Strategic Management

Part II: Strategic Actions:

Strategy Formulation
Chapter 9: Cooperative Strategy

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copied or duplicated, or posted to a publicly accessible website, in whole
or in part.

The Strategic Management Process

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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

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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 IBMs 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

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Introduction
Cooperative strategy
Firms work together to achieve a shared objective

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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
(Contd)

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
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Primary Type of Cooperative Strategy:

Strategic Alliances
(Contd)

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

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Primary Type of Cooperative Strategy:

Strategic Alliances
(Contd)

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
(Contd)

In summary, strategic alliances

can reduce competition and enhance a firms
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
(Contd)

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
Markets in which the firm's competitive advantages are shielded from
imitation for long periods of time, and in which imitation is costly
2. Fast-cycle markets Markets in which the firm's capabilities that
contribute to competitive advantages are not shielded from imitation
and where imitation is often rapid and inexpensive
3. Standard-cycle Markets where firms competitive advantages are
moderately shielded from imitation and where imitation is moderately
costly

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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

(Contd)

Introduction: Business level cooperative

strategies used to grow and improve firm
performance in individual product markets.
Achieved through
Complementary Strategic Alliances (CSA)

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Business-Level Cooperative Strategy

(Contd)

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

(Contd)

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

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Business-Level Cooperative Strategy

(Contd)

Competition response strategy

Competitors
initiate competitive actions to attack rivals
launch competitive responses to their competitors actions

Strategic alliances (SA)

can be used at the business level to respond to competitors
attacks
primarily formed to take strategic vs. tactical actions
can be difficult to reverse
expensive to operate

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Business-Level Cooperative Strategy

(Contd)

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 firms 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

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Business-Level Cooperative Strategy

(Contd)

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

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Business-Level Cooperative Strategy

(Contd)

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
SAs 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
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Corporate-Level Cooperative Strategies

(Contd)

Introduction
Corporate-level cooperative strategies (CLCS) help firm
to diversify itself in terms of products offered, markets
served or both
Common CLCS forms

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Corporate-Level Cooperative Strategies

(Contd)

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

(Contd)

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

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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

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International Cooperative Strategy

(Contd)

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

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Managing Competitive Risks in Cooperative

Strategies

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Managing Cooperative Strategy

Two primary approaches
1. Cost minimization
2. Opportunity maximization

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Managing Cooperative Strategy

(Contd)

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

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Managing Cooperative Strategy

(Contd)

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

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