Competing For Advantage

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Competing For Advantage

• Part III Creating Competitive Advantage
• Chapter 7 Cooperative Strategy

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The Strategic Management Process
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Cooperative Strategies

• Key Terms
• Cooperative Strategy strategy in which firms
  work together to achieve a shared objective
• Strategic Alliance cooperative strategy in
  which firms combine resources and capabilities to
  create a competitive advantage

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Cooperative Strategies

• Key Terms
• Co-opetition condition created when firms that
  have formed cooperative strategies also compete
  against one another in the marketplace

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Reasons for Cooperative Strategies

• Most firms lack the full set of resources and
  capabilities needed to reach their objectives
• Cooperative behavior allows partners to create
  value that they couldn't develop by acting
  independently
• Aligning stakeholder interests (both inside and
  outside of the organization) can reduce
  environmental uncertainty
• Alliances can provide a new source of revenue

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Reasons for Cooperative Strategies (cont.)

• Alliances can be a vehicle for firm growth
• Alliances can enhance the speed of responding to
  market opportunities, technological changes, and
  global conditions
• Alliances allow firms to gain new knowledge and
  experiences to increase competitiveness
• Reasons for using cooperative strategies vary
  across market type

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Reasons for Strategic Alliances by Market Type
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Slow-Cycle Markets Becoming Rare

• Privatization of industries and economies
• Rapid expansion of the Internet's capabilities
• Quick dissemination of information
• Speed with which advancing technologies permit
  imitation of even complex products

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Types of Alliances

• Key Terms
• Equity Strategic Alliance alliance in which two
  or more firms own a portion of the equity in the
  venture they have created
• Joint Venture strategic alliance in which two
  or more firms create a legally independent
  company to share resources and capabilities to
  develop a competitive advantage
• Nonequity Strategic Alliance alliance in which
  two or more firms develop a contractual
  relationship to share some of their unique
  resources and capabilities to create a
  competitive advantage

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Tacit Knowledge

• Tacit knowledge the complex knowledge that is
  difficult to codify
• It is learned through experience
• When shared between partnering organizations, it
  can become a source of competitive advantage

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Nonequity Strategic Alliances

• A separate independent company is not established
• The partnering firms do not take equity positions
  in a separate entity
• The relationship is less formal
• The relationship demands fewer partner commitments

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Nonequity Strategic Alliances Types

• Licensing agreements
• Distribution agreements
• Supply contracts
• Outsourcing commitments

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Strategic Objectives of Cooperative Strategies
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Cooperative Strategies to Differentiate or Reduce
Costs

• Complementary strategic alliances
• Network cooperative strategies

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Complementary Strategic Alliances

• Key Terms
• Complementary Strategic Alliance
  business-level alliances in which firms share
  some of their resources and capabilities in
  complementary ways to develop competitive
  advantages

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Complementary Strategic Alliances

• Vertical complementary strategic alliances
• Horizontal complementary strategic alliances

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Complementary Strategic Alliances
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Complementary Strategic Alliances Imbalanced
Partner Benefits

• Partners may learn at different rates
• Partners may have different capabilities to
  leverage complementary resources
• Some firms are more effective at managing
  alliances and deriving benefits from them
• Partners may have different reputations in the
  marketplace, differentiating the types of actions
  they can legitimately take

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Network Cooperative Strategies

• Key Terms
• Network Cooperative Strategy cooperative
  strategy in which multiple firms agree to form
  partnerships to achieve shared objectives (also
  known as alliance networks)
• Strategic Center Firm the firm at the core of
  an alliance network and around which the
  network's cooperative relationships revolve

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A Strategic Network
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Network Cooperative Strategies Effective Use

• Knowledge and information gained from multiple
  sources can produce more and better innovations
• Network alliances can be particularly effective
  for geographically clustered firms
• Effective social relationships and interactions
  among partners while sharing resources and
  capabilities lead to more successful network
  alliances
• A strategic center firm that manages the complex,
  cooperative interactions among network partners
  also contributes to the effectiveness of network
  alliances
• Gaining access to partners' partners can open up
  advantages to the networking firms
• Multiple collaborations increase the likelihood
  of additional competitive advantages and value
  creation

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Strategic Center Firm Primary Tasks

• Strategic outsourcing with non-network members
• Support of efforts to develop core competencies
• Coordination and sharing of technology-based
  ideas and efforts
• Emphasis on healthy rivalry to generate
  network-based competitive advantages

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Two Types of Alliance Networks

• Stable Alliance Network
• Dynamic Alliance Network

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Stable Alliance Networks

• Formed in mature industries in which demand is
  relatively constant and predictable
• Directed primarily toward developing products at
  a low cost

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Dynamic Alliance Networks

• Used in industries characterized by environmental
  uncertainty, frequent product innovations, and
  short product life cycles
• Directed primarily toward continued development
  of products that are uniquely attractive to
  customers

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Cooperative Strategies to Address Forces in the
External Environment

• Competitive response alliances
• Uncertainty-reducing alliances
• Competition-reducing cooperative strategies
• Associations and consortia

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Forms of Collusion

• Explicit collusion direct negotiation among
  firms to establish output levels and pricing
  agreements that reduce industry competition
• Tacit collusion indirect coordination of
  production and pricing decisions by several
  firms, which impacts the degree of competition
  faced in the industry

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Cooperative Strategies to Promote Growth and/or
Diversification

• Diversifying strategic alliances
• Franchising
• International cooperative strategies

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Cooperative Strategies to Promote Growth and/or
Diversification

• Key Terms
• Diversifying Strategic Alliances
  corporate-level cooperative strategy in which
  firms share some of their resources and
  capabilities to diversify into new product or
  market areas

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Cooperative Strategies to Promote Growth and/or
Diversification

• Key Terms
• Franchising cooperative strategy in which a
  firm uses a franchise as a contractual
  relationship to describe and control the sharing
  of its resources and capabilities with partners
• Franchise contractual agreement between two
  legally independent companies whereby the
  franchisor grants the right to the franchisee to
  sell the franchisor's product or do business
  under its trademarks in a given location for a
  specified period of time

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Cooperative Strategies to Promote Growth and/or
Diversification

• Key Terms
• Cross-Border Strategic Alliance international
  cooperative strategy in which firms with
  headquarters in different nations combine some of
  their resources and capabilities to create a
  competitive advantage
• Distributed Alliance Network organizational
  structure used to manage complex and challenging
  international cooperative strategies

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A Distributed Strategic Network
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Attractiveness of Cooperative Strategies to
Achieve Growth and/or Diversification

• Require fewer resource commitments
• Permit greater strategic flexibility
• Are not as permanent

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Franchising

• Partners working closely together, finding ways
  to strengthen the core company's brand name
• Franchisors developing programs to transfer
  knowledge and skills needed for franchisees to
  successfully compete at the local level
• Franchisees providing feedback to franchisors
  regarding how to become more effective and
  efficient
• Firms using the strategy in fragmented industries
  where no firm has a dominant share

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Cross-Border Alliances

• Multinational corporations outperform firms that
  operate only domestically
• Due to limited domestic growth opportunities,
  firms look outside their national borders to
  expand business
• Some foreign government policies require
  investing firms to partner with a local firm to
  enter their markets

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Risks of Cooperative Strategies

• Partners may choose to act opportunistically
• Partner competencies may be misrepresented
• Partner may fail to make available the
  complementary resources and capabilities that
  were committed
• Partner may make investments specific to the
  alliance while the other partner may not

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Managing Competitive Risks in Cooperative
Strategies
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Effective Implementation of Cooperative Strategies

• Internalize successful experiences to gain
  maximum value from the knowledge learned, by
  organizing the knowledge and properly
  distributing it to those involved with forming
  and using cooperative strategies
• Establish appropriate controls
• Assign managerial responsibility for cooperative
  strategy to high-level executive or team
• Increase the level of trust between partners to
  increase the likelihood of alliance success,
  thereby efficiently influencing alliance
  partners' behaviors

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Managing Cooperative Strategies

• Cost Minimization
• Opportunity Maximization

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Cost Minimization

• Relationship with partner is formalized with
  contracts
• Contracts specify how cooperative strategy is to
  be monitored and how partner behavior is to be
  controlled
• Goal is to minimize costs and prevent
  opportunistic behaviors by partners
• Costs of monitoring cooperative strategy are
  greater
• Formalities tend to stifle partner efforts to
  gain maximum value from their participation

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Opportunity Maximization

• Focus is on maximizing partnership's
  value-creation opportunities
• Informal relationships and fewer constraints
  allow partners to take advantage of unexpected
  opportunities, to learn from each other, and
  explore additional marketplace possibilities
• Partners need a high level of trust that each
  party will act in the partnership's best
  interest, which is more difficult in
  international situations

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Ethical Questions

• From an ethical perspective, how much
  information is a firm obliged to provide to a
  potential complementary alliance partner about
  what it expects to learn from a cooperative
  arrangement?

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Ethical Questions

• A contract is necessary because most firms
  cannot be trusted to act ethically in a
  cooperative venture such as a strategic
  alliance. In your opinion, is this statement
  true or false? Why? Does the answer vary by
  country? Why?

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Ethical Questions

• Ventures in foreign countries without strong
  contract law are more risky because managers may
  be subjected to bribery attempts once their
  firms assets have been invested in the country.
  How can managers deal with these problems?

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Ethical Questions

• International strategic alliances are being
  considered by the worlds airline companies. Do
  these companies face any ethical issues as they
  participate in multiple alliances? If so, what
  are the issues? Are the they different for
  companies headquartered in the U.S. as compared
  to those with European home bases? If so, what
  are the differences, and what accounts for them?

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Ethical Questions

• Firms with a reputation for ethical behavior in
  strategic alliances are likely to have more
  opportunities to form cooperative strategies than
  those that have not earned this reputation. What
  actions can firms take to earn a reputation for
  behaving ethically as a strategic alliance
  partner?