In classic Western films, distinguishing the good guys from the bad guys was easy — the villains always wore black hats. Similarly, in the old days of the investment banking industry, competition followed a clear narrative — clients were the good guys, rivals were the bad guys. You aimed to keep your clients happy and gave no quarter to your competitors. The lines were unmistakable. However, in today’s business landscape, competition has become more intricate, blurring the lines between friend and foe. Now, they come in all shapes and sizes, making it challenging to discern who’s who.

Sometimes, however, foes can become friends, e.g., by leveraging skills, professional relationships, and scale economies. It’s important to remember that true competitive advantage lies not just in market share, but in maximizing client value-added. Adopting a ‘share of market’ mindset demands competitive skills, while embracing a ‘share of client value-added’ mindset requires collaborative prowess.

In investment banking, success hinges on achieving the right balance between two key factors — economies of scale (market power) and distinctiveness in terms of value-added services. This trade-off between ‘reach’ (scale) and ‘richness’ (distinctiveness) significantly impacts a firm’s competitive edge. The critical question is how to leverage this ‘reach’/’richness’-dynamic. Investment banks can achieve this by forming strategic partnerships. These partnerships complement and strengthen the firm’s own proprietary assets and capabilities, unlocking new opportunities and maximizing value delivered to clients. Why buying Greenhill when allying is a more effective strategy — for both Mizuho and Greenhill?

Though major strategic partnerships may be strange to most investment banks, such discussions and the complex relationships that develop from them, are nothing new for the vegetable seed industry — for disclosure, I am the vice-chair of one of the leading global players, Rijk Zwaan (in fact, a top 3 global player). We frequently combine a given step in the R&D, marketing, and production process of innovative seeds with external partners or even exchange novel products entirely with peers. These arrangements are particularly prevalent when a step involves high-risk upfront investments. Such collaborations are widespread for a compelling reason: they benefit all stakeholders — including competitors — and ultimately deliver greater value to clients. The entire industry profits from this business philosophy. The vegetable seed industry has maintained gross margins of around 80-85% for decades, largely due to the leading ‘collaborate to compete’ mantra.

The key challenge for many investment banks lies in embracing a new ‘dominant logic’ — shifting from primarily intra-industry competition to a model that also actively leverages intra-industry and inter-industry collaboration. Sometimes, it takes a mental quantum leap to clear a strategic hurdle. Never judge a stranger by the color of his hat.