Business Psychology - Latest Findings
Article No. 187
Business Practice Findings, by James Larsen, Ph.D.
Cooperative Business Ventures
Researcher explores the practice of cooperation between firms.
How to do more with what you have? How to bring your products to more people? These are the challenges of entrepreneurship: to multiply the imagination and efforts of one person a thousand-fold through the cooperative efforts of many. It's a passion, the kind of passion that drives entrepreneurs, and sometimes it leads them to cooperate.
Cooperative agreements among business owners may seem unlikely, but high-tech computer and biotechnology companies have demonstrated the usefulness of this approach, and their example has attracted the interest of entrepreneurs, as well as the researchers who study them. One of these is Candida Brush from Boston University.
Professor Brush began with a question: How common are cooperative business arrangements among young, small retail and service businesses? She approached 97 such firms in central New Jersey, and she found that only 20% of these firms had engaged in any cooperative business arrangements in the previous 3 years. Next, she explored how they cooperated and found (in order of frequency) that they cooperated by sharing industry information, joint promotion and advertising, joint purchasing, and sharing office space and management expertise. These areas they considered non-core to their business. They were opportunities to help them reduce the constraints posed by limited resources.
Finally, Ms. Brush compared the businesses that used cooperative arrangements with those that did not, and she found those that cooperated were clearly different. They were smaller, concentrated on local markets, and took in less money. Furthermore, their cooperative activities did not enhance their profit, their agreements were most often informal, and partners in these cooperative activities ranged widely through their random associations. They were chance encounters.
Consider the example of a day care business in River Heights, New Jersey that Ms. Brush profiled.
This business offers a unique service in addition to the normal offerings of a day care center: riding lessons and pony rides at a nearby riding academy. The riding academy provides this service at a nominal cost to the day care center because the academy gains exposure to a large group of potential customers, and it highly prizes this exposure. The riding academy was selected because it was a next door neighbor. It was serendipity. If it had been located across town, no agreement would have been likely.
Professor Brush was troubled by her findings. She wonders if cooperative arrangements by young retail and service businesses aren't undertaken to stave off failure. They certainly aren't leading to stellar business performance, and she felt it might be instructive to explore more fully the example of high-tech companies, so she went to 3 of them and investigated their use of cooperative agreements.
High-tech companies use cooperative agreements often, and many firms are founded with such arrangements in place. The firms she examined tended to cooperate with partners able to make contributions to the value of their products, for example, with suppliers of components they use or companies that could open new markets for them. These high-tech companies evaluated potential partners and cemented their arrangements with contracts. Their goals were profit oriented, and they evaluated arrangements according to the improved profit they produced.
If your company is young and small, Ms. Brush believes you could learn a lesson from the high-tech companies she studied. Think of businesses that have something you want, like customers, or resources you need. Next, think of businesses that might want something you have. If you stumble across any matches, it might be appropriate to evaluate attractive candidates and draft a formal proposal for them to consider
Reference: Brush, Candida G., and Radha Chaganti (1996) Cooperative Strategies in Non-High-Tech New Ventures: An Exploratory Study. Entrepreneurship Theory and Practice, Winter, 1996, 37-55. www.businesspsych.org
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