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The (business) world is changing fast.

Although this phrase has already become a cliché, few people and companies realize how fast it changes and in what direction. Old business models do not work in the new economy. They are either experiencing great difficulties or dying away.

People became more aware of what bad, unfair or corrupt business practices are. Besides, they have received tools to fight with or prevent them due to the rapid technological advancement.

Sales strategies do not produce desired results, unless they are innovative and creative. Cold-calling looks like a sales approach from the dinosaur era. Potential customers do not want to be bothered by sales calls, traveling sales persons or street sellers. Traditional advertising is becoming less and less effective.

Smart lean ideas for your business: part 1

Subsequently, companies are looking for new trends and business models to help them expand their business opportunities and adopt one or more of the approaches described next.
This is the first part of a 2-part series on how to make your business more effective. More on the other strategies in the next post.

Cooperation vs. Competition

Why should many people do one and the same thing and fight for the same resources when they can cooperate and share resources?
We can find the root of competition in our childhood. It certainly develops or enhances some skills. But let us see how it evolves in adolescence and professional life.

Competition is nurtured by parents in early childhood. Parents teach their children to help the weaker, compete with and defeat the equals and the stronger. They use three different slogans to push their kids into the rat race – excel-in-everything, be-the-popular-guy, and/or outshine-your-peers; otherwise you will fall out of the ship and will be considered an outsider.

Nevertheless, some outsiders become great.

Competition within a company, however, may often a delay in progress. For example, some employees, instead of helping a colleague to make a breakthrough, may try to impede his or her work because they consider him or her a competitor in the company’s race. Others may try to oust a colleague who is more capable than them. Managers may not hire more knowledgeable, talented or creative assistants because they are afraid to be replaced by the new employee.

In any of the above cases, employees never calculate the future loss of profit for the company.

Rivalry between competitors on one and the same market may also result in loss of profit. The phenomenon prisoners’ dilemma, originally explained by Merrill Flood and Melvin Dreshe and later named by Albert W. Tucker, is an illustrative example of how companies may benefit from cooperation and lose from competition. It can be presented as follows.

Two accomplices in a crime are arrested and offered a deal to betray one another. There are three possible scenarios:

  • If they betray each other, both will be sentenced to 5 years’ in prison.
  • If one of them betrays the other, one will be sentenced to 2 years’ imprisonment, and the other – to 5 years.
  • If both of them keep silence, then both of them get sentenced for 1 year in prison.

Although, the greatest advantage for both prisoners is to cooperate and remain silent, they are more likely to choose one of the other two options.

Some businesses also have to resolve such a dilemma, let’s call it a competitors’ dilemma and explain it by the following example. There is a company that offers a product and it has one competitor who has not built up its reputation yet. If the demand is greater than the supply of this product, there are three possible options:

  • The company neither refers its costumers to nor shares resources with its competitor to satisfy the demand: both parties lose customers and profit, respectively.
  • The company refers surplus customers to its competitor: the company loses profit, but the competitor generates sales revenue for a short period of time.
  • The company shares resources with its competitors and satisfies the demand: both parties expand their business in the long term.

Only few companies will chose the most rewarding option since the rest of them are afraid that their competitor will take over their business or will profit on their account.

Even so, it is a short-term victory for the competitor, not a successful strategy for future growth. What happens next is explained by Paulo Coelho in his book The Zahir. He compares the (business) world with a Favor Bank. Everybody asks for favors and when they gain a favor, they receive credits from the bank. The credits should be returned on request. If a debtor does not return his credits, he will be excluded from the Favor Bank, or as Paulo Coelho describes it:

“You’ll grow only half as much as you could have grown, and certainly not as much as you would have liked to. At a certain point, your life will begin to decline, you got halfway, but not all the way … (The Zahir, Paulo Coelho, 2005)

Translated in the language of business, it means that such a behavior is not a successful strategy for future growth. The most important aspect in all types of business sectors is at least to strike a balance between cooperation and competition.

We try to lean test and set in motion Paulo Coelho’s Favor Bank. Our aim is to provide a place where people, businesses and customers can meet, cooperate and help each other, and everybody is invited to take part in the experiment by just following this link.

In the next article, we share the lean ideas to improve your product and ignite a sustainable growth at your organization.

The floor is yours…

What are you thoughts about these strategies? How do you apply them within your teams? Let me know in the comment section below.

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