©2003 South-Western Publishing Company 1 Cooperative Strategy Michael A. Hitt R. Duane Ireland...

©2003 South-Western Publishing Company 1

Cooperative StrategyCooperative Strategy

Michael A. Hitt

R. Duane Ireland

Robert E. Hoskisson

Chapter 9Chapter 9

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Strategy ImplementationStrategy Implementation

Chapter 11Chapter 11OrganizationalOrganizationalStructure and Structure and

ControlsControls

Chapter 10Chapter 10CorporateCorporate

GovernanceGovernance

Chapter 12Chapter 12StrategicStrategic

LeadershipLeadership

Strategy FormulationStrategy Formulation

StrategicStrategicCompetitivenessCompetitivenessAbove-AverageAbove-Average

ReturnsReturns

Strategic IntentStrategic IntentStrategic MissionStrategic Mission

Chapter 2Chapter 2The ExternalThe ExternalEnvironmentEnvironment

Chapter 3Chapter 3The InternalThe InternalEnvironmentEnvironment

The Strategic The Strategic Management Management ProcessProcess

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Chapter 13Chapter 13StrategicStrategic

EntrepreneurshipEntrepreneurship

Chapter 6Chapter 6Corporate-Corporate-

Level StrategyLevel Strategy

Chapter 9Chapter 9CooperativeCooperative

StrategyStrategy

Chapter 5Chapter 5Competitive RivalryCompetitive Rivalry

and Competitiveand CompetitiveDynamics Dynamics

Chapter 8Chapter 8InternationalInternational

StrategyStrategy

Chapter 4Chapter 4Business-LevelBusiness-Level

StrategyStrategy

Chapter 7Chapter 7Acquisition andAcquisition andRestructuringRestructuring

StrategiesStrategies

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Cooperative StrategyCooperative Strategy Cooperative strategy is a strategy in which Cooperative strategy is a strategy in which

firmsfirms– work togetherwork together– to achieve a shared objectiveto achieve a shared objective

Cooperating with other firms is a strategy Cooperating with other firms is a strategy thatthat– creates value for a customercreates value for a customer– exceeds the cost of constructing customer exceeds the cost of constructing customer

value in other waysvalue in other ways– establishes a favorable position relative to establishes a favorable position relative to

competitioncompetition

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Strategic AllianceStrategic Alliance A strategic alliance is a cooperative A strategic alliance is a cooperative

strategy in whichstrategy in which– firms combine some of their resources and firms combine some of their resources and

capabilitiescapabilities– to create a competitive advantageto create a competitive advantage

A strategic alliance involvesA strategic alliance involves– exchange and sharing of resources and exchange and sharing of resources and

capabilitiescapabilities– co-development or distribution of goods or co-development or distribution of goods or

servicesservices

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CombinedCombinedResourcesResources

CapabilitiesCapabilitiesCore CompetenciesCore Competencies

ResourcesResourcesCapabilitiesCapabilities

Core CompetenciesCore Competencies

ResourcesResourcesCapabilitiesCapabilities

Core CompetenciesCore Competencies

Strategic AllianceStrategic Alliance

Firm AFirm A Firm BFirm B

Mutual interests in designing, manufacturing,Mutual interests in designing, manufacturing,or distributing goods or servicesor distributing goods or services

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Types of Cooperative StrategiesTypes of Cooperative Strategies Joint venture: two or more firms create an Joint venture: two or more firms create an

independent company by combining parts independent company by combining parts of their assetsof their assets

Equity strategic alliance: partners who own Equity strategic alliance: partners who own different percentages of equity in a new different percentages of equity in a new ventureventure

Nonequity strategic alliances: contractual Nonequity strategic alliances: contractual agreements given to a company to supply, agreements given to a company to supply, produce, or distribute a firm’s goods or produce, or distribute a firm’s goods or services without equity sharingservices without equity sharing

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MarketMarket ReasonReason

Slow CycleSlow Cycle • Gain access to a restricted marketGain access to a restricted market• Establish a franchise in a new marketEstablish a franchise in a new market• Maintain market stability (e.g., Maintain market stability (e.g.,

establishing standards)establishing standards)

Reasons for Strategic Alliances Reasons for Strategic Alliances by Market Typeby Market Type

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Fast CycleFast Cycle • Speed up development of new goods or Speed up development of new goods or serviceservice

• Speed up new market entrySpeed up new market entry• Maintain market leadershipMaintain market leadership• Form an industry technology standardForm an industry technology standard• Share risky R&D expensesShare risky R&D expenses• Overcome uncertaintyOvercome uncertainty


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Standard CycleStandard Cycle • Gain market power (reduce industry Gain market power (reduce industry overcapacity)overcapacity)

• Gain access to complementary resourcesGain access to complementary resources• Establish economies of scaleEstablish economies of scale• Overcome trade barriersOvercome trade barriers• Meet competitive challenges from other Meet competitive challenges from other

competitorscompetitors• Pool resources for very large capital Pool resources for very large capital

projectsprojects• Learn new business techniquesLearn new business techniques


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Business-Level Cooperative Business-Level Cooperative Strategies:Strategies:ComplementaryComplementary

AlliancesAlliances

• complementary strategic alliances complementary strategic alliances are designed to take advantage of are designed to take advantage of market opportunities by combining market opportunities by combining partner firms’ assets in partner firms’ assets in complementary ways to create new complementary ways to create new valuevalue– these include distribution, supplier these include distribution, supplier

or outsourcing alliances where or outsourcing alliances where firms rely on upstream or firms rely on upstream or downstream partners to build downstream partners to build competitive advantagecompetitive advantage

Complementary Strategic AlliancesComplementary Strategic Alliances

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Business-Level Cooperative Business-Level Cooperative Strategies:Strategies:

Margin Margin

Primary Activities

Sup

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Marketing & Sales

Outbound Logistics

Operations

Inbound LogisticsFirm

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Margin Margin

Primary Activities

Sup

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Act

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Marketing & Sales

Outbound Logistics

Operations


Inf

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SupplierSupplier

• vertical complementary vertical complementary strategic alliance is formed strategic alliance is formed between firms that agree to between firms that agree to use their skills and use their skills and capabilities in different stages capabilities in different stages of the value chain to create of the value chain to create value for both firmsvalue for both firms

• outsourcing is one example outsourcing is one example of this type of allianceof this type of alliance

BuyerBuyerComplementary Strategic AlliancesComplementary Strategic Alliances

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Margin Margin

Primary Activities

Sup

port

Act

iviti

es Service

Marketing & Sales

Outbound Logistics

Operations


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Margin Margin

Primary Activities

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Marketing & Sales

Outbound Logistics

Operations


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Horizontal AllianceHorizontal AllianceBuyerBuyerPotential CompetitorsPotential Competitors

• horizontal complementary strategic alliance is formed horizontal complementary strategic alliance is formed between partners who agree to combine their resources and between partners who agree to combine their resources and skills to create value in the same stage of the value chainskills to create value in the same stage of the value chain

• focus on long-term product development and distribution opportunities

• the partners may become competitorsthe partners may become competitors• requires a great deal of trust between the partnersrequires a great deal of trust between the partners

BuyerBuyerComplementary Strategic AlliancesComplementary Strategic Alliances

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• competition response strategic competition response strategic alliances occur when firms join alliances occur when firms join forces to respond to a strategic forces to respond to a strategic action of another competitoraction of another competitor

• because they can be difficult to because they can be difficult to reverse and expensive to operate, reverse and expensive to operate, competition response strategic competition response strategic alliances are primarily formed to alliances are primarily formed to respond to strategic rather than respond to strategic rather than tactical actionstactical actions

Competition Response AlliancesCompetition Response Alliances

CompetitionCompetitionResponse AlliancesResponse Alliances

ComplementaryComplementaryAlliancesAlliances

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• uncertainty reducing strategic uncertainty reducing strategic alliances are used to hedge against alliances are used to hedge against risk and uncertaintyrisk and uncertainty

• these alliances are most noticed in these alliances are most noticed in fast-cycle marketsfast-cycle markets

• alliance may be formed to reduce alliance may be formed to reduce the uncertainty associated with the uncertainty associated with developing new product or developing new product or technology standardstechnology standards

Uncertainty Reducing AlliancesUncertainty Reducing Alliances


UncertaintyUncertaintyReducing AlliancesReducing Alliances


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• competition reducing strategic competition reducing strategic alliances may be created to avoid alliances may be created to avoid destructive or excessive competitiondestructive or excessive competition

• explicit collusion exists when firms explicit collusion exists when firms directly negotiate production output directly negotiate production output and pricing agreements in order to and pricing agreements in order to reduce competition (illegal)reduce competition (illegal)

• tacit collusion exists when several tacit collusion exists when several firms in an industry indirectly firms in an industry indirectly coordinate their production and coordinate their production and pricing decisions by observing each pricing decisions by observing each other’s competitive actions and other’s competitive actions and responsesresponses

Competition Reducing AlliancesCompetition Reducing Alliances

Competition ReducingCompetition ReducingAlliancesAlliances




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• mutual forbearance is a form of mutual forbearance is a form of tacit collusion in which firms avoid tacit collusion in which firms avoid competitive attacks against those competitive attacks against those rivals they meet in multiple marketsrivals they meet in multiple markets

• competition reducing strategic competition reducing strategic alliances may require governments alliances may require governments to find ways to permit collaboration to find ways to permit collaboration among rivals without violating among rivals without violating antitrust lawsantitrust laws

Competition Reducing AlliancesCompetition Reducing Alliances

Competition ReducingCompetition ReducingAlliancesAlliances




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Corporate-Level Cooperative Corporate-Level Cooperative StrategiesStrategies• Corporate-level cooperative strategies are Corporate-level cooperative strategies are

designed to facilitate product and/or designed to facilitate product and/or market diversificationmarket diversification

- diversifying strategic alliancediversifying strategic alliancesynergistic strategic alliancesynergistic strategic alliance- franchisingfranchising

• Diversifying alliances and synergistic Diversifying alliances and synergistic alliances allow firms alliances allow firms

- to grow and diversify their operationsto grow and diversify their operations- through a means other than a merger or through a means other than a merger or

acquisitionacquisition

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Corporate-Level Cooperative Corporate-Level Cooperative Strategies:Strategies:

DiversifyingDiversifyingAlliancesAlliances

• diversifying strategic alliance diversifying strategic alliance allows a firm to expand into new allows a firm to expand into new product or market areas without product or market areas without completing a merger or an completing a merger or an acquisitionacquisition

• provides some of the potential provides some of the potential synergistic benefits of a merger or synergistic benefits of a merger or acquisition, but with less risk and acquisition, but with less risk and greater levels of flexibilitygreater levels of flexibility

• permits a “test” of whether a future permits a “test” of whether a future merger between the partners would merger between the partners would benefit both partiesbenefit both parties

Diversifying AlliancesDiversifying Alliances

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• synergistic strategic alliances create synergistic strategic alliances create joint economies of scope between joint economies of scope between two or more firmstwo or more firms

• create synergy across multiple create synergy across multiple functions or multiple businesses functions or multiple businesses between partner firmsbetween partner firms

SynergisticSynergisticAlliancesAlliances

Synergistic AlliancesSynergistic Alliances


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• franchising spreads risks and uses franchising spreads risks and uses resources, capabilities, and resources, capabilities, and competencies without merging or competencies without merging or acquiring another companyacquiring another company

• contractual relationship concerning contractual relationship concerning the franchise that is developed the franchise that is developed between two parties, the franchisee between two parties, the franchisee and the franchisorand the franchisor

• an alternative to pursuing growth an alternative to pursuing growth through mergers and acquisitionsthrough mergers and acquisitions

FranchisingFranchising

FranchisingFranchising


SynergisticSynergisticAlliancesAlliances

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International Cooperative International Cooperative StrategiesStrategies Cross-border strategic allianceCross-border strategic alliance

– an international cooperative strategy in which an international cooperative strategy in which firms with headquarters in different nations firms with headquarters in different nations combine some of their resources and combine some of their resources and capabilities to create a competitive advantagecapabilities to create a competitive advantage

– a firm may form cross-border strategic a firm may form cross-border strategic alliances to leverage core competencies that alliances to leverage core competencies that are the foundation of its domestic success to are the foundation of its domestic success to expand into international marketsexpand into international markets

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International Cooperative International Cooperative StrategiesStrategies Allows risk sharing by reducing financial Allows risk sharing by reducing financial

investmentinvestment Host partner knows local market and Host partner knows local market and

customscustoms International alliances can be difficult to International alliances can be difficult to

manage due to differences in management manage due to differences in management styles, cultures or regulatory constraintsstyles, cultures or regulatory constraints

Must gauge partner’s strategic intent so Must gauge partner’s strategic intent so they do not gain access to important they do not gain access to important technology and become a competitortechnology and become a competitor

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Network Cooperative StrategiesNetwork Cooperative Strategies A network strategy is a cooperative A network strategy is a cooperative

strategy wherein several firms agree to strategy wherein several firms agree to form multiple partnerships to achieve form multiple partnerships to achieve shared objectivesshared objectives– stable alliance networkstable alliance network– dynamic alliance networkdynamic alliance network

Effective social relationships and Effective social relationships and interactions among partners are keys to a interactions among partners are keys to a successful network cooperative strategysuccessful network cooperative strategy

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Network Cooperative Strategies:Network Cooperative Strategies:

Stable AllianceStable AllianceNetworkNetwork

• long term relationships that often long term relationships that often appear in mature industries where appear in mature industries where demand is relatively constant and demand is relatively constant and predictablepredictable

• stable networks are built for stable networks are built for exploitationexploitation of the economies of the economies available between firmsavailable between firms

Stable Alliance NetworkStable Alliance Network

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Network Cooperative Strategies:Network Cooperative Strategies:

Dynamic AllianceDynamic AllianceNetworkNetwork

• arrangements that evolve in arrangements that evolve in industries with rapid technological industries with rapid technological change leading to short product life change leading to short product life cyclescycles

• primarily used to stimulate rapid, primarily used to stimulate rapid, value-creating product innovations value-creating product innovations and subsequent successful market and subsequent successful market entriesentries

• purpose is often purpose is often explorationexploration of new of new ideasideas

Dynamic Alliance NetworkDynamic Alliance Network

Stable AllianceStable AllianceNetworkNetwork

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Competitive Risks with Competitive Risks with Cooperative StrategiesCooperative Strategies

CompetitiveCompetitiveRisksRisks

• Partner may act opportunistically Partner may act opportunistically

• Misrepresentation of competencies brought to the Misrepresentation of competencies brought to the partnershippartnership

• Partner fails to make committed resources and Partner fails to make committed resources and capabilities available to its partnerscapabilities available to its partners

• Firm may make investments that are specific to the Firm may make investments that are specific to the alliance while its partner does notalliance while its partner does not

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Risk and Asset Risk and Asset ManagementManagementApproachesApproaches


• Manage the balance between learning from partners while Manage the balance between learning from partners while protecting knowledge and sources of competitive advantages protecting knowledge and sources of competitive advantages from from excessiveexcessive learning by partners learning by partners

• Assign managerial responsibility for a firm’s cooperative Assign managerial responsibility for a firm’s cooperative strategies to a high-level executive or teamstrategies to a high-level executive or team

• Specify resources and capabilities that will be shared and those Specify resources and capabilities that will be shared and those that will not be sharedthat will not be shared (detailed contracts and monitoring) (detailed contracts and monitoring)

• Develop trusting relationshipsDevelop trusting relationships

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Approaches for Managing Approaches for Managing Cooperative StrategiesCooperative Strategies cost minimizationcost minimization

– formal contracts specify how the cooperative formal contracts specify how the cooperative strategy is to be monitored and how partner strategy is to be monitored and how partner behavior is to be controlledbehavior is to be controlled

opportunity maximizationopportunity maximization– maximize partnership’s value-creation maximize partnership’s value-creation

opportunitiesopportunities

– partners take advantage of unexpected partners take advantage of unexpected opportunities to learn from each other and to opportunities to learn from each other and to explore additional marketplace possibilitiesexplore additional marketplace possibilities

– fewer formal, limiting, contractsfewer formal, limiting, contracts

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Risk and Asset Risk and Asset ManagementManagementApproachesApproaches


DesiredDesiredOutcomeOutcome

• Creating valueCreating value

• Above-average Above-average returnsreturns

©2003 South-Western Publishing Company 1 Cooperative Strategy Michael A. Hitt R. Duane Ireland...

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Transcript of ©2003 South-Western Publishing Company 1 Cooperative Strategy Michael A. Hitt R. Duane Ireland...