Sleeping With the Enemy

Tweet

Do they still compete? Absolutely. For instance, Brown works with a machine shop in Buffalo to produce metal studs because, in this case, combined expertise results in larger profit margins for both companies and a higher-quality product for the customer. But the two bid competitively on jobs that require the manufacturing of special shafts, because each has the ability to make that product efficiently on its own. They let the market--and the numbers--tell them when to choose cooperation over competition and, in the process, create a larger playing field upon which one company's success is less likely to result in another's failure.

Consultants, academics, and economic-development folks know Brown or know of him because he successfully (and unwittingly) created a flexible manufacturing network that many experts believe could--and should--be replicated nationwide. The concept began to take hold in the United States more than a decade ago, when two professors at the Massachusetts Institute of Technology, Charles F. Sabel and Michael J. Piore, published The Second Industrial Divide. The book examined the Emilia-Romagna region of northern Italy and its rise to economic prosperity through the creation of networks among small companies. That research inspired captains of government and industry in this country to flock to Italy in search of a model that might help bolster flagging competitiveness in the states.

They came home with visions of a national business agenda that never came to fruition but that, nonetheless, eventually spawned several state and local organizations charged with helping small companies (most commonly, but not exclusively, manufacturers) form networks. "A lot of it turned out to be the marketing of an organizational device," says Sabel, now a professor at Columbia Law School. That "organizational device" took many forms. Like Harry Brown's network, some coalitions of companies were pulled together by a CEO who took on the nearly full-time job of coordinating their efforts. Other groups began to look like hybrid trade associations, while still others actually created separate entities under whose umbrella all cooperative work was organized. Some of those efforts were successful; many were not. What continues to distinguish those that flourish from those that fade is that they not only have found a way to solve the market challenges that brought them together in the first place but have used their collective clout to create new opportunities. Consider the following stories:

John Anson had been in the equipment-design and -building business for 30 years and was no stranger to the concept of networking. Like many small-business people, he had often called upon friendly competitors to help him out if a job was too big or too complex for his shop to handle. But 4 years ago Anson began feeling pressured by the new demands of outsourcing. "Companies would outsource larger and larger chunks of their business, and I sometimes couldn't handle it alone," he says. When General Electric, a longtime customer, wouldn't even allow Anson to bid on a job because his shop was too small, the Louisville CEO figured it was time for radical measures. He went to his two largest competitors with a plan to complete the $15-million project together; he would coordinate the work while serving as the single point of contact that GE desperately needed.

Since it landed that contract, in 1993, Anson's network has expanded to include a dozen more companies. The business generated by GE is now worth $60 million, and the networked companies work together on other jobs as well. "It's like combat," says Anson. "You have to use the buddy system." The enemy? Competition from Mexico and the Pacific Rim. "By forming this network, we've given ourselves the opportunity to retain business that would have gone overseas," he says. What's more, Anson's sales have skyrocketed from $3 million to $80 million, and he reckons that the $25 million he's spent on expansion would have been closer to $40 million if it weren't for his network partners. "But it's not just the capital investment that I've saved on," he notes. "It's also the people. I was able to use the talent of the people in those other companies."

The Oregon Brewers Guild is a group of 40 local microbrewers that network broker Nick Harville, of Gleneden Beach, Oreg., helped assemble three years ago. Originally, the group of brewers banded together to lobby for their common position on legislative issues such as excise taxes and advertising limitations, but they quickly realized that their alliance had marketing power as well. Large breweries had begun creating what Jerome Chicvara, director of sales and marketing at Full Sail Brewing, calls "pseudo craft brews"--a direct assault on the Brewers Guild market. So the guild developed a common quality-assurance label that helps differentiate its members from the knockoffs. "None of them has the financial resources to combat Miller or Anheuser-Busch alone," says Harville.

 PREV  1 | 2 | 3 | 4  NEXT 

Read more:

Donna Fenn

Inc. contributing editor Donna Fenn is the author of Upstarts! How GenY Entrepreneurs are Rocking the World of Business and 8 Ways You Can Profit From Their Success (McGraw-Hill, 2009). Both this blog and the book examine the ways in which GenY is changing the entrepreneurial landscape with new approaches to starting, growing, and managing their companies. Learn more at http://www.upstartsrock.com/.

Sign-up for our Leadership and Managing Newsletter

Email Address: