Strategic Management:
Concepts and Cases 9e
Part II: Strategic Actions:
Strategy Formulation
Chapter 9: Cooperative Strategy
©2011 Cengage Learning. All Rights Reserved. May not be scanned,
copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
The Strategic Management Process
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Cooperative Strategy
• Overview: Seven content areas
– Cooperative strategies and why firms use them
– Three types of strategic alliances
– Business-level cooperative strategies & their use
– Corporate-level strategies in diversified firms
– Cross-border strategic alliances’ importance as an
international cooperative strategy
– Competitive risks with cooperative strategies
– Two approaches to manage cooperative strategies
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Cooperative Strategies at IBM
• By cooperating with others IBM can leverage core
competencies to grow and improve performance
• Business Systems Group
– Develop leading-edge technology
– Formed five alliances
– Partners provide over 250 scientists and engineers that
work with IBM’s own to fuel innovation
• Business Analytics Group
– Created unit to manage data and improve decisions
– Software solutions through small firm partnerships
• Overall shift to hardware, solutions, software
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Introduction
• Cooperative strategy
– Firms work together to achieve a shared objective
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Cooperative Strategy
• Overview: Seven content areas
– Cooperative strategies and why firms use them
– Three types of strategic alliances
– Business-level cooperative strategies & their use
– Corporate-level strategies in diversified firms
– Cross-border strategic alliances’ importance as an
international cooperative strategy
– Competitive risks with cooperative strategies
– Two approaches to manage cooperative strategies
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Primary Type of Cooperative Strategy:
Strategic Alliances
• Introduction: Strategic Alliance
– Cooperative strategy in which firms combine resources
and capabilities to create a competitive advantage
• Three types of strategic alliances
– 1. Joint venture
– 2. Equity strategic alliance
– 3. Nonequity strategic alliances, which include
• Licensing agreements
• Distribution agreements
• Supply contracts
• Outsourcing commitments
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Primary Type of Cooperative Strategy:
Strategic Alliances
(Cont’d)
• 1. Joint venture
– Two or more firms create a legally independent
company to share resources and capabilities to develop
a competitive advantage
• 2. Equity strategic alliance
– Two or more firms own a portion of the equity in the
venture they have created
• 3. Nonequity strategic alliance
– Two or more firms develop a contractual relationship to
share some of their unique resources and capabilities
to create a competitive advantage
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Primary Type of Cooperative Strategy:
Strategic Alliances
(Cont’d)
• Many reasons firms implement cooperative
strategies and specifically, strategic alliances
• Competitive market conditions would include
– 1. Slow-cycle markets
– 2. Fast-cycle markets
– 3. Standard-cycle
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Primary Type of Cooperative Strategy:
Strategic Alliances
(Cont’d)
• Why firms might develop strategic alliances
– Most firms lack the full set of resources and capabilities
needed to reach their objectives
– Cooperative behavior allows partners to create value
that they couldn't develop by acting independently
– Aligning stakeholder interests (both inside and outside
of the organization) can reduce environmental
uncertainty
– Alliances can …
• provide a new source of revenue
• be a vehicle for firm growth
• enhance the speed of responding to market opportunities,
technological changes, and global conditions
• allow firms to gain new knowledge and experiences to
increase competitiveness
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Primary Type of Cooperative Strategy:
Strategic Alliances
(Cont’d)
• In summary, strategic alliances …
– …can reduce competition and enhance a firm’s
competitive capabilities and
– …create avenue for firm to gain access to resources
– …allows firm to take advantage of opportunities, build
strategic flexibility and innovate
• The competitive conditions -– 1. Slow-cycle markets
– 2. Fast-cycle markets
– 3. Standard-cycle markets
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Primary Type of Cooperative Strategy:
Strategic Alliances
(Cont’d)
• 1. Slow-cycle markets – becoming rare do to:
– Privatization of industries and economies
– Rapid expansion of the Internet's capabilities
– Quick dissemination of information
– Speed with which advancing technologies permit
imitation of even complex products
• 2. Fast-cycle markets
• 3. Standard-cycle
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Cooperative Strategy
• Overview: Seven content areas
– Cooperative strategies and why firms use them
– Three types of strategic alliances
– Business-level cooperative strategies & their use
– Corporate-level strategies in diversified firms
– Cross-border strategic alliances’ importance as an
international cooperative strategy
– Competitive risks with cooperative strategies
– Two approaches to manage cooperative strategies
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business-Level Cooperative Strategy
• Introduction
• Complementary strategic alliances (CSA)
• 2 Types of CSA: (1) vertical & (2) horizontal
• Competition response strategy
• Uncertainty-reducing strategy
• Competition-reducing strategy
• Business-level cooperative strategies assessment
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business-Level Cooperative Strategy
(Cont’d)
• Introduction: Business level cooperative
strategies used to grow and improve firm
performance in individual product markets.
Achieved through…
• Complementary Strategic Alliances (CSA)
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business-Level Cooperative Strategy
(Cont’d)
• Complementary Strategic Alliances (CSA)
– Firms share some of their resources and capabilities in
complementary ways to develop competitive
advantages
– Partners may have different
• Learning rates
• Capabilities to leverage complementary resources
• Marketplace reputations
• types of actions they can legitimately take
– Some firms are more effective at managing alliances
and deriving benefits from them
– Two forms include vertical and horizontal
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business-Level Cooperative Strategy
(Cont’d)
– 2 Types of CSA: (1) vertical & (2) horizontal
• 1. Vertical CSA
– partnering firms share resources & capabilities from different stages of
the value chain to create a competitive advantage.
• 2. Horizontal CSA
– partnering firms share resources & capabilities from the same stage of
the value chain to create a competitive advantage
– commonly used for long-term product development and distribution
opportunities
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business-Level Cooperative Strategy
(Cont’d)
• Competition response strategy
– Competitors
• initiate competitive actions to attack rivals
• launch competitive responses to their competitor’s actions
– Strategic alliances (SA)
• can be used at the business level to respond to competitor’s
attacks
• primarily formed to take strategic vs. tactical actions
• can be difficult to reverse
• expensive to operate
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business-Level Cooperative Strategy
(Cont’d)
• Uncertainty-reducing strategy
– For example, entering new product markets, emerging
economies and establishing a technology standard are
unknown areas so by partnering with a firm in the
respective industry, a firm’s uncertainty (risk) is
reduced
– Uncertainty reduced by combining knowledge &
capabilities
• Competition-reducing strategy
– Collusive strategies (CS) differ from strategic alliances
in that CS are usually illegal
– Two types of CS:
• Explicit collusion
• Tacit collusion
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business-Level Cooperative Strategy
(Cont’d)
• Competition-reducing strategy: Two Collusive
Strategies
– 1. Explicit collusion
– Direct negotiation among firms to establish output levels and pricing
agreements that reduce industry competition
– 2. Tacit collusion
– iIndirect coordination of production and pricing decisions by several
firms, which impacts the degree of competition faced in the industry
• Mutual forbearance – firms do not take
competitive actions against rivals they meet in
multiple markets
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Business-Level Cooperative Strategy
(Cont’d)
• Business-level cooperative strategy – assessment
– Used to develop competitive advantages (CA) for
contributing to successful positions & performance in
individual product markets
– Developing a CA using a strategic alliance, the
integrated resources and capabilities must be valuable,
rare, imperfectly imitable and nonsubstitutable
– Vertical alliances have greatest probability of creating
CA; horizontal are sometimes difficult to maintain since
they are usually between competitors
– SA’s designed to respond to competition and reduce
uncertainty are more temporary than complementary
(horizontal and vertical) strategic alliances
– Competition-reducing has lowest probability of creating
a sustainable CA
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Cooperative Strategy
• Overview: Seven content areas
– Cooperative strategies and why firms use them
– Three types of strategic alliances
– Business-level cooperative strategies & their use
– Corporate-level strategies in diversified firms
– Cross-border strategic alliances’ importance as an
international cooperative strategy
– Competitive risks with cooperative strategies
– Two approaches to manage cooperative strategies
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Corporate-Level Cooperative Strategies
(Cont’d)
• Introduction
– Corporate-level cooperative strategies (CLCS) help firm
to diversify itself in terms of products offered, markets
served or both
– Common CLCS forms (N=3)
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Corporate-Level Cooperative Strategies
(Cont’d)
• Common CLCS forms
– 1. Diversifying strategic alliance
• Firms share some of their resources & capabilities to diversify
into new product or market areas
– 2. Synergistic strategic alliance
• Firms share some of their resources & capabilities to create
economies of scope
– 3. Franchising
• Firm uses a franchise as a contractual relationship to describe
and control the sharing of its resources and capabilities with
partners
– Franchise: contractual agreement between two legally independent
companies whereby the franchisor grants the right to the franchisee to
sell the franchisor's product or do business under its trademarks in a
given location for a specified period of time
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Corporate-Level Cooperative Strategies
(Cont’d)
• Assessment of corporate-level cooperative
strategies
– Costs incurred regardless of type selected
• Important to monitor expenditures!
– In comparison w/ business-level strategies
• Usually broader in scope
• More complex and therefore more costly
– Can develop useful knowledge … and, in order to gain
maximum value should organize and verify proper
distribution with those involved in forming and using
alliances
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Cooperative Strategy
• Overview: Seven content areas
– Cooperative strategies and why firms use them
– Three types of strategic alliances
– Business-level cooperative strategies & their use
– Corporate-level strategies in diversified firms
– Cross-border strategic alliances’ importance as
an international cooperative strategy
– Competitive risks with cooperative strategies
– Two approaches to manage cooperative strategies
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
International Cooperative Strategy
• Cross-Border Strategic Alliance
– International cooperative strategy in which firms with
headquarters in different nations combine some of their
resources and capabilities to create a competitive
advantage
• Why cross-border strategic alliances?
– Multinational corporations outperform firms that
operate only domestically
– Due to limited domestic growth opportunities, firms
look outside their national borders to expand business
– Some foreign government policies require investing
firms to partner with a local firm to enter their markets
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Cooperative Strategy
• Overview: Seven content areas
– Cooperative strategies and why firms use them
– Three types of strategic alliances
– Business-level cooperative strategies & their use
– Corporate-level strategies in diversified firms
– Cross-border strategic alliances’ importance as an
international cooperative strategy
– Competitive risks with cooperative strategies
– Two approaches to manage cooperative strategies
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
International Cooperative Strategy
(Cont’d)
• Risks
– Partners may choose to act opportunistically
– Partner competencies may be misrepresented
– Partner may fail to make available the complementary
resources and capabilities that were committed
– One partner may make investments specific to the
alliance while the other partner may not
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Managing Competitive Risks in Cooperative
Strategies
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Chapter 9: Cooperative Strategy
• Overview: Seven content areas
– Cooperative strategies and why firms use them
– Three types of strategic alliances
– Business-level cooperative strategies & their use
– Corporate-level strategies in diversified firms
– Cross-border strategic alliances’ importance as an
international cooperative strategy
– Competitive risks with cooperative strategies
– Two approaches to manage cooperative
strategies
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Managing Cooperative Strategy
• Two primary approaches
– 1. Cost minimization
– 2. Opportunity maximization
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Managing Cooperative Strategy
(Cont’d)
• 1. Cost minimization
– Relationship with partner is formalized with contracts
– Contracts specify how cooperative strategy is to be
monitored and how partner behavior is to be controlled
– Goal is to minimize costs and prevent opportunistic
behaviors by partners
– Costs of monitoring cooperative strategy are greater
– Formalities tend to stifle partner efforts to gain
maximum value from their participation
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Managing Cooperative Strategy
(Cont’d)
• 2. Opportunity Maximization
– Focus: maximizing partnership's value-creation
opportunities
– Informal relationships and fewer constraints allow
partners to
• take advantage of unexpected opportunities
• learn from each other
• explore additional marketplace possibilities
– Partners need a high level of trust that each party will
act in the partnership's best interest, which is more
difficult in international situations
©2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.