Session 15

Cooperative Strategy

PGP SM 2017-18 S15: Cooperative

March 23, 2018 1
Strategy
 Case: Google’s Android

Summary & Conclusion

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 2

 Android Strategy
Growth

Advertising

Mobile Telecom Other Segments

Android

OHA Spectrum Effort Acquisition

Exiting Platform Limits Developer Community

First Android Phone

Bundling Strategy Google Phone OHA Phone Open Phone

Challenges Nokia’s Strategy

Forking Carrier Fears Open Source Risks

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 3

 Was Google Right in Pursuing the Android Platform?
Yes No

Breaking Mobile Access Constraints Vision for Future Data Connectivity Dominance of MS & Nokia

Mobile Access as Revenue Source Google Just an Internet Player

Grip on Mobile Services Risk of Antagonizing Other Platforms

Chance of Open Source Mobile Access Support Through OHA Risk of Telecoms Not Adopting Android

Mobile Players’ Unease on Mobile OS Risk of Competitive Retaliation

Mobile Application Technologies Risk of Anti-trust Reaction

Explosive Growth of Mobile Usage Risk of Losing Focus on Core Business

Rich Source of Mobile Applications Application Developers’ Enthusiasm Risk of Fragmentation of Mobile OS Market

Riding on iPhone’s Success Carriers’ Anxieties

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 4
 Industry Forces: Extended Model
1. Existing competitors
Bypassing by Not Launching a Handset
Bypassing by Choosing Open Access Platform

3. Potential competitors 2. Threat of substitutes

Unknown None for Internet Access

4. Bargaining Power of Suppliers 5. Bargaining Power of Buyers

Application Developers Bought-in Model Game for Better Internet Access
Carriers Bought-in Through OHA Game for Better Mobile Apps.

6. Complementarity of Products
Open Handset Alliance 8. State of industry
Open Access Platform Fast-growing
Interdependence

7. Disruptive innovations
Likely

PGP SM 2017-18 S13-14: Business

March 23, 2018 5
Strategy: Strategic Options
 Google’s Strategy
Google

Revenue Objective

Adword & Adsense

Access

Regulatory Access Technology Access Service Access

Lobbying Android OHA

Development Carrier
Support Reassurance

Well-conceived & Executed Strategy

High Chance of Success

March 23, 2018
6
 Mobile OS Market Share 2015

Android 80%

iOS 16%

Windows 3%

Others 1%

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 7

 Mobile Handset Market Share 2016 Q1

Samsung 23.2%

Apple 14.8%

Huawei 8.3%

Oppo, Xiaomi (4.6+4.3) 8.9%

Others 44.8%

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 8

 Cooperative Strategy

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 9

 What Is Cooperative Strategy?

It is a formal working relationship (agreement)

between two or more business entities with certain
mutually agreed goals to be achieved by

Sharing of resources &/or competences

Enhancing mutual synergy from operations &/or
Complementing each other’s resources & competences

A cooperative strategy is more voluntary than legal

Note: Collusion, cartels, lobbying etc are also acts of business

cooperation; but, there are considered illegal or unethical

PGP SM 2017-18 S15: Cooperative

March 23, 2018 10
Strategy
 Cooperation Through Partnership

Division Subsidiary JV Franchising Licensing SA Competition

Partnerships

* ©2018 P Rameshan

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 11

 Goals of Cooperation
Goals

Product Customer
Development Coverage
(Pharmaceuticals) (Airlines)

Investment Cost
Sharing Efficiency
(Infrastructure) (Keiretsu)

Technology Stable
Development Supplies
(Digital Applications) (Components)

Product Product
Complement Promotion
(ERP Execution) (Network Industries)
* ©2018 P Rameshan

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 12

 Dynamics of Cooperative Strategy
Consumers Product Feedback
Brand Ambassadors
Innovative Ideas
(HLL Detergents 1990s)

Competitors Firm Complementor

Platforms Collaboration
Infrastructure (Microprocessor-PC-OS)
Common Risks
(Sony/Matsushita,
Android) Suppliers

Cycle Time Management

Cost Management
Innovations
(Ancillaries-Cars-Service)

©2016 P Rameshan
PGP SM 2017-18 S15: Cooperative
March 23, 2018 13
Strategy
 Business Inter-dependence

Component Value Chain

Bargaining Possibilities: Scale/Alternatives

Supply Chain Sales Post-Sales

Main Product Value Chain

Complement Value Chain Bargaining Possibilities: Scale/Alternatives

©2016 P Rameshan

PGP SM 2017-18 S15: Cooperative Strategy

March 23, 2018 14
 Criteria for Alliance

Top Level Priority in Operational

Both Partners Compatibility

Product Overlap <20%

Between Partners Personal Rapport
between Partner Teams

Mid-management Field Management

Alignment Alignment

PGP SM 2017-18 S15: Cooperative

March 23, 2018 15
Strategy
 Case 7

HP-Cisco Alliance
Was Cooperation a Win-Win?

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 16

 Major Questions

How did HP-Cisco alliance take shape?

Why did the partners decide to discuss about the

continuation of their alliance?

How did execution issues play out in the alliance?

How did ‘synergy’ contribute to the alliance?

Can HP and Cisco be better-off without the alliance?

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 17

 HP-Cisco Alliance: Why?

HP & Cisco were first & third largest Silicon Valley companies

Both were very successful technology companies

There were perceived benefits of alliance for both sides

HP services division had over 1400 Cisco-trained specialists

Cisco was active in forging alliances with other technology players

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 18

 HP-Cisco Alliance: Discussion for Continuation?

Steady increase in joint revenues

Success with developing joint solutions

Strong commitment at the top level

HP CEO being part of Cisco board

Increased potential due to HP-Compaq merger

Both alliance teams wanted to move their

strategic alliance forward

Many perceived potential areas of collaboration

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 19

 HP-Cisco Alliance: Discussion for Continuation?
Changing the performance metrics from just revenue goal to at least
revenue & market share goals

Considering measuring alliance team performance by performance

goals of both companies; for this, strong mutual trust was essential

For Cisco, alliance governance process needed to be more formalized

in line with Cisco’s governance structure in other alliances

Two CEOs wanted to increase the impact of the strategic alliance;

so, there was perceived pressure to go forward

Two partners did not agree with details of the business terms;
further, the people involved & BU priorities had changed

There were cultural differences in the approach: Cisco was conservative

in wording agreements while HP insisted on binding commitments

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 20

 HP-Cisco Alliance: Execution Issues?

With respect to the alliance, HP was more tactical whereas

Cisco was more strategic

HP evaluated team performance on short-term sales goals

while Cisco evaluated performance with a 70% weight for
goals other than short-term sales

Sometimes alliance managers had difficulty convincing business

units about actions required in the interest of alliance/company, but
might not be strictly in the best interest of the business unit

There was difficulty in convincing the sales force that kept asking
why they should care about another company (i.e., partner)

Alliance managers faced multiple interdependencies & potential

for conflicts at every turn – with sales teams, BUs, HQ staff, …

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 21

 HP-Cisco Alliance: Execution Issues?

Both companies being players of high technology, alliance managers

needed to understand complex technologies of both in a sound way

Alliance reporting was shifted from marketing division to sales

group in HP & from technology unit to services unit in Cisco

Alliance manager’s hierarchical position was elevated several levels

HP centralized global alliances after HP-Compaq merger, to mirror

partners’ organizations (& better leverage HP’s diverse businesses)
& allocated more resources to managing the alliance

Cisco always placed strategic alliances at a high level & resourced

the group appropriately

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 22

 HP-Cisco Alliance: Execution Issues?

There was no dedicated alliance sales force in non-Europe regions

that might have further aided the alliance success

There was alliance team pressure on their organizations for

changing certain alliance-related processes

There were disagreements between the partners over details of the

joint business plan & metrics

Disagreements over business plan were mainly due to cultural

differences – while HP believed in completing a formal plan first,
Cisco believed in developing a framework & testing it with
customers so as to pursue it if customers saw value in it

Both alliance teams sometimes attempted too much at a time,

implying inadequate focus, making the effort counter-productive

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 23

 HP-Cisco Alliance: Execution Issues?

Initially in HP, Cisco product sales were considered for performance

targets of HP alliance team; but, a few large deals on Cisco products
making up the targets easily led to intra-HP murmurs &, hence,
excluding Cisco sales from HP performance quota

Alliance teams had no formal authority over other units; hence, their
jobs were very demanding, time-consuming & sensitive. Teams had
to work mainly by laboriously building trust in other units

At HP, executives had different backgrounds due to HP’s past mergers;

getting their cooperation needed understanding their backgrounds &
working up to them through their influencers – this led to longer time
required for decisions & actions

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 24

 HP-Cisco Alliance: Partner Selection Criteria

For Cisco, potential of 2-way impact of alliance should generate at

least $500m, out of which $250m should accrue to Cisco

For Cisco, there must be depth & breadth of initiatives - 5-10

initiatives having specific objectives, metrics & business plan; where
all initiatives are located in a BU, that BU could manage alliance

For Cisco, partner organization should commit at CEO & SVP level as
well as at the alliance team level, with accountability at both SVP &
team levels

For Cisco, there must an appropriately high level investment in

people, capital & intellectual property by alliance partner

For Cisco, product/service overlap between partners should be

minimal, ideally <20%

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 25

 HP-Cisco Alliance: Partner Selection Criteria

For HP, partnership should be client-centric, affecting HP customers

positively

For HP, partnership should be based on sound business propositions

so as to motivate the partners & their teams

For HP, alliances should be technologically-enabled, in tune with the

positive correlation of joint R&D & product development with
alliance success

For both HP & Cisco, developing a business plan & metrics were
critical to the success of the strategic alliance

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 26

 HP-Cisco Alliance: Synergy?
Cisco prefers to be a horizontal player, supplying core
technology products, & partnering with other technology
players for supplying rest of the value chain; so, for Cisco,
alliance with companies like HP is an imperative

Sales territories of both were divided into same 4 regions

Partners had 3 ways of joint operations: ‘sell to’ (or direct sales),
‘sell through’ (or sales through resellers) & ‘sell with’ (or selling
together)

Original mission was to co-market enterprise networking

solutions to joint customers

Subsequent efforts at developing & selling joint solutions

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 27

 HP-Cisco Alliance: Synergy?
Alliance leadership by experienced sales executives

Positioning alliance managers as middleware – who would

develop both a compelling business case for business units
to be bought into the alliance and a strategy for the alliance
so as to justify the alliance at higher hierarchical levels

Speedier action by alliance manager due to HP’s standardized,

centralized data management/information systems

Joint rules of engagement were developed & displayed at the

two companies’ website to quicken the process of resolution of
disagreements between sales teams even without escalating it
to other levels

Each alliance team attending other company’s sales training events

Alliance team recruitments based on personal gravitas – i.e.,

persons with skills to get seniors/others to cooperate & support

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 28

 HP-Cisco Alliance: Synergy?

Excluding Cisco sales from HP alliance team performance

quota led to reduced sales of alliance products

HP consulting services had felt that counting sales of another

company’s product during to a business slowdown did not make
sense for HP

Product overlaps were a concern at both alliance teams; but,

the teams learned to compete in some areas & cooperate in
other areas based on company interests

There were increased revenues & reduced cost of product

development & sales operations

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 29

 Provoking Question

Do the issues of keeping the alliance outweigh

the benefits of alliance?

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 30

 Provoking Question

Should HP and/or Cisco jettison the alliance?

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 31

 HP-Cisco
Continuing Alliance?

Yes No

- Complementary Products - Overlaps

- Limited Overlap - Channel Conflict
- Past Revenues - Sales Force Resistance
- Past Success - Reward Alignment Issues
- Team Enthusiasm - Business Slowdown
- CEO Level Priority - Management Difficulties
- Alliance Experiences - Trust Issues
- Accumulated Gains - Contract Deadlock
- Organizational Changes
- No Dedicated Salesforce

Addressing Aligning Building Addressing Project Organizational

Deadlock Rewards Trust Sales Issues Alignment Adjustment

PGP SM 2017-18 S15: Cooperative Strategy

March 23, 2018 32
 Goals of HP-Cisco Alliance
Goals

Product Customer
Development Coverage

Investment (SGA) Cost

Sharing Efficiency?

Technology Stable
Development Supplies

Product Product
Complement Promotion

* ©2018 P Rameshan

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 33

 HP-Cisco Alliance Positioning*

Component Value Chain

(Not Relevant)

Supply Chain Sales Post-Sales

Main Product Value Chain

Joint Solutions

Revenue Impact;
Complement Value Chain
Profit Impact?

* ©2018 P Rameshan

PGP SM 2017-18 S15: Cooperative Strategy

March 23, 2018 34
 Dynamics of HP-Cisco Alliance*
Consumers Reach,
Synergy

Competitors Firm Complementor

Partial, Products,
Alliance-diffused Co-promotion

Suppliers

Joint Solutions,
Technology Development

* ©2018 P Rameshan

PGP SM 2017-18 S15: Cooperative

March 23, 2018 35
Strategy
 HP-Cisco Alliance Decision

Revenues of Both Declined in Nearly 3/4th of HP Revenues

2002. Hence, They Cannot Are in Areas Overlapping
Afford to Take Chance With With Cisco’s Interest. Hence,
Revenue Anymore Strengthening the Alliance is
a More Pragmatic Strategy

Profits of HP Declined in 2002;

Cisco Recovered in 2002 From
Losses of 2001 & 2002 Profits
Are Lower than 2000. So,
Neither Can Afford to Take
Chance With Profits

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 36

 HP-Cisco Alliance Now

Cisco ended its partnership with HP in 2010

Increased competition between the 2 led to this

HP formed alliance with Arista Networks in 2015 seemingly

affecting Cisco

HP Revenue 2003: $73.7 bn. 2010: $126.0 bn.

Cisco Revenue 2003: $18.9 bn. 2010: $40 bn.

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 37

 Characters of the Case
Bill Russell, VP, Global Alliances, HP

Fabio Fontana/Jim Heal, Cisco Alliance Manager, HP

Steve Steinhilber, VP, Strategic Alliances, Cisco

Mike Thomas, Director, HP Alliance, Cisco

Steve Harmon, HP Alliance Manager, Cisco

Carly Fiorina, Chairman & CEO, HP

John Chambers, CEO, Cisco

Elias Stephen, Director, Global Alliances, HP Services Group

Janet Cadinell, HP Alliance Marketing Manager, Cisco

Jeff Breglio/Glenn Rudolph, Members, HP Alliance Team, Cisco

March 23, 2018 PGP SM 2017-18 S15: Cooperative Strategy 38