ch09 hitt lecture
TRANSCRIPT
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PowerPoint slides by:
R. Dennis MiddlemistColorado State University
Copyright 2004 South-Western
All rights reserved.
Chapter 9
CooperativeStrategy
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Knowledge Objectives
Studying this chapter should provide you with thestrategic management knowledge needed to:
Define cooperative strategies and explain why firms usethem.
Define and discuss three types of strategic alliances.
Name the business-level cooperative strategies anddescribe their use.
Discuss the use of corporate-level cooperative strategies in
diversified firms. Understand the importance of crossborder strategic
alliances as an international cooperative strategy.
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Knowledge Objectives (contd)
Studying this chapter should provide you with thestrategic management knowledge needed to:
Describe cooperative strategies risks.
Describe two approaches used to manage cooperative
strategies.
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Figure 1.1
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The StrategicManagement
Process
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Cooperative Strategy
Cooperative StrategyA strategy in which firms work together to
achieve a shared objective
Cooperating with other firms is a strategythat:
Creates value for a customer
Exceeds the cost of constructing customer value
in other waysEstablishes a favorable position relative to
competitors
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Strategic Alliance
A primary type of cooperative strategy inwhich firms combine some of theirresources and capabilities to create amutual competitive advantage
Involves the exchange and sharing of resourcesand capabilities to co-develop or distributegoods and services
Requires cooperative behavior from all partners
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Strategic Alliance Behaviors
Examples of cooperative behavior known tocontribute to alliance success:
Actively solving problems
Being trustworthy
Consistently pursuing ways to combine partners
resources and capabilities to create value
Competitive advantage developed through acooperative strategy is called a collaborativeor relational advantage
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Strategic Alliance
CombinedResourcesCapabilities
Core Competencies
ResourcesCapabilities
Core Competencies
ResourcesCapabilities
Core Competencies
Firm A Firm B
Mutual interests in designing, manufacturing,or distributing goods or services
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Three Types of Strategic Alliances
Joint VentureTwo or more firms create a legally independent
company by sharing some of their resources andcapabilities
Equity Strategic AlliancePartners who own different percentages of equity
in a separate company they have formed
Nonequity Strategic Alliance
Two or more firms develop a contractualrelationship to share some of their uniqueresources and capabilities
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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)
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Market Reason
Fast Cycle Speed up development of new goodsor service
Speed up new market entry Maintain market leadership Form an industry technology
standard Share risky R&D expenses Overcome uncertainty
Reasons for Strategic Alliances (contd)
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Market Reason
Standard Cycle Gain market power (reduce industryovercapacity)
Gain access to complementaryresources Establish economies of scale Overcome trade barriers Meet competitive challenges from
other competitors Pool resources for very large capital
projects Learn new business techniques
Reasons for Strategic Alliances (contd)
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Business-Level Cooperative Strategies
Complementary strategic alliances
Vertical
Horizontal
Competition response strategy
Uncertainty reducing strategy
Competition reducing strategy
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Business-Level Cooperative Strategies
Figure 9.1
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Business-Level Cooperative Strategies
Combine partner firmsassets in complementaryways to create new value
Include distribution,
supplier or outsourcingalliances where firms relyon upstream ordownstream partners tobuild competitive
advantage
ComplementaryAlliances
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Vertical Complementary Strategic Alliances
Firms agree to use their skills and
capabilities in different stages of
the value chain to create value for
both firms
Outsourcing
Adapted from Figure 9.2
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Adapted from Figure 9.2
Horizontal Complementary Strategic Alliances
Partners combine resources and skills to create value in
the same stage of the value chain Focus is on long-term product development and
distribution opportunities
Partners may become competitors
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Competition Response Strategy
Occur when firms joinforces to respond to astrategic action of anothercompetitor
Because they can bedifficult to reverse andexpensive to operate,strategic alliances are
primarily formed to respondto strategic rather thantactical actions
ComplementaryAlliances
Competition
Response Alliances
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Uncertainty Reducing Strategy
Are used to hedge againstrisk and uncertainty
These alliances are mostnoticed in fast-cyclemarkets
An alliance may be formedto reduce the uncertainty
associated with developingnew product or technologystandards
ComplementaryAlliances
Competition
Response Alliances
UncertaintyReducing Alliances
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Competition Reducing Strategy
Created to avoid destructive orexcessive competition
Explicit collusion: when firmsdirectly negotiate production
output and pricing agreements inorder to reduce competition(illegal)
Tacit collusion: when firms in anindustry indirectly coordinate their
production and pricing decisionsby observing other firms actions
and responses
ComplementaryAlliances
Competition
Response Alliances
UncertaintyReducing Alliances
CompetitionReducing Alliances
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Assessment of Cooperative Strategies
Complementary business-level strategic alliances,especially the vertical ones, have the greatestprobability of creating a sustainable competitiveadvantage
Horizontal complementary alliances are sometimesdifficult to maintain because they are often betweenrival competitors
Competitive advantages gained from competition
and uncertainty reducing strategies tend to betemporary
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Corporate-Level Cooperative Strategies
Figure 9.3
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Corporate-Level Cooperative Strategy
Corporate-level strategiesHelp 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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Diversifying Strategic Alliances
Expand into new product ormarket areas withoutcompleting a merger or anacquisition
Synergistic benefits of amerger or acquisition
less risk
greater flexibility
Assess benefits of futuremerger between the partners
DiversifyingStrategic Alliance
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Synergistic Strategic Alliances
Joint economies of scopebetween two or more firms
Synergy across multiple
functions or multiplebusinesses betweenpartner firms
DiversifyingStrategic Alliance
Synergistic
Strategic Alliance
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Franchising
Spreads risks and usesresources, capabilities, andcompetencies without mergeror acquisition
A contractual relationship (thefranchise) is developedbetween the franchisee andthe franchisor
Alternative to growth throughmergers and acquisitions
DiversifyingStrategic Alliance
Synergistic
Strategic Alliance
Franchising
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Assessment of Corporate-Level CooperativeStrategies
Compared to business-level strategies
Broader in scope More complex
More costly
Can lead to competitive advantage andvalue when:
Successful alliance experiences are internalized
The firm uses such strategies to develop usefulknowledge about how to succeed in the future
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International Cooperative Strategies
Cross-border Strategic AllianceA strategy in which firms with headquarters in
different nations combine their resources andcapabilities to create a competitive advantage
A firm may form cross-border strategic alliancesto leverage core competencies that are thefoundation of its domestic success to expandinto international markets
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International Cooperative Strategies (contd)
Synergistic Strategic AllianceAllows risk sharing by reducing financial
investment
Host partner knows local market and customs
International alliances can be difficult to managedue to differences in management styles,cultures or regulatory constraints
Must gauge partners strategic intent such thatthe partner does not gain access to importanttechnology and become a competitor
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Network Cooperative Strategy
A cooperative strategy wherein several firmsagree to form multiple partnerships toachieve shared objectives
Stable alliance network
Dynamic alliance network
Keys to a successful network cooperativestrategy
Effective social relationships
Interactions among partners
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Network Cooperative Strategies (contd)
Long term relationships
mature industries wheredemand is
relatively constant
predictable
Stable networks exploiteconomies (scale and/or
scope) available betweenthe firms
Stable AllianceNetwork
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Network Cooperative Strategies (contd)
Evolve in industries withrapid technological changeleading to short productlife cycles
Primarily used to stimulaterapid, value-creatingproduct innovation andsubsequent successful
market entries Purpose is often
explorationof new ideas
Stable AllianceNetwork
Dynamic Alliance
Network
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Competitive Risks of Cooperative Strategies
Partners may act opportunistically
Partners may misrepresent competenciesbrought to the partnership
Partners fail to make committed resourcesand capabilities available to other partners
One partner may make investments that are
specific to the alliance while its partner doesnot
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Managing Risks in Cooperative Strategies
Figure 9.4
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Managing Cooperative Strategies
Cost minimization management approachFormal contracts with partners
Specify
How strategy is to be monitored
How partner behavior is to be controlled
Goals that minimize costs and prevent
opportunistic behavior by partners
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Managing Cooperative Strategies (contd)
Opportunity maximization approachMaximize partnerships value-creation
opportunities
learn from each other
explore additional marketplace possibilities
less formal contracts, fewer constraints