or How to Build Successful Partnerships with the Competition as published in Forbes.com.

In the complex landscape of today’s business ecosystems, it is almost inevitable that companies with a large network of partners are, in fact, competing with some of those same partners. This has given us “co-opetition,” a term that is derived from “cooperative competition” (also affectionately known as “sleeping with the frenemy”).

Co-opetition happens when there is a competitive overlap with a partner; you partner in one area of your business but compete in others. I am frequently asked by business leaders, “Why would you do this? Why partner with a competitor?” It’s a key question to ask.

Here are four reasons why it might make sense for you:

  1. Competing as an ecosystem: We see co-opetition in consortium-type alliances, such as when multiple airlines share operations, even where they operate competing routes. By cooperating, the airlines become more competitive with other airline networks. Within their own network, they share costs and loyalty programs and deliver a better experience to travelers.
  2. Meeting customer requirements: Sometimes, customers demand products and services from multiple companies that might otherwise compete, which forces those brands to figure out how to work together. For example, Oracle and SAP cooperate when the customer decides they will run SAP’s software on top of Oracle’s database and infrastructure. Partnerships such as these are not without conflict and stress. People often question how these can even be successful. Yet, they are successful because they serve the customer.
  3. Sharing risk:  There can be a lot of risk in large and complex projects. Risk becomes more manageable if, as a member of an ecosystem, you only take on a portion of the risk, and only in the areas where you have the most expertise to mitigate it. Australia, for example, requires alliancing proposals for large infrastructure projects. The reason is that no one company is big enough to do the whole project and bear the entire risk, so they are required to join forces and build teams of competitors.
  4. Collaborating to create a shared technology or standard: This can have a market-making impact. For instance, Volkswagen, Mercedes, Ford and BMW collaborated(paywall) to create a standard charging station, Ionity, for electric vehicles. A standard plug means that there didn’t have to be separate networks of charging stations for each manufacturer. One network would serve all and encourage the adoption of electric vehicles.

The risks are high, but so are the rewards.

There is a basis for co-opetition in the mathematics of economics. You might remember the movie “A Beautiful Mind” about John Forbes Nash Jr., who was one of three to win the Nobel Memorial Prize in Economic Sciences in 1994 following his work with game theory. Nash described the non-zero-sum game. When competitors cooperate, the net outcome can be a win-win, or an overall win for everyone. But it can also be a lose-lose if not effectively managed.

Managing co-opetition is an advanced topic that requires greater partnering maturity and skill. Competitive alliances are not structurally different than others, but they are more challenging in several ways because of the inherent tension between two organizations that compete.

In my experience, working with your competition is not an intuitive thing for most people. It takes a strong value proposition to make the risks and effort worthwhile. Here are few guidelines in managing these challenging partnerships:

  • Remember, stakeholder alignment is crucial.Not everyone will understand why you would work with a competitor, so they might try to undermine the partnership. Head this off early by ensuring everyone in your organization understands the value—and the risks.
  • Develop clear rules of engagement.This helps establish ground rules on how both companies will work together. This includes well-defined “swim lanes,” which answer the question, “Where do we compete, and where do we cooperate?”
  • Proactively set up escalation paths.Bad news travels fast. You need to escalate and resolve conflicts quickly and fairly before you have to deal with widespread damage control. This means early in the formation of the partnership, you need to identify the decision makers, clarify their decision authority and define the time scales for issues to be moved up the management chain.
  • Communicate, communicate, communicate.Communicate the value of the partnership. Communicate the rules of engagement, the swim lanes and the successes. Communicate these messages to internal stakeholders and executives. Ensure your partner does the same. One alliance executive, for example, related to me that they frequently issued press releases on competitive alliances to reassure customers that their interests came first.
  • Enable a free flow of information where it is necessary.As well, keep proprietary or sensitive information guarded, restricted and disclosed only when appropriate. Client information might need to be shared to ensure happy customers; however, information related to competitive deals should be safeguarded. This can be done by creating separate teams to manage alliance activities that are firewalled away from other parts of the organization.
  • Build trust.Trust is fragile in the best alliances and critically so in co-opetitions. You’ve likely heard the expression “it takes years to build trust, but seconds to destroy it.” This is especially true when partnering with your competition. Build trust by acting honorably and consistently with the rules of engagement that you have mutually agreed to.

Your competitive alliances are not going to act against their own self-interest. However, sometimes their self-interest can be aligned to the customer’s best interest, as well as to the benefits of shared risk or the prospect of new markets. And that is the opportunity to create win-win outcomes for all parties.