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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


Corporate GovernanceCorporate Governance

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

Chapter 7Chapter 7

Corporate-Level StrategyCorporate-Level Strategy




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 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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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 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 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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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




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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




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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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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


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



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Margin Margin

Primary Activities

SupportAc

tivities

Service

Marketing & Sales

Outbound Logistics

Operations


Infrastru

ctu

re

HumanReso

urc

eMgmt.

Technologica

lD

evelopment

Procurement

Margin Margin

Primary Activities

SupportAc

tiv

ities

Service

Marketing & Sales

Outbound Logistics

Operations


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



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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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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


UncertaintyUncertainty

Reducing AlliancesReducing Alliances


AlliancesAlliances


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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





AlliancesAlliances


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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





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 alliancesynergistic 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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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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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


AlliancesAlliances


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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


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


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


Risk and AssetRisk and Asset

ManagementManagement

ApproachesApproaches


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


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


Risk and AssetRisk and Asset

ManagementManagement

ApproachesApproaches


RisksRisks

DesiredDesired

OutcomeOutcome

Creating value

Above-average

returns