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2004 by South-Western/Thomson Learning 1
Cooperative StrategyCooperative Strategy
Robert E. Hoskisson
Michael A. Hitt
R. Duane Ireland
Chapter 10Chapter 10
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Chapter 2Chapter 2
Strategic LeadershipStrategic Leadership
Chapter 4Chapter 4
The InternalThe Internal
OrganizationOrganization
Chapter 6Chapter 6
Competitive Rivalry andCompetitive Rivalry and
Competitive DynamicsCompetitive Dynamics
Chapter 9Chapter 9
International StrategyInternational Strategy
Chapter 1Chapter 1
Introduction toIntroduction to
Strategic ManagementStrategic Management
Chapter 3Chapter 3
The ExternalThe External
EnvironmentEnvironment
Chapter 5Chapter 5
Business-LevelBusiness-Level
StrategyStrategy
Chapter 8Chapter 8Acquisition andAcquisition and
Restructuring StrategiesRestructuring Strategies
Chapter 11Chapter 11
Corporate GovernanceCorporate Governance
Strategic IntentStrategic Intent
Strategic MissionStrategic Mission
Chapter 7Chapter 7
Corporate-Level StrategyCorporate-Level Strategy
Chapter 10Chapter 10
Cooperative StrategyCooperative Strategy
Chapter 12Chapter 12
Strategic EntrepreneurshipStrategic Entrepreneurship
Strategic
Analysis
Strategic
Thinking
Creating
Competitive
Advantage
Monitoring
And Creating
EntrepreneurialOpportunities
The Strategic Management ProcessThe Strategic Management Process
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Cooperative StrategyCooperative Strategy
Cooperative strategy is a strategy in whichCooperative 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 strategyCooperating with other firms is a strategy
thatthat
creates value for a customercreates value for a customer exceeds the cost of constructing customerexceeds the cost of constructing customer
value in other waysvalue in other ways
establishes a favorable position relative toestablishes a favorable position relative to
competitioncompetition
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Strategic Alliance as aStrategic Alliance as a
Cooperative StrategyCooperative StrategyA strategic alliance is a cooperativeA strategic alliance is a cooperative
strategy in whichstrategy in which
firms combine some of their resources andfirms 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 andexchange and sharing of resources andcapabilitiescapabilities
co-development or distribution of goods orco-development or distribution of goods or
servicesservices
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CombinedCombined
ResourcesResources
CapabilitiesCapabilities
Core CompetenciesCore Competencies
ResourcesResources
CapabilitiesCapabilitiesCore CompetenciesCore Competencies
ResourcesResources
CapabilitiesCapabilitiesCore 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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Four Types of Strategic AlliancesFour Types of Strategic Alliances
Joint venture: two or more firms create anJoint venture: two or more firms create anindependent company by combining parts ofindependent company by combining parts oftheir assetstheir assets
Equity strategic alliance: partners who ownEquity strategic alliance: partners who owndifferent percentages of equity in a new venturedifferent percentages of equity in a new venture Nonequity strategic alliances: contractualNonequity strategic alliances: contractual
agreements given to a company to supply,agreements given to a company to supply,produce, or distribute a firms goods or servicesproduce, or distribute a firms goods or services
without equity sharingwithout equity sharing Strategic cooperative network: multiple firmsStrategic cooperative network: multiple firms
agree to form partnerships to achieve sharedagree to form partnerships to achieve sharedobjectivesobjectives
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Strategic NetworkStrategic Network
StrategicStrategicCenterCenterFirmFirm
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Strategic NetworkStrategic Network
A strategic network is a grouping ofA strategic network is a grouping oforganizations that has been formed toorganizations that has been formed tocreate value through participation in ancreate value through participation in an
array of cooperative arrangements, sucharray of cooperative arrangements, suchas alliances and joint venturesas alliances and joint ventures
The strategic network seeks to develop aThe strategic network seeks to develop a
competitive advantage in primary orcompetitive advantage in primary or
support activitiessupport activitiesA strategic center firm often manages theA strategic center firm often manages the
networknetwork
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Strategic NetworkStrategic Network
strategic center firm engages in fourstrategic center firm engages in four
primary tasksprimary tasks
strategic outsourcing (outsources and partnersstrategic outsourcing (outsources and partners
with more firms than do other network members)with more firms than do other network members)
competencies (supports each members efforts tocompetencies (supports each members efforts to
develop core competencies that can benefit thedevelop core competencies that can benefit the
network)network)
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Strategic NetworkStrategic Network
strategic center firm engages in fourstrategic center firm engages in four
primary tasksprimary tasks
technology (manages the development andtechnology (manages the development and
sharing of technology-based ideas among networksharing of technology-based ideas among network
members)members)
race to learn (guides participants in efforts to formrace to learn (guides participants in efforts to form
network-specific competitive advantages)network-specific competitive advantages)
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MarketMarket ReasonReason
Slow Cycle Gain access to a restricted market Establish a franchise in a new market
Maintain market stability (e.g.,establishing standards)
Reasons for Strategic AlliancesReasons for Strategic Alliances
by Market Typeby Market Type
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MarketMarket ReasonReason
Fast Cycle Speed up development of new goods or
service
Speed up new market entry Maintain market leadership Form an industry technology standard Share risky R&D expenses
Overcome uncertainty
Reasons for Strategic AlliancesReasons for Strategic Alliances
by Market Typeby Market Type
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MarketMarket ReasonReason
Standard Cycle Gain market power (reduce industry
overcapacity)
Gain access to complementary resources Establish economies of scale Overcome trade barriers Meet competitive challenges from other
competitors Pool resources for very large capital
projects Learn new business techniques
Reasons for Strategic AlliancesReasons for Strategic Alliances
by Market Typeby Market Type
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Business-Level CooperativeBusiness-Level Cooperative
Strategies:Strategies:ComplementaryComplementary
AlliancesAlliances
complementary strategic alliancescomplementary strategic alliances
are designed to take advantage ofare designed to take advantage of
market opportunities by combiningmarket opportunities by combining
partner firms assets inpartner firms assets incomplementary ways to create newcomplementary ways to create new
valuevalue
these include distribution, supplierthese include distribution, supplier
or outsourcing alliances whereor outsourcing alliances where
firms rely on upstream orfirms rely on upstream or
downstream partners to builddownstream partners to build
competitive advantagecompetitive advantage
Complementary Strategic AlliancesComplementary Strategic Alliances
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Business-Level CooperativeBusiness-Level Cooperative
Strategies:Strategies:
Margin Margin
Primary Activities
SupportActiv
ities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound LogisticsFirm
Infrastructu
re
HumanResourceMgmt.
TechnologicalD
evelopment
Procurement
Margin Margin
Primary Activities
SupportAc
tivities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound LogisticsFirm
Infrastru
ctu
re
HumanReso
urc
eMgmt.
Technologica
lD
evelopment
Procurement
Vertica
lAlli a
nce
Vertica
lAlli a
nce
SupplierSupplier
vertical complementaryvertical complementary
strategic alliance is formedstrategic alliance is formed
between firms that agree tobetween firms that agree to
use their skills anduse their skills and
capabilities in different stagescapabilities in different stages
of the value chain to createof the value chain to create
value for both firmsvalue for both firms
outsourcing is one exampleoutsourcing is one exampleof this type of allianceof this type of alliance
BuyerBuyer
Complementary Strategic AlliancesComplementary Strategic Alliances
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Business-Level CooperativeBusiness-Level Cooperative
Strategies:Strategies:
Margin Margin
Primary Activities
SupportAc
tivities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound LogisticsFirm
Infrastru
ctu
re
HumanReso
urc
eMgmt.
Technologica
lD
evelopment
Procurement
Margin Margin
Primary Activities
SupportAc
tiv
ities
Service
Marketing & Sales
Outbound Logistics
Operations
Inbound LogisticsFirm
Infrastru
ctu
re
HumanReso
urc
eMgmt.
Technologica
lD
evelopment
Procurement
Horizontal AllianceHorizontal AllianceBuyerBuyer
Potential CompetitorsPotential Competitors
horizontal complementary strategic alliance is formedhorizontal complementary strategic alliance is formed
between partners who agree to combine their resources andbetween 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
BuyerBuyer
Complementary Strategic AlliancesComplementary Strategic Alliances
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Business-Level CooperativeBusiness-Level Cooperative
Strategies:Strategies:
competition response strategiccompetition response strategic
alliances occur when firms joinalliances occur when firms join
forces to respond to a strategicforces to respond to a strategic
action of another competitoraction of another competitor because they can be difficult tobecause they can be difficult to
reverse and expensive to operate,reverse and expensive to operate,
competition response strategiccompetition response strategic
alliances are primarily formed toalliances are primarily formed to
respond to strategic rather thanrespond to strategic rather than
tactical actionstactical actions
Competition Response AlliancesCompetition Response Alliances
CompetitionCompetitionResponse AlliancesResponse Alliances
ComplementaryComplementary
AlliancesAlliances
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Business-Level CooperativeBusiness-Level Cooperative
Strategies:Strategies:
uncertainty reducing strategicuncertainty reducing strategic
alliances are used to hedge againstalliances are used to hedge against
risk and uncertaintyrisk and uncertainty
these alliances are most noticed inthese alliances are most noticed infast-cycle marketsfast-cycle markets
alliance may be formed to reducealliance may be formed to reduce
the uncertainty associated withthe uncertainty associated with
developing new product ordeveloping new product or
technology standardstechnology standards
Uncertainty Reducing AlliancesUncertainty Reducing Alliances
CompetitionCompetitionResponse AlliancesResponse Alliances
UncertaintyUncertainty
Reducing AlliancesReducing Alliances
ComplementaryComplementary
AlliancesAlliances
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Business-Level CooperativeBusiness-Level Cooperative
Strategies:Strategies:
competition reducing strategiccompetition reducing strategic
alliances may be created to avoidalliances may be created to avoid
destructive or excessive competitiondestructive or excessive competition
explicit collusion exists when firmsexplicit collusion exists when firmsdirectly negotiate production outputdirectly negotiate production output
and pricing agreements in order toand pricing agreements in order to
reduce competition (illegal)reduce competition (illegal) tacit collusion exists when severaltacit collusion exists when several
firms in an industry indirectlyfirms in an industry indirectly
coordinate their production andcoordinate their production and
pricing decisions by observing eachpricing decisions by observing each
others competitive actions andothers competitive actions and
responsesresponses
Competition Reducing AlliancesCompetition Reducing Alliances
Competition ReducingCompetition Reducing
AlliancesAlliances
CompetitionCompetitionResponse AlliancesResponse Alliances
UncertaintyUncertainty
Reducing AlliancesReducing Alliances
ComplementaryComplementary
AlliancesAlliances
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Business-Level CooperativeBusiness-Level Cooperative
Strategies:Strategies:
mutual forbearance is a form of tacitmutual forbearance is a form of tacit
collusion in which firms avoidcollusion in which firms avoid
competitive attacks against thosecompetitive attacks against those
rivals they meet in multiple marketsrivals they meet in multiple markets competition reducing strategiccompetition reducing strategic
alliances may require governmentsalliances may require governments
to find ways to permit collaborationto find ways to permit collaboration
among rivals without violatingamong rivals without violating
antitrust lawsantitrust laws
Competition Reducing AlliancesCompetition Reducing Alliances
CompetitionCompetitionResponse AlliancesResponse Alliances
UncertaintyUncertainty
Reducing AlliancesReducing Alliances
ComplementaryComplementary
AlliancesAlliances
Competition ReducingCompetition Reducing
AlliancesAlliances
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Implementing Business-LevelImplementing Business-Level
Cooperative StrategiesCooperative StrategiesComplementary business-level strategic
alliances have the greatest probability ofcreating a sustainable competitive
advantageStrategic alliances designed to respond to
competition and reduce uncertainty cancreate competitive advantages that may
be more temporary in natureCompetition reducing strategy has lowest
probability of creating a sustainablecompetitive advantage
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Corporate-Level CooperativeCorporate-Level Cooperative
StrategiesStrategies
Corporate-level cooperative strategies areCorporate-level cooperative strategies are
designed to facilitate product and/ordesigned to facilitate product and/or
market diversificationmarket diversification
- diversifying strategic alliancediversifying strategic alliance- synergistic strategic alliancesynergistic strategic alliance- franchisingfranchising
Diversifying alliances and synergisticDiversifying alliances and synergistic
alliances allow firmsalliances allow firms- to grow and diversify their operationsto grow and diversify their operations- through a means other than a merger orthrough a means other than a merger or
acquisitionacquisition
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Corporate-Level CooperativeCorporate-Level Cooperative
Strategies:Strategies:
DiversifyingDiversifying
AlliancesAlliances
diversifying strategic alliancediversifying strategic alliance
allows a firm to expand into newallows a firm to expand into new
product or market areas withoutproduct or market areas without
completing a merger or ancompleting a merger or anacquisitionacquisition
provides some of the potentialprovides some of the potential
synergistic benefits of a merger orsynergistic benefits of a merger or
acquisition, but with less risk andacquisition, but with less risk and
greater levels of flexibilitygreater levels of flexibility permits a test of whether a futurepermits a test of whether a future
merger between the partners wouldmerger between the partners would
benefit both partiesbenefit both parties
Diversifying AlliancesDiversifying Alliances
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Corporate-Level CooperativeCorporate-Level Cooperative
Strategies:Strategies:
synergistic strategic alliances createsynergistic strategic alliances create
joint economies of scope betweenjoint economies of scope between
two or more firmstwo or more firms
create synergy across multiplecreate synergy across multiplefunctions or multiple businessesfunctions or multiple businesses
between partner firmsbetween partner firms
SynergisticSynergisticAlliancesAlliances
Synergistic AlliancesSynergistic Alliances
DiversifyingDiversifying
AlliancesAlliances
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Corporate-Level CooperativeCorporate-Level Cooperative
Strategies:Strategies:
franchising spreads risks and usesfranchising spreads risks and uses
resources, capabilities, andresources, capabilities, and
competencies without merging orcompetencies without merging or
acquiring another companyacquiring another company contractual relationship concerningcontractual relationship concerning
the franchise that is developedthe franchise that is developed
between two parties, the franchiseebetween two parties, the franchisee
and the franchisorand the franchisor
an alternative to pursuing growthan alternative to pursuing growth
through mergers and acquisitionsthrough mergers and acquisitions
FranchisingFranchising
FranchisingFranchising
DiversifyingDiversifying
AlliancesAlliances
SynergisticSynergisticAlliancesAlliances
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Implementing Corporate-LevelImplementing Corporate-Level
Cooperative StrategiesCooperative Strategies
Corporate-level cooperative strategies are
broader in scope, more complex and more
costly than business-level strategies
Competitive advantages and value are
created when those employing the
strategies can also use them to develop
useful knowledge about how to succeed inthe future
valuable
rare
imperfectly imitable
nonsubstitutable
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International CooperativeInternational Cooperative
StrategiesStrategiesCross-border strategic allianceCross-border strategic alliance
an international cooperative strategy in whichan international cooperative strategy in which
firms with headquarters in different nationsfirms with headquarters in different nations
combine some of their resources andcombine some of their resources andcapabilities to create a competitive advantagecapabilities to create a competitive advantage
a firm may form cross-border strategica firm may form cross-border strategic
alliances to leverage core competencies thatalliances to leverage core competencies that
are the foundation of its domestic success toare the foundation of its domestic success toexpand into international marketsexpand into international markets
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International CooperativeInternational Cooperative
StrategiesStrategiesAllows risk sharing by reducing financialAllows risk sharing by reducing financial
investmentinvestment
Host partner knows local market andHost partner knows local market and
customscustoms
International alliances can be difficult toInternational alliances can be difficult to
manage due to differences in managementmanage due to differences in management
styles, cultures or regulatory constraintsstyles, cultures or regulatory constraintsMust gauge partners strategic intent soMust gauge partners strategic intent so
they do not gain access to importantthey do not gain access to important
technology and become a competitortechnology and become a competitor
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Implementing InternationalImplementing International
Cooperative StrategiesCooperative StrategiesDifferences among countries regulatory
environments increase the challenge ofmanaging international networks and
verifying that, at a minimum, the networksoperations comply with all legalrequirements
Distributed strategic networks are often
the organizational structure used tomanage international cooperativestrategies
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StrategicStrategicCenterCenterFirmFirm
Distributed Strategic NetworkDistributed Strategic Network
= Distributed Strategic Center Firms= Distributed Strategic Center Firms
MainMainStrategicStrategicCenterCenterFirmFirm
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Distributed Strategic NetworkDistributed Strategic Network
International cooperative strategies oftenInternational cooperative strategies oftenrequire more complex networksrequire more complex networks
Many large multinational firms formMany large multinational firms form
distributed strategic networks withdistributed strategic networks withmultiple regional strategic centers tomultiple regional strategic centers tomanage their array of cooperativemanage their array of cooperativearrangements with partner firmsarrangements with partner firms
Breaking large networks into multipleBreaking large networks into multiplemanageably-sized networks helps tomanageably-sized networks helps tomanage the complexity of maintainingmanage the complexity of maintainingmany relationshipsmany relationships
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Network Cooperative StrategiesNetwork Cooperative Strategies
A network strategy is a cooperativeA network strategy is a cooperative
strategy wherein several firms agree tostrategy wherein several firms agree to
form multiple partnerships to achieveform multiple partnerships to achieve
shared objectivesshared objectives stable strategic cooperative networkstable strategic cooperative network
dynamic strategic cooperative networkdynamic strategic cooperative network
Effective social relationships andEffective social relationships andinteractions among partners are keys to ainteractions among partners are keys to a
successful network cooperative strategysuccessful network cooperative strategy
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Network Cooperative Strategies:Network Cooperative Strategies:
Stable StrategicStable Strategic
Cooperative NetworkCooperative Network
long term relationships that oftenlong term relationships that often
appear in mature industries whereappear in mature industries where
demand is relatively constant anddemand is relatively constant and
predictablepredictable
stable networks are built forstable networks are built for
exploitationexploitation of the economiesof the economies
available between firmsavailable between firms
Stable Strategic Cooperative NetworkStable Strategic Cooperative Network
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Network Cooperative Strategies:Network Cooperative Strategies:
Dynamic StrategicDynamic StrategicCooperative NetworkCooperative Network
arrangements that evolve inarrangements that evolve in
industries with rapid technologicalindustries with rapid technological
change leading to short product lifechange leading to short product life
cyclescycles primarily used to stimulate rapid,primarily used to stimulate rapid,
value-creating product innovationsvalue-creating product innovations
and subsequent successful marketand subsequent successful market
entriesentries
purpose is oftenpurpose is often explorationexploration of newof newideasideas
Dynamic Strategic Cooperative NetworkDynamic Strategic Cooperative Network
Stable StrategicStable Strategic
Cooperative NetworkCooperative Network
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Competitive Risks withCompetitive Risks with
Cooperative StrategiesCooperative Strategies
CompetitiveCompetitive
RisksRisks
Partner may act opportunistically
Misrepresentation of competencies brought to the
partnership
Partner fails to make committed resources and
capabilities available to its partners
Firm may make investments that are specific to the
alliance while its partner does not
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Managing Competitive Risks inManaging Competitive Risks in
Cooperative StrategiesCooperative Strategies
Risk and AssetRisk and Asset
ManagementManagement
ApproachesApproaches
CompetitiveCompetitive
RisksRisks
Manage the balance between learning from partners while
protecting knowledge and sources of competitive advantages
from excessive learning by partners
Assign managerial responsibility for a firms cooperativestrategies to a high-level executive or team
Specify resources and capabilities that will be shared and those
that will not be shared (detailed contracts and monitoring)
Develop trusting relationships
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Approaches for ManagingApproaches for Managing
Cooperative StrategiesCooperative Strategies
cost minimization
formal contracts specify how the cooperative
strategy is to be monitored and how partner
behavior is to be controlled
opportunity maximization
maximize partnerships value-creation
opportunities
partners take advantage of unexpected
opportunities to learn from each other and to
explore additional marketplace possibilities
fewer formal, limiting, contracts
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Managing Competitive Risks inManaging Competitive Risks in
Cooperative StrategiesCooperative Strategies
Risk and AssetRisk and Asset
ManagementManagement
ApproachesApproaches
CompetitiveCompetitive
RisksRisks
DesiredDesired
OutcomeOutcome
Creating value
Above-average
returns