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Investing in the Competition

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When the Sony Corporation partnered with IBM and Toshiba to design a new processor for the next generation PlayStation 3, everyone understood that IBM might someday sell the chips to another customer. However, no one thought to structure the tri-lateral agreement to prevent such a competitor like Microsoft from buying the processors before they were even finished.

The book The Race for a New Game Machine by David Shippy and Mickie Phipps chronicles this unbelievable folly. As described in the Wall Street Journal, the events played out like a farcical comedy:

All three of the original partners had agreed that IBM would eventually sell the Cell [processor] to other clients. But it does not seem to have occurred to Sony that IBM would sell key parts of the Cell before it was complete and to Sony’s primary videogame-console competitor. The result was that Sony’s R&D money was spent creating a component for Microsoft to use against it.

Mr. Shippy and Ms. Phipps detail the resulting absurdity: IBM employees hiding their work from Sony and Toshiba engineers in the cubicles next to them; the Xbox chip being tested a few floors above the Cell design teams. Mr. Shippy says that he felt “contaminated” as he sat down with the Microsoft engineers, helping them to sketch out their architectural requirements with lessons learned from his earlier work on Playstation.

Playstation 3

© Flickr user PseudoGil

The tale reads like a cloak-and-dagger novel played out under fluorescent office lights. How could such a failure happen? Should one cite Sony as incompetent, IBM as conniving, or Microsoft as devious? None of these explanations seem immediately plausible.

Most challenges in business partnerships come from a lack of establishing clear goals at the outset and problems maintaining truly open communication. To improve business communication, especially with consultants and third-parties, we need transparency and constant dialogue. You can’t disappear for weeks or months, and you can’t work next to people who you feel you cannot talk to.

Usually, we want to study the competition, not invest in them. Top business consultants focus on great communication to make sure that everyone starts and ends on the same page.

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