Ch09 Hitt Lecture

7/30/2019 Ch09 Hitt Lecture

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PowerPoint slides by:

R. Dennis MiddlemistColorado State University

Copyright 2004 South-Western

All rights reserved.

Chapter 9

CooperativeStrategy


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Copyright 2004 South-Western. All rights reserved. 92

Knowledge Objectives

Studying this chapter should provide you with thestrategic management knowledge needed to:

Define cooperative strategies and explain why firms usethem.

Define and discuss three types of strategic alliances.

Name the business-level cooperative strategies anddescribe their use.

Discuss the use of corporate-level cooperative strategies in

diversified firms. Understand the importance of crossborder strategic

alliances as an international cooperative strategy.


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Knowledge Objectives (contd)

Studying this chapter should provide you with thestrategic management knowledge needed to:

Describe cooperative strategies risks.

Describe two approaches used to manage cooperative

strategies.


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Figure 1.1

Copyright 2004 South-Western. All rights reserved.

The StrategicManagement

Process


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Cooperative Strategy

Cooperative StrategyA strategy in which firms work together to

achieve a shared objective

Cooperating with other firms is a strategythat:

Creates value for a customer

Exceeds the cost of constructing customer value

in other waysEstablishes a favorable position relative to

competitors


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Strategic Alliance

A primary type of cooperative strategy inwhich firms combine some of theirresources and capabilities to create amutual competitive advantage

Involves the exchange and sharing of resourcesand capabilities to co-develop or distributegoods and services

Requires cooperative behavior from all partners


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Strategic Alliance Behaviors

Examples of cooperative behavior known tocontribute to alliance success:

Actively solving problems

Being trustworthy

Consistently pursuing ways to combine partners

resources and capabilities to create value

Competitive advantage developed through acooperative strategy is called a collaborativeor relational advantage


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Strategic Alliance

CombinedResourcesCapabilities

Core Competencies

ResourcesCapabilities

Core Competencies

ResourcesCapabilities

Core Competencies

Firm A Firm B

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


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Three Types of Strategic Alliances

Joint VentureTwo or more firms create a legally independent

company by sharing some of their resources andcapabilities

Equity Strategic AlliancePartners who own different percentages of equity

in a separate company they have formed

Nonequity Strategic Alliance

Two or more firms develop a contractualrelationship to share some of their uniqueresources and capabilities


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Reasons for Strategic Alliances

Market Reason

Slow Cycle Gain access to a restricted market Establish a franchise in a new market

Maintain market stability (e.g.,establishing standards)


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Market Reason

Fast Cycle Speed up development of new goodsor service

Speed up new market entry Maintain market leadership Form an industry technology

standard Share risky R&D expenses Overcome uncertainty

Reasons for Strategic Alliances (contd)


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Market Reason

Standard Cycle Gain market power (reduce industryovercapacity)

Gain access to complementaryresources 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 Alliances (contd)


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Business-Level Cooperative Strategies

Complementary strategic alliances

Vertical

Horizontal

Competition response strategy

Uncertainty reducing strategy

Competition reducing strategy


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Figure 9.1


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Combine partner firmsassets in complementaryways to create new value

Include distribution,

supplier or outsourcingalliances where firms relyon upstream ordownstream partners tobuild competitive

advantage

ComplementaryAlliances


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Vertical Complementary Strategic Alliances

Firms agree to use their skills and

capabilities in different stages of

the value chain to create value for

both firms

Outsourcing

Adapted from Figure 9.2


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Adapted from Figure 9.2

Horizontal Complementary Strategic Alliances

Partners combine resources and skills to create value in

the same stage of the value chain Focus is on long-term product development and

distribution opportunities

Partners may become competitors


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Competition Response Strategy

Occur when firms joinforces to respond to astrategic action of anothercompetitor

Because they can bedifficult to reverse andexpensive to operate,strategic alliances are

primarily formed to respondto strategic rather thantactical actions


Competition

Response Alliances


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Uncertainty Reducing Strategy

Are used to hedge againstrisk and uncertainty

These alliances are mostnoticed in fast-cyclemarkets

An alliance may be formedto reduce the uncertainty

associated with developingnew product or technologystandards


Competition

Response Alliances

UncertaintyReducing Alliances


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Competition Reducing Strategy

Created to avoid destructive orexcessive competition

Explicit collusion: when firmsdirectly negotiate production

output and pricing agreements inorder to reduce competition(illegal)

Tacit collusion: when firms in anindustry indirectly coordinate their

production and pricing decisionsby observing other firms actions

and responses


Competition

Response Alliances

UncertaintyReducing Alliances

CompetitionReducing Alliances


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Assessment of Cooperative Strategies

Complementary business-level strategic alliances,especially the vertical ones, have the greatestprobability of creating a sustainable competitiveadvantage

Horizontal complementary alliances are sometimesdifficult to maintain because they are often betweenrival competitors

Competitive advantages gained from competition

and uncertainty reducing strategies tend to betemporary


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Corporate-Level Cooperative Strategies

Figure 9.3


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Corporate-Level Cooperative Strategy

Corporate-level strategiesHelp the firm diversify in terms of:

Products offered to the market

The markets it serves

Require fewer resource commitments

Permit greater flexibility in terms of efforts to

diversify partners operations


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Diversifying Strategic Alliances

Expand into new product ormarket areas withoutcompleting a merger or anacquisition

Synergistic benefits of amerger or acquisition

less risk

greater flexibility

Assess benefits of futuremerger between the partners

DiversifyingStrategic Alliance


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Synergistic Strategic Alliances

Joint economies of scopebetween two or more firms

Synergy across multiple

functions or multiplebusinesses betweenpartner firms


Synergistic

Strategic Alliance


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Franchising

Spreads risks and usesresources, capabilities, andcompetencies without mergeror acquisition

A contractual relationship (thefranchise) is developedbetween the franchisee andthe franchisor

Alternative to growth throughmergers and acquisitions


Synergistic

Strategic Alliance

Franchising


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Assessment of Corporate-Level CooperativeStrategies

Compared to business-level strategies

Broader in scope More complex

More costly

Can lead to competitive advantage andvalue when:

Successful alliance experiences are internalized

The firm uses such strategies to develop usefulknowledge about how to succeed in the future


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International Cooperative Strategies

Cross-border Strategic AllianceA strategy in which firms with headquarters in

different nations combine their resources andcapabilities to create a competitive advantage

A firm may form cross-border strategic alliancesto leverage core competencies that are thefoundation of its domestic success to expandinto international markets


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International Cooperative Strategies (contd)

Synergistic Strategic AllianceAllows risk sharing by reducing financial

investment

Host partner knows local market and customs

International alliances can be difficult to managedue to differences in management styles,cultures or regulatory constraints

Must gauge partners strategic intent such thatthe partner does not gain access to importanttechnology and become a competitor


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Network Cooperative Strategy

A cooperative strategy wherein several firmsagree to form multiple partnerships toachieve shared objectives

Stable alliance network

Dynamic alliance network

Keys to a successful network cooperativestrategy

Effective social relationships

Interactions among partners


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Network Cooperative Strategies (contd)

Long term relationships

mature industries wheredemand is

relatively constant

predictable

Stable networks exploiteconomies (scale and/or

scope) available betweenthe firms

Stable AllianceNetwork


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Network Cooperative Strategies (contd)

Evolve in industries withrapid technological changeleading to short productlife cycles

Primarily used to stimulaterapid, value-creatingproduct innovation andsubsequent successful

market entries Purpose is often

explorationof new ideas

Stable AllianceNetwork

Dynamic Alliance

Network


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Competitive Risks of Cooperative Strategies

Partners may act opportunistically

Partners may misrepresent competenciesbrought to the partnership

Partners fail to make committed resourcesand capabilities available to other partners

One partner may make investments that are

specific to the alliance while its partner doesnot


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Managing Risks in Cooperative Strategies

Figure 9.4


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Managing Cooperative Strategies

Cost minimization management approachFormal contracts with partners

Specify

How strategy is to be monitored

How partner behavior is to be controlled

Goals that minimize costs and prevent

opportunistic behavior by partners


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Copyright 2004 South-Western All rights reserved 936

Managing Cooperative Strategies (contd)

Opportunity maximization approachMaximize partnerships value-creation

opportunities

learn from each other

explore additional marketplace possibilities

less formal contracts, fewer constraints

Ch09 Hitt Lecture

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