Co-citation is where a site links to both site-a.com and site-b.com. Search engines therefore think that site-a.com and site-b.com are related sites. So to help your rankings you need to get your backlinks in the same place as the leading sites in your niche. This is why a directory listing is good for seo. Recently I have been taking a new approach to this and submitting articles with links to 3 sites. I pick the top 2 sites in google for my target keyword and then stick my link in between the links to these sites. Yet to see any results but it makes perfect sense. Probably best not to do it if you're in 3rd place though otherwise you never catch up. Also co-citation is the reason why paying for a backlink to your web design site next to the link to a poker site will not help you.
I'd try not to link to top 1-3 sites, but, let's say, numbers 5-10 in rankings. Otherwise I'll be strenghtening my direct competition. Or what about adding <no follow> attributes to the links to competition? Would that work?
The site I am doing this for isn't ranked anywhere in google yet. Therefore the sites at positions 1 & 2 are not my realistic competition whereas the sites at 5 - 50 are. I don't think nofollow would work.