Description
A strategy in which firms work together to achieve a shared objective.
Slide
1
Copyright © 2004 South-Western
All rights reserved.
PowerPoint slides by:
R. Dennis Middlemist
Colorado State University
Chapter 9
Chapter 9 Chapter 9
Cooperative
Strategy
Slide
2
Copyright ©2004 South-Western. All rights reserved. 9–2
Cooperative Strategy
• Cooperative Strategy
ØA strategy in which firms work together to
achieve a shared objective
• Cooperating with other firms is a strategy
that:
ØCreates value for a customer
ØExceeds the cost of constructing customer value
in other ways
ØEstablishes a favorable position relative to
competitors
Slide
3
Copyright ©2004 South-Western. All rights reserved. 9–3
Types of Corporate & Grand Strategies
Consortia
Concentrated Growth
Market Development
Product Development
Innovation
Horizontal Integration
Vertical Integration
Concentric Diversification
Conglomerate Diversification
Turnaround
Divestiture
Liquidation
Bankruptcy
Joint Ventures
Strategic Alliances
Slide
4
Copyright ©2004 South-Western. All rights reserved. 9–4
Strategic Alliance
Combined Combined
Resources Resources
Capabilities Capabilities
Core Competencies Core Competencies
Resources Resources
Capabilities Capabilities
Core Competencies Core Competencies
Resources Resources
Capabilities Capabilities
Core Competencies Core Competencies
Firm A Firm A Firm B Firm B
Mutual interests in designing, manufacturing, Mutual interests in designing, manufacturing,
or distributing goods or services or distributing goods or services
Slide
5
Copyright ©2004 South-Western. All rights reserved. 9–5
Three Types of Strategic Alliances
• Joint Venture
ØTwo or more firms create a legally independent
company by sharing some of their resources and
capabilities
• Equity Strategic Alliance
ØPartners who own different percentages of equity
in a separate company they have formed
• Nonequity Strategic Alliance
ØTwo or more firms develop a contractual
relationship to share some of their unique
resources and capabilities
Slide
6
Copyright ©2004 South-Western. All rights reserved. 9–6
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)
Slide
7
Copyright ©2004 South-Western. All rights reserved. 9–7
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
Reasons for Strategic Alliances (cont’d)
Slide
8
Copyright ©2004 South-Western. All rights reserved. 9–8
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
Reasons for Strategic Alliances (cont’d)
Slide
9
Copyright ©2004 South-Western. All rights reserved. 9–9
Business-Level Cooperative Strategies
• Complementary strategic alliances
ØVertical
ØHorizontal
• Competition response strategy
• Uncertainty reducing strategy
• Competition reducing strategy
Slide
10
Copyright ©2004 South-Western. All rights reserved. 9–10
Business-Level Cooperative Strategies
Figure 9.1 Figure 9.1
Slide
11
Copyright ©2004 South-Western. All rights reserved. 9–11
Business-Level Cooperative Strategies
• 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 Complementary
Alliances Alliances
Slide
12
Copyright ©2004 South-Western. All rights reserved. 9–12
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 Adapted from Figure 9.2
Slide
13
Copyright ©2004 South-Western. All rights reserved. 9–13
Adapted from Figure 9.2 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
Slide
14
Copyright ©2004 South-Western. All rights reserved. 9–14
Competition Response Strategy
• 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 Complementary
Alliances Alliances
Competition Competition
Response Alliances Response Alliances
Slide
15
Copyright ©2004 South-Western. All rights reserved. 9–15
Uncertainty Reducing Strategy
• 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 Complementary
Alliances Alliances
Competition Competition
Response Alliances Response Alliances
Uncertainty Uncertainty
Reducing Alliances Reducing Alliances
Slide
16
Copyright ©2004 South-Western. All rights reserved. 9–16
Competition Reducing Strategy
• Created to avoid destructive or
excessive competition
• Explicit collusion: when firms
directly negotiate production
output and pricing agreements in
order to reduce competition
(illegal)
• Tacit collusion: when firms in an
industry indirectly coordinate their
production and pricing decisions
by observing other firm’s actions
and responses
Complementary Complementary
Alliances Alliances
Competition Competition
Response Alliances Response Alliances
Uncertainty Uncertainty
Reducing Alliances Reducing Alliances
Competition Competition
Reducing Alliances Reducing Alliances
Slide
17
Copyright ©2004 South-Western. All rights reserved. 9–17
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
Slide
18
Copyright ©2004 South-Western. All rights reserved. 9–18
Corporate-Level Cooperative Strategies
Figure 9.3 Figure 9.3
Slide
19
Copyright ©2004 South-Western. All rights reserved. 9–19
Corporate-Level Cooperative Strategy
• Corporate-level strategies
ØHelp the firm diversify in terms of:
vProducts offered to the market
vThe markets it serves
ØRequire fewer resource commitments
ØPermit greater flexibility in terms of efforts to
diversify partners’ operations
Slide
20
Copyright ©2004 South-Western. All rights reserved. 9–20
Diversifying Strategic Alliances
• Expand into new product or
market areas without
completing a merger or an
acquisition
• Synergistic benefits of a
merger or acquisition
Øless risk
Øgreater flexibility
• Assess benefits of future
merger between the partners
Diversifying Diversifying
Strategic Alliance Strategic Alliance
Slide
21
Copyright ©2004 South-Western. All rights reserved. 9–21
Synergistic Strategic Alliances
• Joint economies of scope
between two or more firms
• Synergy across multiple
functions or multiple
businesses between
partner firms
Diversifying Diversifying
Strategic Alliance Strategic Alliance
Synergistic Synergistic
Strategic Alliance Strategic Alliance
Slide
22
Copyright ©2004 South-Western. All rights reserved. 9–22
Franchising
• Spreads risks and uses
resources, capabilities, and
competencies without merger
or acquisition
• A contractual relationship (the
franchise) is developed
between the franchisee and
the franchisor
• Alternative to growth through
mergers and acquisitions
Diversifying Diversifying
Strategic Alliance Strategic Alliance
Synergistic Synergistic
Strategic Alliance Strategic Alliance
Franchising Franchising
Slide
23
Copyright ©2004 South-Western. All rights reserved. 9–23
Assessment of Corporate-Level Cooperative
Strategies
• Compared to business-level strategies
ØBroader in scope Ø More complex
ØMore costly
• Can lead to competitive advantage and
value when:
ØSuccessful alliance experiences are internalized
ØThe firm uses such strategies to develop useful
knowledge about how to succeed in the future
Slide
24
Copyright ©2004 South-Western. All rights reserved. 9–24
International Cooperative Strategies
• Cross-border Strategic Alliance
ØA strategy in which firms with headquarters in
different nations combine their resources and
capabilities to create a competitive advantage
ØA firm may form cross-border strategic alliances
to leverage core competencies that are the
foundation of its domestic success to expand
into international markets
Slide
25
Copyright ©2004 South-Western. All rights reserved. 9–25
International Cooperative Strategies (cont’d)
• Synergistic Strategic Alliance
ØAllows risk sharing by reducing financial
investment
ØHost partner knows local market and customs
ØInternational alliances can be difficult to manage
due to differences in management styles,
cultures or regulatory constraints
ØMust gauge partner’s strategic intent such that
the partner does not gain access to important
technology and become a competitor
Slide
26
Copyright ©2004 South-Western. All rights reserved. 9–26
Network Cooperative Strategy
• A cooperative strategy wherein several firms
agree to form multiple partnerships to
achieve shared objectives
ØStable alliance network
ØDynamic alliance network
• Keys to a successful network cooperative
strategy
ØEffective social relationships
ØInteractions among partners
Slide
27
Copyright ©2004 South-Western. All rights reserved. 9–27
Network Cooperative Strategies (cont’d)
• Long term relationships
Ø mature industries where
demand is
Ø relatively constant
Ø predictable
• Stable networks exploit
economies (scale and/or
scope) available between
the firms
Stable Alliance Stable Alliance
Network Network
Slide
28
Copyright ©2004 South-Western. All rights reserved. 9–28
Network Cooperative Strategies (cont’d)
• 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 Stable Alliance
Network Network
Dynamic Alliance Dynamic Alliance
Network Network
Slide
29
Copyright ©2004 South-Western. All rights reserved. 9–29
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
Slide
30
Copyright ©2004 South-Western. All rights reserved. 9–30
Managing Risks in Cooperative Strategies
Figure 9.4 Figure 9.4
Slide
31
Copyright ©2004 South-Western. All rights reserved. 9–31
Managing Cooperative Strategies
• Cost minimization management approach
Ø Formal contracts with partners
Ø Specify
v How strategy is to be monitored
v How partner behavior is to be controlled
Ø Goals that minimize costs and prevent opportunistic
behavior by partners
• Opportunity maximization approach
Ø Maximize partnership’s value-creation opportunities
Ø learn from each other
Ø explore additional marketplace possibilities
Ø less formal contracts, fewer constraints
Slide
32
Copyright ©2004 South-Western. All rights reserved. 9–32
Grand Strategy Selection Matrix
Overcome weaknesses
Maximize strengths
External
(acquisition
or merger for
resource
capability)
Internal
(redirected
resources
within the
firm)
Turnaround or
retrenchment
Divestiture
Liquidation
Vertical integration
Conglomerate diversification
Concentrated growth
Market development
Product development
Innovation
Horizontal integration
Concentric diversification
Joint venture
I II
IV III
Slide
33
Copyright ©2004 South-Western. All rights reserved. 9–33
Model of Grand Strategy Clusters
Rapid market growth
Slow market growth
Weak
competitive
position
Strong
competitive
position
1. Concentrated
growth
2. Vertical integration
3. Concentric
diversification
1. Reformulation of
concentrated growth
2. Horizontal integration
3. Divestiture
4. Liquidation
1. Concentric
diversification
2. Conglomerate
diversification
3. Joint venture
1. Turnaround or retrenchment
2. Concentric diversification
3. Conglomerate diversification
4. Divestiture
5. Liquidation
II I
III IV
doc_971486147.pdf
A strategy in which firms work together to achieve a shared objective.
Slide
1
Copyright © 2004 South-Western
All rights reserved.
PowerPoint slides by:
R. Dennis Middlemist
Colorado State University
Chapter 9
Chapter 9 Chapter 9
Cooperative
Strategy
Slide
2
Copyright ©2004 South-Western. All rights reserved. 9–2
Cooperative Strategy
• Cooperative Strategy
ØA strategy in which firms work together to
achieve a shared objective
• Cooperating with other firms is a strategy
that:
ØCreates value for a customer
ØExceeds the cost of constructing customer value
in other ways
ØEstablishes a favorable position relative to
competitors
Slide
3
Copyright ©2004 South-Western. All rights reserved. 9–3
Types of Corporate & Grand Strategies
Consortia
Concentrated Growth
Market Development
Product Development
Innovation
Horizontal Integration
Vertical Integration
Concentric Diversification
Conglomerate Diversification
Turnaround
Divestiture
Liquidation
Bankruptcy
Joint Ventures
Strategic Alliances
Slide
4
Copyright ©2004 South-Western. All rights reserved. 9–4
Strategic Alliance
Combined Combined
Resources Resources
Capabilities Capabilities
Core Competencies Core Competencies
Resources Resources
Capabilities Capabilities
Core Competencies Core Competencies
Resources Resources
Capabilities Capabilities
Core Competencies Core Competencies
Firm A Firm A Firm B Firm B
Mutual interests in designing, manufacturing, Mutual interests in designing, manufacturing,
or distributing goods or services or distributing goods or services
Slide
5
Copyright ©2004 South-Western. All rights reserved. 9–5
Three Types of Strategic Alliances
• Joint Venture
ØTwo or more firms create a legally independent
company by sharing some of their resources and
capabilities
• Equity Strategic Alliance
ØPartners who own different percentages of equity
in a separate company they have formed
• Nonequity Strategic Alliance
ØTwo or more firms develop a contractual
relationship to share some of their unique
resources and capabilities
Slide
6
Copyright ©2004 South-Western. All rights reserved. 9–6
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)
Slide
7
Copyright ©2004 South-Western. All rights reserved. 9–7
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
Reasons for Strategic Alliances (cont’d)
Slide
8
Copyright ©2004 South-Western. All rights reserved. 9–8
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
Reasons for Strategic Alliances (cont’d)
Slide
9
Copyright ©2004 South-Western. All rights reserved. 9–9
Business-Level Cooperative Strategies
• Complementary strategic alliances
ØVertical
ØHorizontal
• Competition response strategy
• Uncertainty reducing strategy
• Competition reducing strategy
Slide
10
Copyright ©2004 South-Western. All rights reserved. 9–10
Business-Level Cooperative Strategies
Figure 9.1 Figure 9.1
Slide
11
Copyright ©2004 South-Western. All rights reserved. 9–11
Business-Level Cooperative Strategies
• 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 Complementary
Alliances Alliances
Slide
12
Copyright ©2004 South-Western. All rights reserved. 9–12
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 Adapted from Figure 9.2
Slide
13
Copyright ©2004 South-Western. All rights reserved. 9–13
Adapted from Figure 9.2 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
Slide
14
Copyright ©2004 South-Western. All rights reserved. 9–14
Competition Response Strategy
• 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 Complementary
Alliances Alliances
Competition Competition
Response Alliances Response Alliances
Slide
15
Copyright ©2004 South-Western. All rights reserved. 9–15
Uncertainty Reducing Strategy
• 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 Complementary
Alliances Alliances
Competition Competition
Response Alliances Response Alliances
Uncertainty Uncertainty
Reducing Alliances Reducing Alliances
Slide
16
Copyright ©2004 South-Western. All rights reserved. 9–16
Competition Reducing Strategy
• Created to avoid destructive or
excessive competition
• Explicit collusion: when firms
directly negotiate production
output and pricing agreements in
order to reduce competition
(illegal)
• Tacit collusion: when firms in an
industry indirectly coordinate their
production and pricing decisions
by observing other firm’s actions
and responses
Complementary Complementary
Alliances Alliances
Competition Competition
Response Alliances Response Alliances
Uncertainty Uncertainty
Reducing Alliances Reducing Alliances
Competition Competition
Reducing Alliances Reducing Alliances
Slide
17
Copyright ©2004 South-Western. All rights reserved. 9–17
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
Slide
18
Copyright ©2004 South-Western. All rights reserved. 9–18
Corporate-Level Cooperative Strategies
Figure 9.3 Figure 9.3
Slide
19
Copyright ©2004 South-Western. All rights reserved. 9–19
Corporate-Level Cooperative Strategy
• Corporate-level strategies
ØHelp the firm diversify in terms of:
vProducts offered to the market
vThe markets it serves
ØRequire fewer resource commitments
ØPermit greater flexibility in terms of efforts to
diversify partners’ operations
Slide
20
Copyright ©2004 South-Western. All rights reserved. 9–20
Diversifying Strategic Alliances
• Expand into new product or
market areas without
completing a merger or an
acquisition
• Synergistic benefits of a
merger or acquisition
Øless risk
Øgreater flexibility
• Assess benefits of future
merger between the partners
Diversifying Diversifying
Strategic Alliance Strategic Alliance
Slide
21
Copyright ©2004 South-Western. All rights reserved. 9–21
Synergistic Strategic Alliances
• Joint economies of scope
between two or more firms
• Synergy across multiple
functions or multiple
businesses between
partner firms
Diversifying Diversifying
Strategic Alliance Strategic Alliance
Synergistic Synergistic
Strategic Alliance Strategic Alliance
Slide
22
Copyright ©2004 South-Western. All rights reserved. 9–22
Franchising
• Spreads risks and uses
resources, capabilities, and
competencies without merger
or acquisition
• A contractual relationship (the
franchise) is developed
between the franchisee and
the franchisor
• Alternative to growth through
mergers and acquisitions
Diversifying Diversifying
Strategic Alliance Strategic Alliance
Synergistic Synergistic
Strategic Alliance Strategic Alliance
Franchising Franchising
Slide
23
Copyright ©2004 South-Western. All rights reserved. 9–23
Assessment of Corporate-Level Cooperative
Strategies
• Compared to business-level strategies
ØBroader in scope Ø More complex
ØMore costly
• Can lead to competitive advantage and
value when:
ØSuccessful alliance experiences are internalized
ØThe firm uses such strategies to develop useful
knowledge about how to succeed in the future
Slide
24
Copyright ©2004 South-Western. All rights reserved. 9–24
International Cooperative Strategies
• Cross-border Strategic Alliance
ØA strategy in which firms with headquarters in
different nations combine their resources and
capabilities to create a competitive advantage
ØA firm may form cross-border strategic alliances
to leverage core competencies that are the
foundation of its domestic success to expand
into international markets
Slide
25
Copyright ©2004 South-Western. All rights reserved. 9–25
International Cooperative Strategies (cont’d)
• Synergistic Strategic Alliance
ØAllows risk sharing by reducing financial
investment
ØHost partner knows local market and customs
ØInternational alliances can be difficult to manage
due to differences in management styles,
cultures or regulatory constraints
ØMust gauge partner’s strategic intent such that
the partner does not gain access to important
technology and become a competitor
Slide
26
Copyright ©2004 South-Western. All rights reserved. 9–26
Network Cooperative Strategy
• A cooperative strategy wherein several firms
agree to form multiple partnerships to
achieve shared objectives
ØStable alliance network
ØDynamic alliance network
• Keys to a successful network cooperative
strategy
ØEffective social relationships
ØInteractions among partners
Slide
27
Copyright ©2004 South-Western. All rights reserved. 9–27
Network Cooperative Strategies (cont’d)
• Long term relationships
Ø mature industries where
demand is
Ø relatively constant
Ø predictable
• Stable networks exploit
economies (scale and/or
scope) available between
the firms
Stable Alliance Stable Alliance
Network Network
Slide
28
Copyright ©2004 South-Western. All rights reserved. 9–28
Network Cooperative Strategies (cont’d)
• 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 Stable Alliance
Network Network
Dynamic Alliance Dynamic Alliance
Network Network
Slide
29
Copyright ©2004 South-Western. All rights reserved. 9–29
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
Slide
30
Copyright ©2004 South-Western. All rights reserved. 9–30
Managing Risks in Cooperative Strategies
Figure 9.4 Figure 9.4
Slide
31
Copyright ©2004 South-Western. All rights reserved. 9–31
Managing Cooperative Strategies
• Cost minimization management approach
Ø Formal contracts with partners
Ø Specify
v How strategy is to be monitored
v How partner behavior is to be controlled
Ø Goals that minimize costs and prevent opportunistic
behavior by partners
• Opportunity maximization approach
Ø Maximize partnership’s value-creation opportunities
Ø learn from each other
Ø explore additional marketplace possibilities
Ø less formal contracts, fewer constraints
Slide
32
Copyright ©2004 South-Western. All rights reserved. 9–32
Grand Strategy Selection Matrix
Overcome weaknesses
Maximize strengths
External
(acquisition
or merger for
resource
capability)
Internal
(redirected
resources
within the
firm)
Turnaround or
retrenchment
Divestiture
Liquidation
Vertical integration
Conglomerate diversification
Concentrated growth
Market development
Product development
Innovation
Horizontal integration
Concentric diversification
Joint venture
I II
IV III
Slide
33
Copyright ©2004 South-Western. All rights reserved. 9–33
Model of Grand Strategy Clusters
Rapid market growth
Slow market growth
Weak
competitive
position
Strong
competitive
position
1. Concentrated
growth
2. Vertical integration
3. Concentric
diversification
1. Reformulation of
concentrated growth
2. Horizontal integration
3. Divestiture
4. Liquidation
1. Concentric
diversification
2. Conglomerate
diversification
3. Joint venture
1. Turnaround or retrenchment
2. Concentric diversification
3. Conglomerate diversification
4. Divestiture
5. Liquidation
II I
III IV
doc_971486147.pdf