Ch10 Discussion Light

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Strategy Management
Robert E. Hoskisson; Michael A. Hitt; R. Duane Ireland

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Ch10 Discussion Light

  1. 1. Cooperative Strategy Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Chapter 10
  2. 2. Chapter 2 Strategic Leadership Chapter 4 The Internal Organization Chapter 6 Competitive Rivalry and Competitive Dynamics Chapter 9 International Strategy Chapter 1 Introduction to Strategic Management Chapter 3 The External Environment Chapter 5 Business-Level Strategy Chapter 8 Acquisition and Restructuring Strategies Chapter 11 Corporate Governance Strategic Intent Strategic Mission Chapter 7 Corporate-Level Strategy Chapter 10 Cooperative Strategy Chapter 12 Strategic Entrepreneurship Strategic Analysis Strategic Thinking Creating Competitive Advantage Monitoring And Creating Entrepreneurial Opportunities The Strategic Management Process
  3. 3. Discussion Questions <ul><li>What is cooperative strategy? </li></ul><ul><li>What are the four general types of strategic alliances that introduce Chapter 10? How is a strategic cooperative network different from a single strategic alliance? </li></ul><ul><li>What are the central reasons why firms are motivated to engage in strategic alliances in each market type (slow, standard and fast cycle)? </li></ul>Click Here Click Here Click Here More discussion questions Click Here
  4. 4. Discussion Questions (cont.) <ul><li>What is the difference between horizontal and vertical complementary business level strategic alliances? </li></ul><ul><li>Are competition reduction, competition response and uncertainty reduction strategic alliances likely to lead to competitive advantage? </li></ul><ul><li>What is the difference between corporate level and business level strategic alliances? </li></ul>Click Here Click Here Click Here Click Here More discussion questions
  5. 5. Discussion Questions (cont.) <ul><li>When are international cooperative strategies used and how are they implemented? </li></ul><ul><li>How can you classify networks which are formed for different purposes? </li></ul><ul><li>What are the competitive risks of strategic alliances? How is the strategic approach different if an alliance is based on a formal contract versus trust? </li></ul>Click Here Click Here Click Here
  6. 6. Discussion Question 1 <ul><li>What is cooperative strategy? </li></ul>
  7. 7. Cooperative Strategy <ul><li>Cooperative strategy is a strategy in which firms </li></ul><ul><ul><li>work together </li></ul></ul><ul><ul><li>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>exceeds the cost of constructing customer value in other ways </li></ul></ul><ul><ul><li>establishes a favorable position relative to competition </li></ul></ul>
  8. 8. Strategic Alliance as a Cooperative Strategy <ul><li>A strategic alliance is a cooperative strategy in which </li></ul><ul><ul><li>firms combine some of their resources and capabilities </li></ul></ul><ul><ul><li>to create a competitive advantage </li></ul></ul><ul><li>A strategic alliance involves </li></ul><ul><ul><li>exchange and sharing of resources and capabilities </li></ul></ul><ul><ul><li>co-development or distribution of goods or services </li></ul></ul>
  9. 9. Strategic Alliance Click Here Return to Discussion Questions Combined Resources Capabilities Core Competencies Resources Capabilities Core Competencies Resources Capabilities Core Competencies Firm A Firm B Mutual interests in designing, manufacturing, or distributing goods or services
  10. 10. Discussion Question 2 <ul><li>What are the four general types of strategic alliances that introduce Chapter 10? How is a strategic cooperative network different from a single strategic alliance? </li></ul>
  11. 11. Four Types of Strategic Alliances <ul><li>Joint venture: two or more firms create an independent company by combining parts of their assets </li></ul><ul><li>Equity strategic alliance: partners who own different percentages of equity in a new venture </li></ul><ul><li>Nonequity strategic alliances: contractual agreements given to a company to supply, produce, or distribute a firm’s goods or services without equity sharing </li></ul><ul><li>Strategic cooperative network: multiple firms agree to form partnerships to achieve shared objectives </li></ul>
  12. 12. Strategic Network Strategic Center Firm
  13. 13. Strategic Network <ul><li>A strategic network is a grouping of organizations that has been formed to create value through participation in an array of cooperative arrangements, such as alliances and joint ventures </li></ul><ul><li>The strategic network seeks to develop a competitive advantage in primary or support activities </li></ul><ul><li>A strategic center firm often manages the network </li></ul>
  14. 14. Strategic Network <ul><li>strategic center firm engages in four primary tasks </li></ul><ul><ul><li>strategic outsourcing (outsources and partners with more firms than do other network members) </li></ul></ul><ul><ul><li>competencies (supports each member’s efforts to develop core competencies that can benefit the network) </li></ul></ul>
  15. 15. Strategic Network <ul><li>strategic center firm engages in four primary tasks </li></ul>Click Here Return to Discussion Questions <ul><ul><li>technology (manages the development and sharing of technology-based ideas among network members) </li></ul></ul><ul><ul><li>race to learn (guides participants in efforts to form network-specific competitive advantages) </li></ul></ul>
  16. 16. Discussion Question 3 <ul><li>What are the central reasons why firms are motivated to engage in strategic alliances in each market type (slow, standard and fast cycle)? </li></ul>
  17. 17. Reasons for Strategic Alliances by Market Type Market Reason Slow Cycle <ul><li>Gain access to a restricted market </li></ul><ul><li>Establish a franchise in a new market </li></ul><ul><li>Maintain market stability (e.g., establishing standards) </li></ul>
  18. 18. Reasons for Strategic Alliances by Market Type Market Reason Fast Cycle <ul><li>Speed up development of new goods or service </li></ul><ul><li>Speed up new market entry </li></ul><ul><li>Maintain market leadership </li></ul><ul><li>Form an industry technology standard </li></ul><ul><li>Share risky R&D expenses </li></ul><ul><li>Overcome uncertainty </li></ul>
  19. 19. Reasons for Strategic Alliances by Market Type Market Reason Standard Cycle <ul><li>Gain market power (reduce industry overcapacity) </li></ul><ul><li>Gain access to complementary resources </li></ul><ul><li>Establish economies of scale </li></ul><ul><li>Overcome trade barriers </li></ul><ul><li>Meet competitive challenges from other competitors </li></ul><ul><li>Pool resources for very large capital projects </li></ul><ul><li>Learn new business techniques </li></ul>Click Here Return to Discussion Questions
  20. 20. Discussion Question 4 <ul><li>What is the difference between horizontal and vertical complementary business level strategic alliances? </li></ul>
  21. 21. Business-Level Cooperative Strategies: <ul><li>complementary strategic alliances are designed to take advantage of market opportunities by combining partner firms’ assets in complementary ways to create new value </li></ul><ul><ul><li>these include distribution, supplier or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantage </li></ul></ul>Complementary Strategic Alliances Complementary Alliances
  22. 22. Business-Level Cooperative Strategies: Vertical Alliance Supplier <ul><li>vertical complementary strategic alliance is 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><li>outsourcing is one example of this type of alliance </li></ul>Buyer Complementary Strategic Alliances Margin Margin Primary Activities Support Activities Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Firm Infrastructure Human Resource Mgmt. Technological Development Procurement Margin Margin Primary Activities Support Activities Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Firm Infrastructure Human Resource Mgmt. Technological Development Procurement
  23. 23. Business-Level Cooperative Strategies: Horizontal Alliance Buyer Potential Competitors <ul><li>horizontal complementary strategic alliance is formed between partners who agree to combine their resources and skills to create value in the same stage of the value chain </li></ul><ul><li>focus on long-term product development and distribution opportunities </li></ul><ul><li>the partners may become competitors </li></ul><ul><li>requires a great deal of trust between the partners </li></ul>Buyer Complementary Strategic Alliances Click Here Return to Discussion Questions Margin Margin Primary Activities Support Activities Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Firm Infrastructure Human Resource Mgmt. Technological Development Procurement Margin Margin Primary Activities Support Activities Service Marketing & Sales Outbound Logistics Operations Inbound Logistics Firm Infrastructure Human Resource Mgmt. Technological Development Procurement
  24. 24. Discussion Question 5 <ul><li>Are competition reduction, competition response and uncertainty reduction strategic alliances likely to lead to competitive advantage? </li></ul>
  25. 25. Business-Level Cooperative Strategies: <ul><li>competition response strategic alliances 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, competition response strategic alliances are primarily formed to respond to strategic rather than tactical actions </li></ul>Competition Response Alliances Competition Response Alliances Complementary Alliances
  26. 26. Business-Level Cooperative Strategies: <ul><li>uncertainty reducing strategic alliances are used to hedge against risk and uncertainty </li></ul><ul><li>these alliances are most noticed in fast-cycle markets </li></ul><ul><li>alliance may be formed to reduce the uncertainty associated with developing new product or technology standards </li></ul>Uncertainty Reducing Alliances Competition Response Alliances Uncertainty Reducing Alliances Complementary Alliances
  27. 27. Business-Level Cooperative Strategies: <ul><li>competition reducing strategic alliances may be created to avoid destructive or excessive competition </li></ul><ul><li>explicit collusion exists when firms directly negotiate production output and pricing agreements in order to reduce competition (illegal) </li></ul><ul><li>tacit collusion exists when several firms in an industry indirectly coordinate their production and pricing decisions by observing each other’s competitive actions and responses </li></ul>Competition Reducing Alliances Competition Reducing Alliances Competition Response Alliances Uncertainty Reducing Alliances Complementary Alliances
  28. 28. Business-Level Cooperative Strategies: <ul><li>mutual forbearance is a form of tacit collusion in which firms avoid competitive attacks against those rivals they meet in multiple markets </li></ul><ul><li>competition reducing strategic alliances may require governments to find ways to permit collaboration among rivals without violating antitrust laws </li></ul>Competition Reducing Alliances Competition Response Alliances Uncertainty Reducing Alliances Complementary Alliances Competition Reducing Alliances
  29. 29. Implementing Business-Level Cooperative Strategies <ul><li>Complementary business-level strategic alliances have the greatest probability of creating a sustainable competitive advantage </li></ul><ul><li>Strategic alliances designed to respond to competition and reduce uncertainty can create competitive advantages that may be more temporary in nature </li></ul><ul><li>Competition reducing strategy has lowest probability of creating a sustainable competitive advantage </li></ul>Click Here Return to Discussion Questions
  30. 30. Discussion Question 6 <ul><li>What is the difference between corporate level and business level strategic alliances? </li></ul>
  31. 31. Corporate-Level Cooperative Strategies <ul><li>Corporate-level cooperative strategies are designed to facilitate product and/or market diversification </li></ul><ul><ul><li>diversifying strategic alliance </li></ul></ul><ul><ul><li>synergistic strategic alliance </li></ul></ul><ul><ul><li>franchising </li></ul></ul><ul><li>Diversifying alliances and synergistic alliances allow firms </li></ul><ul><ul><li>to grow and diversify their operations </li></ul></ul><ul><ul><li>through a means other than a merger or acquisition </li></ul></ul>
  32. 32. Corporate-Level Cooperative Strategies: <ul><li>diversifying strategic alliance 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 Alliances Diversifying Alliances
  33. 33. Corporate-Level Cooperative Strategies: <ul><li>synergistic strategic alliances create joint economies of scope between two or more firms </li></ul><ul><li>create synergy across multiple functions or multiple businesses between partner firms </li></ul>Synergistic Alliances Synergistic Alliances Diversifying Alliances
  34. 34. Corporate-Level Cooperative Strategies: <ul><li>franchising spreads risks and uses resources, capabilities, and competencies without merging or acquiring another company </li></ul><ul><li>contractual relationship concerning the franchise that 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>Franchising Franchising Diversifying Alliances Synergistic Alliances
  35. 35. Implementing Corporate-Level Cooperative Strategies <ul><li>Corporate-level cooperative strategies are broader in scope, more complex and more costly than business-level strategies </li></ul><ul><li>Competitive advantages and value are created when those employing the strategies can also use them to develop useful knowledge about how to succeed in the future </li></ul><ul><ul><li>valuable </li></ul></ul><ul><ul><li>rare </li></ul></ul><ul><ul><li>imperfectly imitable </li></ul></ul><ul><ul><li>nonsubstitutable </li></ul></ul>Click Here Return to Discussion Questions
  36. 36. Discussion Question 7 <ul><li>When are international cooperative strategies used and how are they implemented? </li></ul>
  37. 37. International Cooperative Strategies <ul><li>Cross-border strategic alliance </li></ul><ul><ul><li>an international cooperative strategy in which firms with headquarters in different nations combine some of 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>
  38. 38. International Cooperative Strategies <ul><li>Allows risk sharing by reducing financial investment </li></ul><ul><li>Host partner knows local market and customs </li></ul><ul><li>International alliances can be difficult to manage due to differences in management styles, cultures or regulatory constraints </li></ul><ul><li>Must gauge partner’s strategic intent so they do not gain access to important technology and become a competitor </li></ul>
  39. 39. Implementing International Cooperative Strategies <ul><li>Differences among countries’ regulatory environments increase the challenge of managing international networks and verifying that, at a minimum, the network’s operations comply with all legal requirements </li></ul><ul><li>Distributed strategic networks are often the organizational structure used to manage international cooperative strategies </li></ul>
  40. 40. Distributed Strategic Network Strategic Center Firm = Distributed Strategic Center Firms Main Strategic Center Firm
  41. 41. Distributed Strategic Network <ul><li>International cooperative strategies often require more complex networks </li></ul><ul><li>Many large multinational firms form distributed strategic networks with multiple regional strategic centers to manage their array of cooperative arrangements with partner firms </li></ul><ul><li>Breaking large networks into multiple manageably-sized networks helps to manage the complexity of maintaining many relationships </li></ul>Click Here Return to Discussion Questions
  42. 42. Discussion Question 8 <ul><li>How can you classify networks which are formed for different purposes? </li></ul>
  43. 43. Network Cooperative Strategies <ul><li>A network strategy is a cooperative strategy wherein several firms agree to form multiple partnerships to achieve shared objectives </li></ul><ul><ul><li>stable strategic cooperative network </li></ul></ul><ul><ul><li>dynamic strategic cooperative network </li></ul></ul><ul><li>Effective social relationships and interactions among partners are keys to a successful network cooperative strategy </li></ul>
  44. 44. 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 available between firms </li></ul>Stable Strategic Cooperative Network Stable Strategic Cooperative Network
  45. 45. Network Cooperative Strategies: Click Here Return to Discussion Questions <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 innovations and subsequent successful market entries </li></ul><ul><li>purpose is often exploration of new ideas </li></ul>Dynamic Strategic Cooperative Network Dynamic Strategic Cooperative Network Stable Strategic Cooperative Network
  46. 46. Discussion Question 9 <ul><li>What are the competitive risks of strategic alliances? How is the strategic approach different if an alliance is based on a formal contract versus trust? </li></ul>
  47. 47. Competitive Risks with Cooperative Strategies <ul><li>Partner may act opportunistically </li></ul><ul><li>Misrepresentation of competencies brought to the partnership </li></ul><ul><li>Partner fails to make committed resources and capabilities available to its partners </li></ul><ul><li>Firm may make investments that are specific to the alliance while its partner does not </li></ul>Competitive Risks
  48. 48. Managing Competitive Risks in Cooperative Strategies <ul><li>Manage the balance between learning from partners while protecting knowledge and sources of competitive advantages from excessive learning by partners </li></ul><ul><li>Assign managerial responsibility for a firm’s cooperative strategies to a high-level executive or team </li></ul><ul><li>Specify resources and capabilities that will be shared and those that will not be shared (detailed contracts and monitoring) </li></ul><ul><li>Develop trusting relationships </li></ul>Risk and Asset Management Approaches Competitive Risks
  49. 49. Approaches for Managing Cooperative Strategies <ul><li>cost minimization </li></ul><ul><ul><li>formal contracts specify how the cooperative strategy is to be monitored and how partner behavior is to be controlled </li></ul></ul><ul><li>opportunity maximization </li></ul><ul><ul><li>maximize partnership’s value-creation opportunities </li></ul></ul><ul><ul><li>partners take advantage of unexpected opportunities to learn from each other and to explore additional marketplace possibilities </li></ul></ul><ul><ul><li>fewer formal, limiting, contracts </li></ul></ul>
  50. 50. Managing Competitive Risks in Cooperative Strategies <ul><li>Creating value </li></ul><ul><li>Above-average returns </li></ul>Risk and Asset Management Approaches Competitive Risks Desired Outcome

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