when managers find it difficult to pursue the contradictory demands simultaneously and feel stretched between opposite directions with clashing cognitions and ambivalent emotions—all of which affect alliance performance.
Performance implications
Recent studies on coopetition have found that coopetition is a double-edged sword (Bouncken & Kraus, 2013) such that it can impact the performance outcomes both positively and negatively (e.g., Ritala & Sainio, 2014). We argue that coopetitive tension is the underlying mechanism that, if not managed appropriately, negatively associates coopetition with performance. Particularly when the coopetition paradox is strong and creates high tension, the likelihood of reduced performance (both in terms of focal firm performance and joint alliance performance) is high. This is in line with recent empirical studies that show that a strong paradox is associated with high tension (Bengtsson et al., 2016) and high tension in turn leads to lower performance. It is further suggested that a moderate level of tension is likely to positively influence performance, and therefore tension to an optimum level must exist to fuel performance (Bengtsson & Raza-Ullah, 2017). Studies have also found that a high degree of emotional ambivalence is related to lower levels of performance (Raza-Ullah, 2017a). Overall, there is substantial evidence suggesting that moderate levels of tensions, as opposed to low or high ones, are associated with positive effects on alliance performance.
What is coopetition capability?
Owing to coopetition’s unique paradoxical nature, recent research has begun to evaluate the appropriate skill-set needed to manage coopetition and the resultant coopetitive tension. For example, scholars have proposed that both separation and integration strategies (Fernandez et al., 2014) as well as a combination of formal and informal control mechanisms for information sharing (Fernandez & Chiambaretto, 2016) are needed. Moreover, comprehensive frameworks of coopetition suggest that firms need to possess analytical and balancing capabilities to manage the paradox and tension in coopetition relationships (Gnyawali et al., 2016). Conceptual and theoretical work further suggests that in addition to the analytical and balancing capabilities, firms also need ambivalence management capability that could help managers deal with their emotional ambivalence (Bengtsson & Raza-Ullah, 2017). Earlier research has defined coopetition capability as “the ability to think paradoxically and to initiate processes that help firms attain and maintain a moderate level of tension, irrespective of the strength of the paradox.” (Bengtsson et al., 2016: 22). Fundamentally, we propose that coopetition capability moderates the relationship between coopetition paradox and the resultant tension in such a way that firms with high levels of coopetition capability will report a moderate level of external tension irrespective of the strength of the paradox. Combining these insights, we suggest that coopetition capability has three main components—analytical, emotional, and balancing. Below we unpack these dimensions and formulate explicit expectations regarding the effects of each dimension on coopetitive tension, illustrated in Table 18.1.
Table 18.1Coopetition capability: Different dimensions, what they consist of and result in
| Coopetition Capability | Consists of… | Results in… |
Analytical capability |
Paradoxical thinking; coopetition mind-set |
An understanding of why, how, and when coopetition is needed |
Balancing capability |
Routines and processes (both ostensive and performative) |
Separation and integration of the simultaneous contradictory demands; a repertoire of alternative strategies; reconfiguration of activities to balance the paradox |
Emotional capability |
Acceptance of ambivalent emotions; regulation of emotions through deep acting and surface acting |
Creativity, accuracy in judgments, and superior performance; signaling assertiveness |
Analytical dimension
The analytical dimension refers to the paradoxical thinking and mindset of senior managers that enables firms to see the constructive nature of contradictory forces (Smith & Tushman, 2005) inherent in the coopetition paradox. It helps in “exploring the tension in a creative way that captures both extremes” (Eisenhardt, 2000: 703), rather than focusing either on the cooperative or the competitive dimensions of coopetition. Managers with paradoxical thinking tend to be adept at developing a clear, precise, and unified understanding of the paradoxical situation. Such paradoxical mental frames create a lens through which managers constantly scan the business environment, assess potential opportunities and threats, and identify if there is a need to cooperate with a competitor. This is critical because coopetition may not always be needed, and many times firms can benefit by establishing pure collaborative relationships with partner firms. Moreover, analytical capability enables firms to recognize the suitable areas of cooperation with a particular competitor. In sum, the analytical dimension enables firms to understand why, how, and when it is beneficial to both cooperate and compete.
Balancing dimension
The balancing dimension includes the development and utilization of routines that help integrate, organize, and balance the simultaneous contradictory demands effectively. With such routines and processes in place, managers can perform multiple and inconsistent roles and tasks, as well as lessen the intensity of excessive cognitive overloads caused by tension and emotional ambivalence (Raza-Ullah, 2017a). One example of routines could be related to knowledge sharing. As mentioned earlier, when the demand of knowledge sharing is high, the risks of opportunism and transfer of important and sensitive knowledge also become high. Routines in this kind of scenarios would help boundary spanners to filter the right information, so that the only information shared with the other firm is that which is intended to be shared. Unintended leakage of knowledge may hurt the focal firm. Indeed, coopetition studies have found a negative impact of knowledge leakage on the positive relationship between knowledge sharing and the focal firm’s innovation performance (Ritala et al., 2015).
As coopetitive relationships are dynamic and change over time, the routines developed to pursue conflicting demands cannot be rigid in nature. Rather, they embody both the ostensive and the performative aspects (Feldman & Pentland, 2003). The ostensive aspects (e.g., abstract standard operating procedures) assist the focal firm, for instance, to assign contrasting agendas to two separate units at the lower levels. As such, one unit is only involved in cooperation with the competitor firm, whereas another is focused entirely on competitive issues. Such structural differentiation allows firms to restrict the development of tension and emotional ambivalence at the lower levels, which is important because lower-level employees usually lack the analytical skills and cognitive frames to juxtapose paradoxical agendas (Bengtsson et al., 2016). The performative aspect (e.g., improvisation of existing routines, and accommodation of variations) further helps to tackle the varying intensities of cooperation and competition in the relationship. More precisely, it provides the flexibility to senior managers to improvise the routines in particular time periods and circumstances according to the situation (Raza-Ullah, 2017a). Doing so enables firms to develop a repertoire of alternative strategies, reconfigure activities, and meet the changing demands (Gibson & Birkinshaw, 2004) of coopetitive relationships. Further, managers are also able to change the scope and content of coopetitive relationships to balance the paradox without jeopardizing the common objectives.
The performative parts of routines are also helpful for senior managers in terms of integration because the dual structures eventually have to be integrated at the top level such that the ongoing tension is fostered in a creative way and its positive energy is tapped (e.g., Gibson & Birkinshaw, 2004; Smith & Tushman, 2005). Both the ostensive and the performative routines develop into capabilities that provide the basic infrastructure to firms through which managers are able to manage their own tension and ambivalent emotions. As a result, firms become more capable of pursuing contradictory demands simultaneously, as well as balancing them over time.
Emotional dimension
The emotional dimension is about managing emotional ambivalence. Drawing from emotion literature, particularly that related to emotional intelligence (Mayer et al., 2004) and emotional regulation (Hochschild, 1983), it has been defined as the ability to accept and regulate emotional ambivalence and its negative effects (Bengtsson & Raza-Ullah, 2017). Acceptance refers to embracing both the positive and the negative emotions in order to have a fuller understanding and more balanced view of the situation. Felt emotions provide cues or information to managers about the particular situations that they are in, which in turn guide them to think and act in ways that lead to synergistic outcomes. For instance, research has shown that people tend to interpret their experience of emotional ambivalence as a signal that they are in an unusual environment, which prompts them to collect more information to identify associations between unrelated stimuli, and therefore leads to increased creativity and superior performance (Fong, 2006). As emotional ambivalence is considered unpleasant and discomforting, a general response tendency is to either avoid it completely or to tip toward the preferred emotion to relieve the agony of ambivalence (van Harreveld et al., 2009). Yet, doing so leads to a biased and partial view of the situation (Pratt & Doucet, 2000), which negatively affects creativity, accuracy in judgements, and superior performance (cf. Raza-Ullah, 2017b). The acceptance of ambivalent emotions is thus an important first step geared toward managing it.
Regulation involves controlling the expression of emotional ambivalence to the partner, as well as decreasing the felt discomfort that conflicting emotions create within a person. Two different strategies can be used to regulate emotions—surface acting and deep acting. Surface acting consists of the outward display of emotions that are actually not felt (Grandey, 2000). As experiencing extreme emotional ambivalence may lead to paralysis, powerlessness, and delays in decision making, experimental research has shown that such cues are read by the partner firm as submissiveness, which in turn excites the partner to dominate the focal firm (Rothman, 2011). Research further suggests that this will hurt the achievement of joint long-term performance goals (Raza-Ullah, 2017b). Thus, surface acting in context of coopetition is especially important for firms to sustain superior gains.
Finally, deep acting is about experiencing those emotions that need to be displayed. In other words, the emotions that are felt, are displayed (Grandey, 2000). As the feeling of ambivalent emotions is part and parcel of managers’ life in coopetition contexts, deep acting becomes a necessity because surface acting on a long-term basis may produce burnout signs such as depersonalization, emotional exhaustion, and diminished personal accomplishment (Cordes & Dougherty, 1993). For deep acting, managers may need to do reappraisals to modify their inner feelings about a situation. Taken together, these three dimensions of coopetition capability jointly produce balance in the relationship and help managers to experience moderate levels of tension, which are needed to enhance performance outcomes (Raza-Ullah, 2017b).
Discussion and venues for future research
In this chapter, we propose that coopetition capability is a component of the broader alliance capability (Wang & Rajagopalan, 2015). Given that coopetitive relationships are inherently paradoxical, tensions are bound to emerge in alliances between competitors due to contradicting dualities, demands, or logics of interactions pursued simultaneously. We seek to enhance the alliance capability debate by introducing a specific capability, referred to as coopetition capability, which enables senior managers to maintain the moderate level of such tensions, shown to be optimal for alliance performance. Partitioned into analytical, balancing, and emotional dimensions, such capability is distinct from generic alliance capability that relates to various aspects of the alliance management process, such as coordination, communication, bonding, and learning. In contrast to these capabilities, coopetition capability reflects managers’ ability to handle paradoxical demands and thus underlies a firm’s ability to further develop relational governance and integrative conflict management approaches. Handling paradoxical demands requires developing a clear, precise, and unified understanding of the paradoxical situation, performing multiple and inconsistent roles and tasks via the development of routines, and accepting and regulating emotional ambivalence and its negative effects—abilities addressed in the analytical, balancing, and emotional dimensions of coopetition capability, respectively.
The inclusion of coopetition capability into alliance capabilities will thus enhance the explanatory power of the models that focus on alliance outcomes. While an early exploratory empirical examination of the effects of analytical and balancing dimensions on tensions (Bengtsson et al., 2016) confirmed the distinctiveness and proposed effects, much work is needed in refining the coopetition capability measures in terms of increasing its applicability at various stages of an alliance life cycle, relevance to specific alliance contexts, and accounting for the broader effects on organizational members.
Although we propose that firms with higher levels of coopetition capability are able to reap superior outcomes in an already-established alliance via maintaining tensions at the performance-optimizing level, understanding the pre-formation phase—the choice of alliance partner—can be a fruitful direction for developing the coopetition capability concept further. Identifying and selecting the right firm at the right time for coopetition remains the core concern for successful coopetition outcomes. Selection of a competitor-partner with a short-term orientation when the focal firm has a long-term orientation, for instance, would be a mismatch, which in turn would likely result in a premature dissolution of the coopetition relationship (cf. Das & Teng, 2000). Managers with a superior understanding of when and why it is beneficial to cooperate and compete and with the ability to develop alternative strategies to manage both cooperation and competition are likely to both identify potential collaborators and negotiate terms of alliance agreement in such a way as to gain most from their ability to handle paradoxical tensions at the post-formation stage.
Furthermore, while we develop the concept of coopetition capability within a horizontal alliance setting—alliances with industry firms—coopetition capability may also prove useful when forming vertical alliances with firms within the value chain, and when studying private-public partnerships. Zhang et al. (2010: 78) argue that coopetition “is not limited to horizontal alliances but is contained in any type of alliances,” but the nature of contradictory demands can be different. For example, in university-industry alliances contradictions due to varying levels of market focus and value definition among partners may exist (Hall et al., 2003), hence the capability to manage such contradictory demands might include additional components within analytical, balancing, and emotional dimensions.
Finally, we centered the development of the capability construct at the inter-organizational level and focused on capability’s effect on tensions that emerge in inter-firm relationships on the senior management level. The effects of coopetition capability can be expected to be broader than that. Besides the tension that transpires at the top management level, tension can also spill over into the organization at lower levels. Senior managers that are able to maintain moderate levels of tensions are likely to be able to more effectively communicate the rationales of the alliance to employees in the organization, thus reducing the potential of internal tensions emergence within an organization that can manifest themselves in conflicting opinions, uncertainty about the value of the alliance, negligence in interaction with the partner, and ambivalent emotional state.
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