Cooperative Strategy Chapter Nine BA 495.009
Today’s Agenda <ul><li>Strategic Alliances </li></ul><ul><li>Business-level Cooperative Strategies </li></ul><ul><li>Corpo...
Strategic Alliances
<ul><li>“ If you think you can go it alone in today’s   global economy, you are highly mistaken.” </li></ul><ul><li>Jack W...
Cooperative Strategy <ul><li>Cooperative Strategy </li></ul><ul><ul><li>A strategy in which firms work together to achieve...
Strategic Alliance <ul><li>A primary type of cooperative strategy in which firms combine some of their resources and capab...
Three Types of Strategic Alliances <ul><li>Joint Venture </li></ul><ul><ul><li>Two or more firms create a legally independ...
Reasons for Strategic Alliances Market Reason Slow-Cycle • Gain access to a restricted market • Establish a franchise in a...
Example for Alliance Strategy New products, marketing and sales partners Channel partners (corporate sales) Barnes & Noble...
Business-level  Cooperative Strategies
Business-level Cooperative Strategies <ul><li>A business-level cooperative strategy is used to help the firm improve its p...
Business-Level Cooperative Strategies <ul><li>Combine partner firms’ assets in complementary ways to create new value. </l...
Complementary Strategic Alliances <ul><li>Vertical Complementary Strategic Alliance </li></ul><ul><ul><li>Formed between f...
Competition Response Strategy <ul><li>Occur when firms join forces to respond to a strategic action of another competitor....
Uncertainty-Reducing Strategy <ul><li>Are used to hedge against risk and uncertainty. </li></ul><ul><li>These alliances ar...
Competition-Reducing Strategy <ul><li>Created to avoid destructive or excessive competition </li></ul><ul><li>Explicit col...
Results of Business-level Cooperative Strategies <ul><li>To develop competitive advantage from an alliance, the combined r...
Corporate-level  Cooperative Strategies
Corporate-Level Cooperative Strategy <ul><li>Corporate-level Strategies </li></ul><ul><ul><li>Help the firm diversify in t...
Diversifying Strategic Alliances <ul><li>Allows a firm to expand into new product or market areas without completing a mer...
Synergistic Strategic Alliances <ul><li>Creates joint economies of scope between two or more firms. </li></ul><ul><li>Crea...
Franchising <ul><li>Spreads risks and uses resources, capabilities, and competencies without merging or acquiring another ...
Assessment of Corporate-Level Cooperative Strategies <ul><li>Compared to business-level strategies </li></ul><ul><ul><li>B...
Other Cooperative Strategies
International Cooperative Strategies <ul><li>Cross-border Strategic Alliance </li></ul><ul><ul><li>A strategy in which fir...
International Cooperative Strategies <ul><li>Reasons for Increasing Use: </li></ul><ul><ul><li>Multinational corporations ...
Network Cooperative Strategy <ul><li>A cooperative strategy wherein several firms agree to form multiple partnerships to a...
Network Cooperative Strategies <ul><li>Long term relationships that often appear in mature industries where demand is rela...
Network Cooperative Strategies <ul><li>Arrangements that evolve in industries with rapid technological change leading to s...
Managing Risk in  Cooperative Strategy
Competitive Risks of Cooperative Strategies <ul><li>Partners may act opportunistically. </li></ul><ul><li>Partners may mis...
Managing Cooperative Strategies <ul><li>Establish systems within the firm for managing alliances </li></ul><ul><ul><li>Spe...
Managing Cooperative Strategies  <ul><li>Opportunity Maximization Approach </li></ul><ul><ul><li>Maximize partnership’s va...
Wrap-up
Wrap-up <ul><li>Strategic Alliances </li></ul><ul><li>Business-level Cooperative Strategies </li></ul><ul><li>Corporate-le...
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Ch. 9

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  • Ch. 9

    1. 1. Cooperative Strategy Chapter Nine BA 495.009
    2. 2. Today’s Agenda <ul><li>Strategic Alliances </li></ul><ul><li>Business-level Cooperative Strategies </li></ul><ul><li>Corporate-level Cooperative Strategies </li></ul><ul><li>Other Types of Cooperative Strategies </li></ul><ul><ul><li>International </li></ul></ul><ul><ul><li>Network </li></ul></ul><ul><li>Risks & Managerial Problems </li></ul><ul><li>Wrap-up </li></ul>
    3. 3. Strategic Alliances
    4. 4. <ul><li>“ If you think you can go it alone in today’s global economy, you are highly mistaken.” </li></ul><ul><li>Jack Welch, former CEO of General Electric </li></ul><ul><li>“ Not all the smart people work for Sun.” </li></ul><ul><li>William Joy, Vice President of R&D, Sun Microsystems </li></ul>The Age of “Alliance Capitalism”
    5. 5. Cooperative Strategy <ul><li>Cooperative Strategy </li></ul><ul><ul><li>A strategy in which firms work together to achieve a shared objective. </li></ul></ul><ul><li>Cooperating with other firms is a strategy that: </li></ul><ul><ul><li>Creates value for a customer. </li></ul></ul><ul><ul><li>Provides value that exceeds the cost of providing that value. </li></ul></ul><ul><ul><li>Establishes a favorable position relative to competitors. </li></ul></ul>
    6. 6. Strategic Alliance <ul><li>A primary type of cooperative strategy in which firms combine some of their resources and capabilities to create a mutual competitive advantage. </li></ul><ul><ul><li>Involves the exchange and sharing of resources and capabilities to co-develop or distribute goods and services. </li></ul></ul><ul><ul><li>Requires cooperative behavior from all partners. </li></ul></ul>
    7. 7. Three Types of Strategic Alliances <ul><li>Joint Venture </li></ul><ul><ul><li>Two or more firms create a legally independent company by sharing some of their resources and capabilities. </li></ul></ul><ul><li>Equity Strategic Alliance </li></ul><ul><ul><li>Partners who own different percentages of equity in a company (one of the companies involved may be the venture on which equity is being shared). </li></ul></ul><ul><li>Nonequity Strategic Alliance </li></ul><ul><ul><li>Two or more firms develop a contractual relationship to share some of their unique resources and capabilities. </li></ul></ul>
    8. 8. Reasons for Strategic Alliances Market Reason Slow-Cycle • Gain access to a restricted market • Establish a franchise in a new market • Maintain market stability (e.g., establishing standards) Fast-Cycle • Speed up development of new goods or services • Speed up new market entry • Maintain market leadership • Form an industry technology standard • Share risky R&D expenses • Overcome uncertainty Standard-Cycle • Gain market power (reduce industry overcapacity) • Gain access to complementary resources • Establish better economies of scale • Overcome trade barriers • Meet competitive challenges from other competitors • Pool resources for very large capital projects • Learn new business techniques
    9. 9. Example for Alliance Strategy New products, marketing and sales partners Channel partners (corporate sales) Barnes & Noble (in-store stores) Chapters (Canadian bookstores) United Airlines (in-flight coffee) Dreyer’s (premium coffee ice cream) Pepsico (bottled coffee beverages) Alsea (Mexico) Shinsegne (Korea) Rustan (Philippines) Bonvests (Singapore) Sazaby (Japan) Westin Hotels and Resorts (Coffee served throughout hotel) Host Marriott Services (worldwide airport kiosks and in-hotel coffee cafes) Geographic expansion partners Retail format partners
    10. 10. Business-level Cooperative Strategies
    11. 11. Business-level Cooperative Strategies <ul><li>A business-level cooperative strategy is used to help the firm improve its performance in individual product markets. </li></ul><ul><li>Types of business-level cooperative strategies: </li></ul><ul><ul><li>Complementary strategic alliance </li></ul></ul><ul><ul><ul><li>Vertical </li></ul></ul></ul><ul><ul><ul><li>Horizontal </li></ul></ul></ul><ul><ul><li>Competition response strategy </li></ul></ul><ul><ul><li>Uncertainty-reducing strategy </li></ul></ul><ul><ul><li>Competition-reducing strategy </li></ul></ul>
    12. 12. Business-Level Cooperative Strategies <ul><li>Combine partner firms’ assets in complementary ways to create new value. </li></ul><ul><li>Include distribution, supplier or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantage. </li></ul>Complementary Alliances
    13. 13. Complementary Strategic Alliances <ul><li>Vertical Complementary Strategic Alliance </li></ul><ul><ul><li>Formed between firms that agree to use their skills and capabilities in different stages of the value chain to create value for both firms. </li></ul></ul><ul><ul><ul><li>E-commerce & outsourcing are examples. </li></ul></ul></ul><ul><li>Horizontal Complementary Strategic Alliance </li></ul><ul><ul><li>Formed when partners who agree to combine their resources and skills to create value in the same stage of the value chain. </li></ul></ul><ul><ul><ul><li>Focus is on long-term product development and distribution opportunities. </li></ul></ul></ul><ul><ul><ul><li>The partners may become competitors which requires a great deal of trust between the partners. </li></ul></ul></ul>
    14. 14. Competition Response Strategy <ul><li>Occur when firms join forces to respond to a strategic action of another competitor. </li></ul><ul><li>Because they can be difficult to reverse and expensive to operate, strategic alliances are primarily formed to respond to strategic rather than tactical actions. </li></ul>Complementary Alliances Competition Response Alliances
    15. 15. Uncertainty-Reducing Strategy <ul><li>Are used to hedge against risk and uncertainty. </li></ul><ul><li>These alliances are most prevalent in fast-cycle markets </li></ul><ul><li>An alliance may be formed to reduce the uncertainty associated with developing new product or technology standards. </li></ul>Complementary Alliances Competition Response Alliances Uncertainty Reducing Alliances
    16. 16. Competition-Reducing Strategy <ul><li>Created to avoid destructive or excessive competition </li></ul><ul><li>Explicit collusion: when firms directly negotiate production output and pricing agreements in order to reduce competition (illegal). </li></ul><ul><li>Tacit collusion: when firms in an industry indirectly coordinate their production and pricing decisions by observing other firm’s actions and responses. </li></ul>Complementary Alliances Competition Response Alliances Uncertainty Reducing Alliances Competition Reducing Alliances
    17. 17. Results of Business-level Cooperative Strategies <ul><li>To develop competitive advantage from an alliance, the combined resources and capabilities must be valuable, rare, difficult to imitate and nonsubstitutable. </li></ul><ul><li>Complementary business-level strategic alliances, especially the vertical ones, have the greatest probability of creating a sustainable competitive advantage. </li></ul><ul><li>Horizontal complementary alliances are sometimes difficult to maintain because they are often between rival competitors. </li></ul><ul><li>Competitive advantages gained from competition and uncertainty reducing strategies tend to be temporary. </li></ul>
    18. 18. Corporate-level Cooperative Strategies
    19. 19. Corporate-Level Cooperative Strategy <ul><li>Corporate-level Strategies </li></ul><ul><ul><li>Help the firm diversify in terms of: </li></ul></ul><ul><ul><ul><li>Products offered to the market </li></ul></ul></ul><ul><ul><ul><li>The markets it serves </li></ul></ul></ul><ul><ul><li>Require fewer resource commitments than acquisitions. </li></ul></ul><ul><ul><li>Permit greater flexibility in terms of efforts to diversify partners’ operations. </li></ul></ul>
    20. 20. Diversifying Strategic Alliances <ul><li>Allows a firm to expand into new product or market areas without completing a merger or an acquisition. </li></ul><ul><li>Provides some of the potential synergistic benefits of a merger or acquisition, but with less risk and greater levels of flexibility. </li></ul><ul><li>Permits a “test” of whether a future merger between the partners would benefit both parties. </li></ul>Diversifying Strategic Alliance
    21. 21. Synergistic Strategic Alliances <ul><li>Creates joint economies of scope between two or more firms. </li></ul><ul><li>Creates synergy across multiple functions or multiple businesses between partner firms. </li></ul>Diversifying Strategic Alliance Synergistic Strategic Alliance
    22. 22. Franchising <ul><li>Spreads risks and uses resources, capabilities, and competencies without merging or acquiring another company. </li></ul><ul><li>A contractual relationship (the franchise) is developed between two parties, the franchisee and the franchisor. </li></ul><ul><li>An alternative to pursuing growth through mergers and acquisitions. </li></ul>Diversifying Strategic Alliance Synergistic Strategic Alliance Franchising
    23. 23. Assessment of Corporate-Level Cooperative Strategies <ul><li>Compared to business-level strategies </li></ul><ul><ul><li>Broader in scope  More complex </li></ul></ul><ul><ul><li>More costly </li></ul></ul><ul><li>Can lead to competitive advantage and value when: </li></ul><ul><ul><li>The results of the alliance are valuable, rare, costly to imitate and non-substitutable </li></ul></ul><ul><ul><li>Successful alliance experiences are internalized. </li></ul></ul><ul><ul><li>The firm uses such strategies to develop useful knowledge about how to succeed in the future. </li></ul></ul>
    24. 24. Other Cooperative Strategies
    25. 25. International Cooperative Strategies <ul><li>Cross-border Strategic Alliance </li></ul><ul><ul><li>A strategy in which firms with headquarters in different nations combine their resources and capabilities to create a competitive advantage. </li></ul></ul><ul><ul><li>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. </li></ul></ul>
    26. 26. International Cooperative Strategies <ul><li>Reasons for Increasing Use: </li></ul><ul><ul><li>Multinational corporations outperform firms operating on only a domestic basis. </li></ul></ul><ul><ul><li>Limited domestic growth opportunities also cause firms to use cross-border alliances. </li></ul></ul><ul><ul><li>Government economic policies can influence firms to form cross-border alliances. </li></ul></ul><ul><ul><li>Strategic alliances with local partners can help firms overcome certain liabilities of moving into a foreign country, such as lack of knowledge of the local culture or institutional norms. </li></ul></ul>
    27. 27. Network Cooperative Strategy <ul><li>A cooperative strategy wherein several firms agree to form multiple partnerships to achieve shared objectives. </li></ul><ul><ul><li>Stable alliance network </li></ul></ul><ul><ul><li>Dynamic alliance network </li></ul></ul><ul><li>Effective social relationships and interactions among partners are keys to a successful network cooperative strategy. </li></ul>
    28. 28. Network Cooperative Strategies <ul><li>Long term relationships that often appear in mature industries where demand is relatively constant and predictable </li></ul><ul><li>Stable networks are built for exploitation of the economies (scale and/or scope) available between the firms </li></ul>Stable Alliance Network
    29. 29. Network Cooperative Strategies <ul><li>Arrangements that evolve in industries with rapid technological change leading to short product life cycles. </li></ul><ul><li>Primarily used to stimulate rapid, value-creating product innovation and subsequent successful market entries. </li></ul><ul><li>Purpose is often exploration of new ideas </li></ul>Stable Alliance Network Dynamic Alliance Network
    30. 30. Managing Risk in Cooperative Strategy
    31. 31. Competitive Risks of Cooperative Strategies <ul><li>Partners may act opportunistically. </li></ul><ul><li>Partners may misrepresent competencies brought to the partnership. </li></ul><ul><li>Partners fail to make committed resources and capabilities available to other partners. </li></ul><ul><li>One partner may make investments that are specific to the alliance while its partner does not. </li></ul>
    32. 32. Managing Cooperative Strategies <ul><li>Establish systems within the firm for managing alliances </li></ul><ul><ul><li>Specific department (Business Development) </li></ul></ul><ul><ul><li>Specific criteria </li></ul></ul><ul><li>Cost Minimization Management Approach </li></ul><ul><ul><li>Have formal contracts with partners. </li></ul></ul><ul><ul><li>Specify how strategy is to be monitored. </li></ul></ul><ul><ul><li>Specify how partner behavior is to be controlled. </li></ul></ul><ul><ul><li>Set goals that minimize costs and to prevent opportunistic behavior by partners. </li></ul></ul>
    33. 33. Managing Cooperative Strategies <ul><li>Opportunity Maximization Approach </li></ul><ul><ul><li>Maximize partnership’s value-creation opportunities. </li></ul></ul><ul><ul><li>Learn from each other. </li></ul></ul><ul><ul><li>Explore additional marketplace possibilities. </li></ul></ul><ul><ul><li>Maintain less formal contracts, fewer constraints. </li></ul></ul>
    34. 34. Wrap-up
    35. 35. Wrap-up <ul><li>Strategic Alliances </li></ul><ul><li>Business-level Cooperative Strategies </li></ul><ul><li>Corporate-level Cooperative Strategies </li></ul><ul><li>Other Types of Cooperative Strategies </li></ul><ul><ul><li>International </li></ul></ul><ul><ul><li>Network </li></ul></ul><ul><li>Risks & Managerial Problems </li></ul><ul><li>Wrap-up </li></ul>

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