Ch10 Discussion Light
- 1. Cooperative Strategy Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Chapter 10
- 2. Chapter 2 Strategic Leadership Chapter 4 The Internal Organization Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 9 International Strategy Chapter 1 Introduction to Strategic Management Chapter 3 The External Environment Chapter 5 Business-Level Strategy Chapter 8 Acquisition and Restructuring Strategies Chapter 11 Corporate Governance Strategic Intent Strategic Mission Chapter 7 Corporate-Level Strategy Chapter 10 Cooperative Strategy Chapter 12 Strategic Entrepreneurship Strategic Analysis Strategic Thinking Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities The Strategic Management Process
- 3. Discussion Questions What is cooperative strategy? What are the four general types of strategic alliances that introduce Chapter 10? How is a strategic cooperative network different from a single strategic alliance? What are the central reasons why firms are motivated to engage in strategic alliances in each market type (slow, standard and fast cycle)? Click Here Click Here Click Here More discussion questions Click Here
- 4. Discussion Questions (cont.) What is the difference between horizontal and vertical complementary business level strategic alliances? Are competition reduction, competition response and uncertainty reduction strategic alliances likely to lead to competitive advantage? What is the difference between corporate level and business level strategic alliances? Click Here Click Here Click Here Click Here More discussion questions
- 5. Discussion Questions (cont.) When are international cooperative strategies used and how are they implemented? How can you classify networks which are formed for different purposes? What are the competitive risks of strategic alliances? How is the strategic approach different if an alliance is based on a formal contract versus trust? Click Here Click Here Click Here
- 6. Discussion Question 1 What is cooperative strategy?
- 7. Cooperative Strategy Cooperative strategy is a strategy in which firms work together to achieve a shared objective Cooperating with other firms is a strategy that creates value for a customer exceeds the cost of constructing customer value in other ways establishes a favorable position relative to competition
- 8. Strategic Alliance as a Cooperative Strategy A strategic alliance is a cooperative strategy in which firms combine some of their resources and capabilities to create a competitive advantage A strategic alliance involves exchange and sharing of resources and capabilities co-development or distribution of goods or services
- 9. Strategic Alliance Click Here Return to Discussion Questions Combined Resources Capabilities Core Competencies Resources Capabilities Core Competencies Resources Capabilities Core Competencies Firm A Firm B Mutual interests in designing, manufacturing, or distributing goods or services
- 10. Discussion Question 2 What are the four general types of strategic alliances that introduce Chapter 10? How is a strategic cooperative network different from a single strategic alliance?
- 11. Four Types of Strategic Alliances Joint venture: two or more firms create an independent company by combining parts of their assets Equity strategic alliance: partners who own different percentages of equity in a new venture Nonequity strategic alliances: contractual agreements given to a company to supply, produce, or distribute a firm’s goods or services without equity sharing Strategic cooperative network: multiple firms agree to form partnerships to achieve shared objectives
- 12. Strategic Network Strategic Center Firm
- 13. Strategic Network A strategic network is a grouping of organizations that has been formed to create value through participation in an array of cooperative arrangements, such as alliances and joint ventures The strategic network seeks to develop a competitive advantage in primary or support activities A strategic center firm often manages the network
- 14. Strategic Network strategic center firm engages in four primary tasks strategic outsourcing (outsources and partners with more firms than do other network members) competencies (supports each member’s efforts to develop core competencies that can benefit the network)
- 15. Strategic Network strategic center firm engages in four primary tasks Click Here Return to Discussion Questions technology (manages the development and sharing of technology-based ideas among network members) race to learn (guides participants in efforts to form network-specific competitive advantages)
- 16. Discussion Question 3 What are the central reasons why firms are motivated to engage in strategic alliances in each market type (slow, standard and fast cycle)?
- 17. Reasons for Strategic Alliances by Market Type Market Reason Slow Cycle Gain access to a restricted market Establish a franchise in a new market Maintain market stability (e.g., establishing standards)
- 18. Reasons for Strategic Alliances by Market Type Market Reason 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
- 19. Reasons for Strategic Alliances by Market Type Market Reason 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 Click Here Return to Discussion Questions
- 20. Discussion Question 4 What is the difference between horizontal and vertical complementary business level strategic alliances?
- 21. Business-Level Cooperative Strategies: complementary strategic alliances are designed to take advantage of market opportunities by combining partner firms’ assets in complementary ways to create new value these include distribution, supplier or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantage Complementary Strategic Alliances Complementary Alliances
- 22. Business-Level Cooperative Strategies: Vertical Alliance Supplier vertical complementary strategic alliance is formed between firms that agree to use their skills and capabilities in different stages of the value chain to create value for both firms outsourcing is one example of this type of alliance Buyer Complementary Strategic Alliances Margin Margin Primary Activities Support Activities Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Firm Infrastructure Human Resource Mgmt. Technological Development Procurement Margin Margin Primary Activities Support Activities Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Firm Infrastructure Human Resource Mgmt. Technological Development Procurement
- 23. Business-Level Cooperative Strategies: Horizontal Alliance Buyer Potential Competitors horizontal complementary strategic alliance is formed between partners who agree to combine their resources and skills to create value in the same stage of the value chain focus on long-term product development and distribution opportunities the partners may become competitors requires a great deal of trust between the partners Buyer Complementary Strategic Alliances Click Here Return to Discussion Questions Margin Margin Primary Activities Support Activities Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Firm Infrastructure Human Resource Mgmt. Technological Development Procurement Margin Margin Primary Activities Support Activities Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Firm Infrastructure Human Resource Mgmt. Technological Development Procurement
- 24. Discussion Question 5 Are competition reduction, competition response and uncertainty reduction strategic alliances likely to lead to competitive advantage?
- 25. Business-Level Cooperative Strategies: competition response strategic alliances occur when firms join forces to respond to a strategic action of another competitor because they can be difficult to reverse and expensive to operate, competition response strategic alliances are primarily formed to respond to strategic rather than tactical actions Competition Response Alliances Competition Response Alliances Complementary Alliances
- 26. Business-Level Cooperative Strategies: uncertainty reducing strategic alliances are used to hedge against risk and uncertainty these alliances are most noticed in fast-cycle markets alliance may be formed to reduce the uncertainty associated with developing new product or technology standards Uncertainty Reducing Alliances Competition Response Alliances Uncertainty Reducing Alliances Complementary Alliances
- 27. Business-Level Cooperative Strategies: competition reducing strategic alliances may be created to avoid destructive or excessive competition explicit collusion exists when firms directly negotiate production output and pricing agreements in order to reduce competition (illegal) tacit collusion exists when several firms in an industry indirectly coordinate their production and pricing decisions by observing each other’s competitive actions and responses Competition Reducing Alliances Competition Reducing Alliances Competition Response Alliances Uncertainty Reducing Alliances Complementary Alliances
- 28. Business-Level Cooperative Strategies: mutual forbearance is a form of tacit collusion in which firms avoid competitive attacks against those rivals they meet in multiple markets competition reducing strategic alliances may require governments to find ways to permit collaboration among rivals without violating antitrust laws Competition Reducing Alliances Competition Response Alliances Uncertainty Reducing Alliances Complementary Alliances Competition Reducing Alliances
- 29. Implementing Business-Level Cooperative Strategies Complementary business-level strategic alliances have the greatest probability of creating a sustainable competitive advantage Strategic alliances designed to respond to competition and reduce uncertainty can create competitive advantages that may be more temporary in nature Competition reducing strategy has lowest probability of creating a sustainable competitive advantage Click Here Return to Discussion Questions
- 30. Discussion Question 6 What is the difference between corporate level and business level strategic alliances?
- 31. Corporate-Level Cooperative Strategies Corporate-level cooperative strategies are designed to facilitate product and/or market diversification diversifying strategic alliance synergistic strategic alliance franchising Diversifying alliances and synergistic alliances allow firms to grow and diversify their operations through a means other than a merger or acquisition
- 32. Corporate-Level Cooperative Strategies: diversifying strategic alliance allows a firm to expand into new product or market areas without completing a merger or an acquisition provides some of the potential synergistic benefits of a merger or acquisition, but with less risk and greater levels of flexibility permits a “test” of whether a future merger between the partners would benefit both parties Diversifying Alliances Diversifying Alliances
- 33. Corporate-Level Cooperative Strategies: synergistic strategic alliances create joint economies of scope between two or more firms create synergy across multiple functions or multiple businesses between partner firms Synergistic Alliances Synergistic Alliances Diversifying Alliances
- 34. Corporate-Level Cooperative Strategies: franchising spreads risks and uses resources, capabilities, and competencies without merging or acquiring another company contractual relationship concerning the franchise that is developed between two parties, the franchisee and the franchisor an alternative to pursuing growth through mergers and acquisitions Franchising Franchising Diversifying Alliances Synergistic Alliances
- 35. Implementing Corporate-Level Cooperative 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 in the future valuable rare imperfectly imitable nonsubstitutable Click Here Return to Discussion Questions
- 36. Discussion Question 7 When are international cooperative strategies used and how are they implemented?
- 37. International Cooperative Strategies Cross-border strategic alliance an international cooperative strategy in which firms with headquarters in different nations combine some of their resources and capabilities to create a competitive advantage a firm may form cross-border strategic alliances to leverage core competencies that are the foundation of its domestic success to expand into international markets
- 38. International Cooperative Strategies Allows risk sharing by reducing financial investment Host partner knows local market and customs International alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraints Must gauge partner’s strategic intent so they do not gain access to important technology and become a competitor
- 39. Implementing International Cooperative Strategies Differences among countries’ regulatory environments increase the challenge of managing international networks and verifying that, at a minimum, the network’s operations comply with all legal requirements Distributed strategic networks are often the organizational structure used to manage international cooperative strategies
- 40. Distributed Strategic Network Strategic Center Firm = Distributed Strategic Center Firms Main Strategic Center Firm
- 41. Distributed Strategic Network International cooperative strategies often require more complex networks Many large multinational firms form distributed strategic networks with multiple regional strategic centers to manage their array of cooperative arrangements with partner firms Breaking large networks into multiple manageably-sized networks helps to manage the complexity of maintaining many relationships Click Here Return to Discussion Questions
- 42. Discussion Question 8 How can you classify networks which are formed for different purposes?
- 43. Network Cooperative Strategies A network strategy is a cooperative strategy wherein several firms agree to form multiple partnerships to achieve shared objectives stable strategic cooperative network dynamic strategic cooperative network Effective social relationships and interactions among partners are keys to a successful network cooperative strategy
- 44. Network Cooperative Strategies: long term relationships that often appear in mature industries where demand is relatively constant and predictable stable networks are built for exploitation of the economies available between firms Stable Strategic Cooperative Network Stable Strategic Cooperative Network
- 45. Network Cooperative Strategies: Click Here Return to Discussion Questions arrangements that evolve in industries with rapid technological change leading to short product life cycles primarily used to stimulate rapid, value-creating product innovations and subsequent successful market entries purpose is often exploration of new ideas Dynamic Strategic Cooperative Network Dynamic Strategic Cooperative Network Stable Strategic Cooperative Network
- 46. Discussion Question 9 What are the competitive risks of strategic alliances? How is the strategic approach different if an alliance is based on a formal contract versus trust?
- 47. Competitive Risks with Cooperative Strategies 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 Competitive Risks
- 48. Managing Competitive Risks in Cooperative Strategies 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 firm’s cooperative strategies 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 Risk and Asset Management Approaches Competitive Risks
- 49. Approaches for Managing Cooperative 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 partnership’s value-creation opportunities partners take advantage of unexpected opportunities to learn from each other and to explore additional marketplace possibilities fewer formal, limiting, contracts
- 50. Managing Competitive Risks in Cooperative Strategies Creating value Above-average returns Risk and Asset Management Approaches Competitive Risks Desired Outcome
Editor's Notes
- #2: Cooperative Strategy There are several supplemental instructor notes for this chapter for types of strategic alliances (dyadic or small-scale relationships and numerous partners). Corporate examples include Sprint and Virgin Group’s joint venture; Sony Pictures, Warner Bros., Universal Pictures, and Metro-Goldwyn-Mayer cooperative venture on the use of the Internet; and an equity strategic alliance between Cott Corporation, the world’s largest soft drink supplier, and J.D. Iroquois Enterprises. Examples of cooperative strategic alliances, citing corporate examples in • Slow-Cycle markets • Fast-Cycle markets • Standard-Cycle markets • Business-level cooperative strategy, citing numerous corporate examples • Corporate-level cooperative strategy, citing alliance examples such as Boeing and Insitu, and the synergistic strategic alliance between Cisco Systems and HP
- #12: Four Types of Strategic Alliances Facts • All firms are in competition. • To survive and thrive, all firms must deliver value. • Firms might compete and deliver value by relying on cooperative strategies. • More than 50% of strategic alliances (one type of cooperative strategy) established within a recent two-year period were between rivals. See the examples on pp. 305- 310. Types of Strategic Alliances: Dyadic or Small-Scale Relationships Joint Ventures • Sprint and Virgin Group’s joint venture targets 15- to 30-year-olds as customers for pay-as-you-go wireless phone service. Brand (from Virgin) and service (from Sprint). • Sony Pictures, Warner Bros., Universal Pictures, Paramount Pictures, and Metro- Goldwyn-Mayer, each has a 20% stake in a joint venture to use the Internet to deliver feature films on demand. Equity Strategic Alliance • Foreign direct investments made by Japanese and U.S. companies in China are completed through equity strategic alliances. • Cott Corporation, the world’s largest soft drink supplier, and J.D. Iroquois Enterprises formed an equity strategic alliance. Cott gained exclusive supply rights for Iroquois’ private label spring water products and Iroquois expanded its branded business in the West and Far East. (Continued on next slide.)
- #13: Strategic Network Nonequity Strategic Alliance • Licensing agreements, distribution agreements, supply contracts. For example, chemical processes tend to be improved along technology corridors, and therefore licensing and cross licensing are well-established practices in chemical and pharmaceutical industries. Licensing and cross licensing mitigates the potential impact of overbroad patents. • Ralph Lauren uses licensing agreements to support its Polo brand. It uses 29 domestic licensing agreements, including West Point Stevens (bedding), Reebok (casual shoes), and ICI Paints (Ralph Lauren Home Products). • Magna International, a leading global supplier of automotive systems, components, and modules, has formed many nonequity strategic alliances with GM, Ford, Honda, DaimlerChrysler, Toyota. • Procter & Gamble (P&G) has formed over 120 strategic alliances: with Dana Undies to make Pampers cotton underwear; with Magla to make Mr. Clean disposable gloves and mops; with GM to distribute its Tempo car cleanup towels; and with Whirlpool to develop a new “clothes refresher” product and appliance. Strategic Cooperative Networks: Numerous partners United Technologies is involved with over 100 worldwide cooperative strategies. One of these networks is the alliance formed by the firm’s Sikorsky business unit to produce the S-92 helicopter. Five firms from four continents joined with Sikorsky to form this alliance. Using its unique resources and capabilities, each partner assumed different responsibilities for the design and production of the S-92. No individual member of the alliance could have developed the design and manufactured competitive advantages instrumental in the design and production of the S-92 helicopter, a product with size and cost benefits over competing helicopters. The combination of the partners’ resources and capabilities resulted in a competitive advantage for the alliance.
- #14: Unlike the chemical and pharmaceutical industry, some experts note that initial progress in the airline industry was hindered because of lack of cross licensing agreements (cf., Merges & Nelson, 1990). That is, the Wright brothers’ patent—an efficient stabilizing and steering system that enabled a multiplicity of future flying machines—significantly held back the pace of development of aircrafts and the entire airline industry. In the absence of cross-licensing strategies, incumbents (like Curtiss and even the Wright brothers) wasted huge energies and diverted their efforts simply to avoid infringement, not to advance technology. The problems caused by Wright brothers’ initial patent were compounded as improvements and complementary patents, owned by different companies, came into existence, but compatibility was null. The situation was so serious that at the insistence of the Secretary of the Navy, during World War I, an arrangement was worked out to enable automatic cross licensing. This, like in the licensing of automobile patents, turned out to be a durable institution. By the end of World War I there were many patents on different aircraft features and rivals could easily negotiate licenses to produce state-of-the-art planes.
- #18: Reasons for Strategic Alliances by Market Type The competitive conditions of slow-cycle, fast-cycle, and standard-cycle markets impel firms to use cooperative strategies to achieve slightly different objectives (see Table 10.1 in text). Market type examples of cooperative strategic alliances follow. Slow-Cycle • Access to restricted market; establish franchises in new markets; maintain stability (e.g., establishing standards). • French steelmaker Usinor formed an equity strategic alliance with Dofasco, Canada’s second largest steel mill, to build a plant to supply car bodies for Honda, Toyota, GM, Ford, and DaimlerChrysler. Through this alliance, Usinor and Dofasco established a new franchise in the import-averse U.S. steel market. • American AIG formed a joint venture with India to gain entry into India’s restricted insurance market. • Petrochemical companies from Venezuela and Brazil formed a joint venture for cross investments between partners. The eventual goal is to attract other oil companies in the region (Colombia and Mexico). (Continued on next slide.)
- #19: Reasons for Strategic Alliances by Market Type (cont.) Fast-Cycle Compress R&D time and capital; market leadership; form standards; reduce risk and uncertainty: • Visa formed a venture capital program to scout technologies and capabilities that will affect the future of financial services industry in order to meld and integrate the physical and the virtual financial world, where customers have the trust, convenience, protection and security in addition to the ease in performing transactions.
- #20: Reasons for Strategic Alliances by Market Type (cont.) Standard-Cycle Gain market power; access to resources; economies of scale; overcome barriers; reduce risk; compress learning: • In 1993 Lufthansa and United Airlines formed the Star Alliance. Since then 12 other airlines have joined the Star Alliance to share resources and capabilities and to access over 700 cities in 124 countries. The goal is to combine worldwide routes and offer seamless booking and travel throughout the world.
- #22: Business-Level Cooperative Strategy (pp. 313–319) Examples of business-level cooperative strategy follow: Complementary Strategic Alliances Vertical • McDonald’s alliances with oil companies and independent store operators. With just one stop, customers can fill up car, buy a meal, and pick up items for the home. • Boeing’s 777 alliance is accredited with the fastest and most efficient construction of a new commercial aircraft. The partners, including UAL, brought unique resources and capabilities to a different part of the value chain. Horizontal • SCM is a 40-year old joint venture between Caterpillar and Mitsubishi to share resources and capabilities in order to yield products that neither firm could design and produce by itself. • CSK Auto Inc. (Checker Auto Parts, Shuck’s Auto Supply, Kragen Auto Parts) and Advance Auto Parts established PartsAmerica.com. The venture provides easy access to nearly $1.5 billion in inventory and 3,000 locations in all 50 states, where buyers can use either store to pick up and return parts ordered online.
- #26: Business-Level Cooperative Strategies (cont.) Competition Response Strategy FedEx responded to the success of UPS’s logistics business. FedEx formed a strategic alliance with KPMG to deliver end-to-end supply-chain solutions to large and midsized companies. FedEx committed its supply-chain consulting, IT systems, and transportation and logistics expertise, whereas KPMG provided its supply-chain consulting and e-integration services. • Marathon Oil and Russia’s Yukos formed an alliance to achieve international expansion and as a response to rivals’ alliances.
- #27: Business-Level Cooperative Strategies (cont.) Uncertainty Reducing Strategy • Overcapacity, risk, uncertainty, and cost competition led Siemens and Fujitsu to form an alliance associated with their PC operations. By uniquely combining technology from Fujitsu with manufacturing, marketing, and logistics capabilities from Siemens, the joint venture has become Europe’s top supplier of PCs. • GM and Toyota (# 1 U.S. and Japanese automakers) formed an R&D alliance to develop and standardize alternative-power cars. • GM, Toyota, Ford, DaimlerChrysler, and Renault joined to develop a standard for communications and entertainment equipment for automobiles.
- #28: Business-Level Cooperative Strategies (cont.) Competition Reducing Strategy • Explicit Collusion (illegal): Examples include the 1995 price-fixing scandal, in which Archer Daniels Midland executives were convicted for cooperating with competitors to fix prices. Similarly, Toys ‘R’ Us colluded with toy manufacturers to not sell popular toys to rivals, such as Costco and Sam’s Club. • Tacit Collusion: Kellogg, General Mills, Post, and Quaker accounted for 84% of the U.S. cereal market. Some believe the high price gaps vis-à-vis rivals in this industry suggest the possibility that the dominant firms were using a tacit collusion cooperative strategy. • Mutual Forbearance: Firms choose not to attack each other or engage in what could be destructive competition in multiple product markets.
- #33: Corporate-Level Cooperative Strategy (p. 319) Diversifying Strategic Alliances Boeing and Insitu formed an alliance to develop an unmanned aerial vehicle system. Boeing brings systems integration, communications technologies, and payload technologies. Insitu is designing its capabilities in producing low-cost, long-endurance unmanned aerial vehicles (an earlier prototype flew 2,000 miles using 1.5 gallons of gasoline). Boeing hopes to diversify into government and commercial markets. Insitu gains “big firm” experience and access to Boeing’s technology, resources, and capabilities.
- #34: Corporate-Level Cooperative Strategy (p. 319) (cont.) Synergistic Strategic Alliances Cisco Systems and Hewlett-Packard formed a synergistic strategic alliance to meld computing, networking, data and voice, and Unix and Windows NT. Synergy is expected as HP integrates its telecommunications management solutions with Cisco’s networking solutions.
- #35: Corporate-Level Cooperative Strategy (p. 319) (cont.) Franchising Franchising is a lower-risk strategy to grow the brand. It is attractive when you don’t have the capital for growth. It is particularly attractive in fragmented industries, where a company can gain a large market share by consolidating independent companies through contractual relationships (e.g., Papa John’s, McDonald’s, Hilton International). Source : Robert P. Merges and Richard R. Nelson, On the Complex Economics of Patent Scope, 90 Colum. L. Rev. 839 (http://cyber.law.harvard.edu/ipcoop/90merg2.html).