© 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Presentation design by Charlie Cook Chapter 9 Cooperative Strategy Part 2 Strategic Actions: Strategy Formulation 1 Studying this chapter should provide you with the strategic management knowledge needed to: Learning Objectives Define cooperative strategies and explain why firms use them. Define and discuss the three major types of strategic alliances. Name the business-level cooperative strategies and describe their use. Discuss the use of corporate-level cooperative strategies in diversified firms. Understand the importance of cross-border strategic alliances as an international cooperative strategy. Explain cooperative strategies’ risks. Describe two approaches used to manage cooperative strategies. © 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 9–2 2 Two Applications Ch9 Ex2 Strategic alliance of airlines Types of strategic alliance (L.O. 1&2 ) Business/Corporate level cooperative strategy (L.O. 3&4 ) Cross-border strategic alliance (L.O. 5) Risks (L.O. 6) Competing in a standard-cycle market Case Redbox/Coinstar L.O. 1-4, 6-7 9–3 Discussion Questions for Case Redbox 1. What challenges is Redbox facing now? What’s Redbox’s core competency, if any? What strategies do you recommend Redbox to take to deal with these challenges? Based on your analysis on Redbox’s core competency and external environment, do you think Redbox can effectively implement your recommendations? 2. If you believe Redbox’s own core competency or resource and capabilities are not sufficient to respond to the challenges, what resources and/or capabilities do you think Redbox will need? Can Redbox acquire theses resources/capabilities through merger and acquisition, through strategic alliance (either equity alliance or non-equity alliance)? What are the pros and cons of each approach? 3. Consider the current relationships between Redbox and its strategic alliance partners, including movie studios and supermarkets, how do you characterize them (equity or non-equity alliance, business-level, corporate-level alliance)? What type of market (slow, fast, or standard cycle) is Redbox competing in? What are the reasons to form strategic alliance based on the market-type? 4. How can Redbox benefit from these alliances (think in terms of economy of scale/scope, market power, financial economies, etc.)? What are the potential risks in these relationships? What measures can Redbox take to mitigate the risks? 9–4 Cooperative Strategy Cooperative Strategy A strategy in which firms work toge.

1. © 2015 Cengage Learning. All rights reserved. May not be
copied, scanned, or duplicated, in whole or in part, except for
use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
classroom use.
Presentation design
by Charlie Cook
Chapter 9
Cooperative Strategy
Part 2 Strategic Actions: Strategy Formulation
1
Studying this chapter should provide you with
the strategic management knowledge needed to:
Learning Objectives
Define cooperative strategies and explain why firms use them.
Define and discuss the three major types of strategic alliances.
Name the business-level cooperative strategies and describe
their use.
Discuss the use of corporate-level cooperative strategies in
diversified firms.
Understand the importance of cross-border strategic alliances as
an international cooperative strategy.
Explain cooperative strategies’ risks.

2. Describe two approaches used to manage cooperative strategies.
© 2015 Cengage Learning. All rights reserved. May not be
copied, scanned, or duplicated, in whole or in part, except for
use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
classroom use.
9–2
2
Two Applications
Ch9 Ex2 Strategic alliance of airlines
Types of strategic alliance (L.O. 1&2 )
Business/Corporate level cooperative strategy (L.O. 3&4 )
Cross-border strategic alliance (L.O. 5)
Risks (L.O. 6)
Competing in a standard-cycle market
Case Redbox/Coinstar
L.O. 1-4, 6-7
9–3
Discussion Questions for Case Redbox
1. What challenges is Redbox facing now? What’s Redbox’s
core competency, if any? What strategies do you recommend
Redbox to take to deal with these challenges? Based on your
analysis on Redbox’s core competency and external
environment, do you think Redbox can effectively implement
your recommendations?
2. If you believe Redbox’s own core competency or resource
and capabilities are not sufficient to respond to the challenges,

3. what resources and/or capabilities do you think Redbox will
need? Can Redbox acquire theses resources/capabilities through
merger and acquisition, through strategic alliance (either equity
alliance or non-equity alliance)? What are the pros and cons of
each approach?
3. Consider the current relationships between Redbox and its
strategic alliance partners, including movie studios and
supermarkets, how do you characterize them (equity or non-
equity alliance, business-level, corporate-level alliance)? What
type of market (slow, fast, or standard cycle) is Redbox
competing in? What are the reasons to form strategic alliance
based on the market-type?
4. How can Redbox benefit from these alliances (think in terms
of economy of scale/scope, market power, financial economies,
etc.)? What are the potential risks in these relationships? What
measures can Redbox take to mitigate the risks?
9–4
Cooperative Strategy
Cooperative Strategy
A strategy in which firms work together to achieve a shared
objective.
Cooperating with other firms is a strategy that:
Creates value for a customer.
Exceeds the cost of constructing customer value in other ways.
Establishes a favorable position relative to competitors.
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copied, scanned, or duplicated, in whole or in part, except for
use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
classroom use.
9–5

4. 5
Strategic Alliance
A primary type of cooperative strategy in which firms combine
some of their resources and capabilities to create a mutual
competitive advantage.
Involves the exchange and sharing of resources and capabilities
to co-develop or distribute goods and services.
Requires cooperative behavior from all partners.
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copied, scanned, or duplicated, in whole or in part, except for
use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
classroom use.
9–6
6
Strategic Alliance Behaviors
Examples of cooperative behavior known to contribute to
alliance success:
Actively solving problems.
Being trustworthy.
Consistently pursuing ways to combine partners’ resources and
capabilities to create value.
Collaborative (Relational) Advantage
A competitive advantage developed through a cooperative
strategy.
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5. use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
classroom use.
9–7
7
Strategic Alliance
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9–8
Combined
Resources
Capabilities
Core Competencies
Resources
Capabilities
Core Competencies
Resources
Capabilities
Core Competencies
Firm A
Firm B
Mutual interests in designing, manufacturing,

6. or distributing goods or services
8
Three Types of Strategic Alliances
Joint Venture
Two or more firms create a legally independent company by
sharing some of their resources and capabilities.
Equity Strategic Alliance
Partners who own different percentages of equity in a separate
company they have formed.
Nonequity Strategic Alliance
Two or more firms develop a contractual relationship to share
some of their unique resources and capabilities.
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use as permitted in a license distributed with a certain product
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9–9
9
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7. or service or otherwise on a password-protected website for
classroom use.
9–10
Figure 9.1
Reasons for
Strategic Alliances
by Market Type
10
Reasons for Strategic Alliances
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use as permitted in a license distributed with a certain product
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9–11
Market
Reason
Slow Cycle
Gain access to a restricted market
Establish a franchise in a new market
Maintain market stability (e.g., establishing standards)
11
Reasons for Strategic Alliances (cont’d)
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8. or service or otherwise on a password-protected website for
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9–12
Market
Reason
Fast Cycle
Speed up development of new goods or service
Speed up new market entry
Maintain market leadership
Form an industry technology standard
Share risky R&D expenses
Overcome uncertainty
12
Reasons for Strategic Alliances (cont’d)
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use as permitted in a license distributed with a certain product
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9–13
Market
Reason
Standard Cycle
Gain market power (reduce industry overcapacity)
Gain access to complementary resources
Establish economies of scale
Overcome trade barriers
Meet competitive challenges from other competitors
Pool resources for very large capital projects
Learn new business techniques

9. 13
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9–14
Figure 9.2Business-Level Cooperative Strategies
14
Business-Level Cooperative Strategies
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9–15
Combine partner firms’ assets in complementary ways to create
new value.
Include distribution, supplier or outsourcing alliances where
firms rely on upstream or downstream partners to build
competitive advantage.
Complementary
Strategic Alliances

10. 15
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9–16
Figure 9.3
Vertical and Horizontal Complementary Strategic Alliances
16
Complementary Strategic Alliances
Vertical Complementary Strategic Alliance
Formed between firms that agree to use their skills and
capabilities in different stages of the value chain to create value
for both firms.
Outsourcing is one example of this type of alliance.
Horizontal Complementary Strategic Alliance
Formed when partners who agree to combine their resources and
skills to create value in the same stage of the value chain.
Focus is on long-term product development and distribution
opportunities.
The partners may become competitors which requires a great
deal of trust between the partners.
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use as permitted in a license distributed with a certain product
or service or otherwise on a password-protected website for
classroom use.

11. 9–17
17
Competition Response Strategy
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9–18
Occur when firms join forces to respond to a strategic action of
another competitor.
Because they can be difficult to reverse and expensive to
operate, strategic alliances are primarily formed to respond to
strategic rather than tactical actions.
Complementary
Strategic Alliances
Competition
Response Alliances
18
Uncertainty-Reducing Strategy
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9–19
Are used to hedge against risk and uncertainty.
These alliances are most noticed in fast-cycle markets
An alliance may be formed to reduce the uncertainty associated
with developing new product or technology standards.
Complementary
Strategic Alliances
Competition
Response Alliances
Uncertainty
Reducing Alliances
19
Competition-Reducing Strategy
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9–20
Created to avoid destructive or excessive competition
Explicit collusion: when firms directly negotiate production
output and pricing agreements to reduce competition (illegal).
Tacit collusion: when firms indirectly coordinate their
production and pricing decisions by observing other firm’s
actions and responses.

13. Complementary
Strategic Alliances
Competition
Response Alliances
Uncertainty
Reducing Alliances
Competition
Reducing Alliances
20
Assessment of Cooperative Strategies
Complementary business-level strategic alliances, especially the
vertical ones, have the greatest probability of creating a
sustainable competitive advantage.
Horizontal complementary alliances are sometimes difficult to
maintain because they are often between rival competitors.
Competitive advantages gained from competition and
uncertainty reducing strategies tend to be temporary.
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classroom use.
9–21

14. 21
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9–22
Figure 9.4Corporate-Level Cooperative Strategies
22
Corporate-Level Cooperative Strategy
Corporate-level Strategies
Help the firm diversify in terms of:
Products offered to the market
The markets it serves
Require fewer resource commitments.
Permit greater flexibility in terms of efforts to diversify
partners’ operations.
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9–23
23

15. Diversifying Strategic Alliances
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9–24
Allows a firm to expand into new product or market areas
without completing a merger or an acquisition.
Provides some of the potential synergistic benefits of a merger
or acquisition, but with less risk and greater levels of
flexibility.
Permits a “test” of whether a future merger between the partners
would benefit both parties.
Diversifying
Strategic Alliance
24
Synergistic Strategic Alliances
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9–25
Creates joint economies of scope between two or more firms.
Creates synergy across multiple functions or multiple
businesses between partner firms.

16. Diversifying
Strategic Alliance
Synergistic
Strategic Alliance
25
Franchising
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9–26
Spreads risks and uses resources, capabilities, and competencies
without merging or acquiring another firm.
A contractual relationship (franchise) is developed between two
parties, the franchisee and the franchisor.
An alternative to pursuing growth through mergers and
acquisitions.
Diversifying
Strategic Alliance
Synergistic
Strategic Alliance
Franchising

17. 26
Assessing Corporate-Level
Cooperative Strategies
Compared to business-level strategies
Broader in scope
More costly
Can lead to competitive advantage and value when:
Successful alliance experiences are internalized.
The firm uses such strategies to develop useful knowledge about
how to succeed in the future.
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9–27
27
International Cooperative Strategy
Cross-border Strategic Alliance
A strategy in which firms with headquarters in different nations
combine their resources and capabilities to create a competitive
advantage.
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.
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18. classroom use.
9–28
28
International Cooperative Strategy (cont’d)
Synergistic Strategic Alliance
Allows risk sharing by reducing financial investment.
Host partner knows local market and customs.
International alliances can be difficult to manage due to
differences in management styles, cultures or regulatory
constraints.
Must gauge partner’s strategic intent such that the partner does
not gain access to important technology and become a
competitor.
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9–29
29
Network Cooperative Strategy
A cooperative strategy wherein several firms agree to form
multiple partnerships to achieve shared objectives.
Stable alliance network
Dynamic alliance network
Effective social relationships and interactions among partners

19. are keys to a successful network cooperative strategy.
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9–30
30
Network Cooperative Strategies (cont’d)
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9–31
Long term relationships that often appear in mature industries
where demand is relatively constant and predictable
Stable networks are built for exploitation of the economies
(scale and/or scope) available between the firms
Stable Alliance
Network
31
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20. use as permitted in a license distributed with a certain product
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9–32
Network Cooperative Strategies (cont’d)
Arrangements that evolve in industries with rapid technological
change leading to short product life cycles.
Primarily used to stimulate rapid, value-creating product
innovation and subsequent successful market entries.
Purpose is often exploration of new ideas
Stable Alliance
Network
Dynamic Alliance
Network
32
Competitive Risks of
Cooperative Strategies
Partners may act opportunistically.
Partners may misrepresent competencies brought to the
partnership.
Partners fail to make committed resources and capabilities
available to other partners.
One partner may make investments that are specific to the
alliance while its partner does not.
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21. classroom use.
9–33
33
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9–34
Figure 9.5Managing Competitive Risks in Cooperative
Strategies
34
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use as permitted in a license distributed with a certain product
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9–35
Managing Risks in Cooperative Strategies
Creating value
Risk and Asset
Management
Approaches
Desired Outcome

22. Competitive
Risks
Detailed contracts and management
Developing trusting relationships
Inadequate contracts
Misrepresentation of competencies
Partners fail to use their complementary resources
Holding alliance partner’s specific investments hostage
35
Managing Cooperative Strategies
Cost Minimization Management Approach
Have formal contracts with partners.
Specify how strategy is to be monitored.
Specify how partner behavior is to be controlled.
Set goals that minimize costs and to prevent opportunistic
behavior by partners.
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9–36
36
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23. use as permitted in a license distributed with a certain product
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9–37
Managing Cooperative Strategies (cont’d)
Opportunity Maximization Approach
Maximize partnership’s value-creation opportunities
Learn from each other
Explore additional marketplace possibilities
Maintain less formal contracts, fewer constraints
37
Instructions
A Class Divided - Jane Elliot
Watch the entire video.
http://www.pbs.org/wgbh/frontline/film/class-divided/
http://www.ant2000.com/AClassDividedVideo.htm
We see how easily discrimination can be taught to children and
adults. Know this was a true experiment and in no case were
actors used.
Place your submission in the Extra Credit Module – in the drop
box for credit
· Paragraph 1 - Discuss the classroom experiment
· Include your thoughts on the testing results and how this is
reflected in today's society.
· Paragraph 2 - Discuss the adult Correctional Department
workers experiment.
· Include your opinion
· Paragraph 3 – What you can do.

24. · Since we can easily influence children by words and example,
how can we use this as a positive?
Include a word count of a minimum of 500 words.