Does you organization engage in cooperative strategies or strategic alliances? If so, please explain using concepts discussed in Chapter 7 and the Kale & Singh (2009) article. Are they effective or ineffective? If your organization does not engage in cooperative strategies or strategic alliances, can you think of any that would be beneficial? Please explain using concepts discussed in Chapter 7 and the .
From Chapter 8, what is your biggest learning related to corporate strategy? How can you determine if a corporate strategy is successful? How is a PEST Analysis helpful in developing and/or implementing corporate strategy?
Slide 1 Competing for Advantage 1 Chapter 7 Cooperative Strategy PART III CREATING COMPETITIVE ADVANTAGE 1 The Strategic Management Process 2 Figure 1.6: The Strategic Management Process – A logical approach for responding to 21st century competitive challenges. Provides an outline of the content of the textbook by each chapter. Creating Competitive Advantage Business-level strategy – competitive advantages the firm will use to effectively compete in specific product markets Competitive rivalry and dynamics – analysis of competitor actions and responses is relevant input for selecting and using specific strategies Cooperative strategy – an important trend of forming partnerships to share and develop competitive resources Corporate-level strategy – concerns the businesses in which the company intends to compete and the allocation of resources in diversified organizations Acquisition and restructuring strategies – primary means used by diversified firms to create corporate-level competitive advantages International strategy – significant sources of value creation and above-average returns Cooperative Strategy Key Terms Cooperative strategy Strategy in which firms work together to achieve a shared objective Relational advantage Condition which exists when a firm’s relationships with other firms put it at an advantage relative to rival firms Strategic alliance Cooperative strategy in which firms combine resources and capabilities to create a competitive advantage 3 Cooperative Strategy – Conditions in the competitive landscape have created a business environment in which interorganizational cooperation is required, because firms rarely possess all of the knowledge, abilities, and resources needed for success. Increasingly, firms form cooperative relationships with other organizations to develop new sources of competitive advantage. Discussion points: Firms that use cooperative strategies successfully gain relational advantages that allow them to out-perform their rivals in terms of strategic competitiveness and above-average returns. Strategic alliances are the most common form of cooperative strategy. The Importance of Cooperative Strategy Most firms lack the full set of resources and capabilities needed to reach their objectives. Cooperative behavior allows partners to create value that they couldn't develop by acting independently. Aligning stakeholder interests, both inside and outside of the organization, can reduce environmental uncertainty. Alliances can provide a new source of revenue. 4 The Importance of Cooperative Strategy – Cooperative strategies have become integral to the competitive landscape and central to the success of partnered companies. Discussion points: They are used to leverage company resources and capabilities. They are used to develop new resources and capabilities. They enable companies to leverage or build resources and capabilities more quickly than if they were acting independently. They are a powerful mechanism for aligning interests and reducing uncertainty in the external environment. Example: Cooperative relationships of automobile manufacturers and their suppliers They enhance strategic flexibility, as they tend to not be permanent arrangements. Firms can enter and exit cooperative strategies more easily than they can start up or shut down parts of their internal operations. Consistent with the stakeholder perspective (from Chapter 1), organizations, as inherently cooperative systems, are inclined to act with partners to achieve common objectives. The Importance of Cooperative Strategy Alliances can be a vehicle for firm growth. Alliances can enhance the speed of responding to market opportunities, technological changes, and global conditions. Alliances are a way that firms can gain new knowledge and experiences to increase competitiveness. Cooperative strategies can enhance strategic flexibility. 5 The Importance of Cooperative Strategy – cont. The Importance of Cooperative Strategy Key Terms Co-opetition Condition that exists when firms that have formed cooperative strategies also compete against one another in the marketplace 6 The Importance of Cooperative Strategy – Increasingly, cooperative strategies are formed by firms who also compete against one another. Example: Samsung Electronics and Sony Corp. Discussion points: Co-opetition between firms encourages co-opetition among other firms in the same industry. Despite potential advantages, some research suggests that cooperating with a competitor may be associated with lower levels of ground-breaking innovation in the service sector. Example: One study found that firms using their own R&D produce more market innovations than those who rely on information from competitors In some industries, alliance v. alliance competition is becoming more common than firm v. firm competition. Example: Global airline industry Why might service firms that use information from their own research and development processes as well as firms who are involved in science-based product innovation collaborations be more likely to introduce new-to-the-market innovations than firms that rely on information coming from competitors? Firms are probably unlikely to release genuinely novel ideas and technologies to their biggest rivals. Reasons for Strategic Alliances by Market Type 7 Table 7.1: Reasons for Strategic Alliances by Market Type – The individually unique competitive conditions of slow-cycle, fast-cycle, and standard-cycle markets (discussed in Chapter 6) lead to firms using cooperative strategies for slightly different reasons. This chapter focuses specifically on the most common form of cooperative strategy, strategic alliances, to describe how purposes tend to vary across the three market types. What types of conditions in new markets might alliance partners better understand than the firm entering the market for the first time? Sociocultural conditions Legal and regulatory conditions Economic conditions Industry influences Existing relationships among customers and suppliers Strategic Alliances in Slow-Cycle Markets In slow-cycle markets, competitive advantages are shielded from imitation for relatively long periods, and imitation is costly. Competitive advantages are sustainable. Strategic Alliances in Slow-Cycle Markets Discussion points: These markets have close to monopolistic conditions. Examples: Railroads and, historically, telecommunications, utilities, and financial services Strategic alliances are often used to enter restricted markets or to establish franchises in new markets. Alliance allows quicker entry into these markets because the partner firm has experience in the market of interest, understands conditions in the new market, and can provide knowledge of and relationships with key stakeholders. Example: CSX access to Pacific ports Why are slow-cycle markets becoming rare in the 21st century competitive landscape? Privatization of industries and economies Rapid expansion of the Internet's capabilities Quick dissemination of information Advancing technologies permit quick imitation of even complex products What are the implications of today’s competitive landscape on firms competing in the few remaining slow-cycle markets? It is important for firms competing in the few remaining slow-cycle markets to recognize the future likelihood that they will encounter less sustainable competitive advantages than they have enjoyed in the past. Cooperative strategies can be helpful to firms making the transition from relatively sheltered markets to more competitive ones. 8 Strategic Alliances in Fast-Cycle Markets In fast-cycle markets, competitive advantages are not shielded from imitation. Long-term sustainability is not possible. Strategic Alliances in Fast-Cycle Markets Discussion points: Fast-cycle markets tend to be unstable, unpredictable, and complex. Firms are forced to constantly seek new sources of competitive advantage, while creating value by using current ones. Alliances between firms with excess resources and promising capabilities aid in the transition required in evolving markets and to gain rapid entry into new markets. Example: IBM How does focusing on a select few strategic partnerships help businesses respond to the rapidly changing competitive landscape in the IT industry? Drives down costs Integrates technologies that can provide significant business advantages or productivity gains Enables aggressive pursuit of applications that can be shifted to more flexible and cost-effective platforms 9 Strategic Alliances in Standard-Cycle Markets In standard-cycle markets, competitive advantages are moderately shielded from imitation. Competitive advantages are partially sustainable. Strategic Alliances in Standard-Cycle Markets Discussion points: These markets are often large and oriented toward economies of scale. Examples: Commercial aerospace and beverage industries Alliances are most likely to be made by partners with complimentary resources and capabilities to gain market power. Example: PepsiCo distribution in China Alliances allow firms to learn new business techniques and technologies from partners. 10 Types of Alliances Key Terms Equity strategic alliance Alliance in which two or more firms own a portion of the equity in the venture they have created Nonequity strategic alliance Alliance in which two or more firms develop a contractual relationship to share some of their unique resources and capabilities to create a competitive advantage 11 Types of Alliances and Other Cooperative Strategies – There are two basic types of strategic alliance based on legal form, depending on whether they involve equity or not. Other cooperative strategies relate to the primary strategic objectives of firms. Discussion points: Equity strategic alliances Many direct foreign investments are completed through equity strategic alliances. Some equity strategic alliances take the form of purchasing stock in an existing company. Example: BMW AG purchase of 15% stake in SGL Carbon SE Nonequity strategic alliances Firms in nonequity strategic alliances do not establish a separate independent company. These alliances are less formal. These alliances demand fewer partner commitments. These alliances foster less intimate relationships between partners. These alliances are not suitable for complex projects requiring the transfer of tacit knowledge (see Slide 12) between partners. Research indicates that, even under these constraints, nonequity alliances still create value for participating partners. Name some examples of contractual relationships which exemplify nonequity strategic alliances. Licensing agreements Supply contracts Outsourcing agreements Distribution agreements What are some other forms of cooperative strategies between firms? Coalitions Trade groups Associations Industry panels Labor panels Research consortia Cartels (keiretsu) Collusion Types of Alliances Key Terms Joint venture Strategic alliance in which two or more firms create a legally independent company to share resources and capabilities to develop a competitive advantage Tacit knowledge Knowledge which is complex and difficult to codify 12 Types of Alliances and Other Cooperative Strategies Discussion points: Joint ventures Joint ventures also involve equity. Typically, partners in a joint venture own equal percentages and contribute equally to operations. Example: JV between Walter Energy and Peace River Coal Partners share resources, costs, and risks associated with the venture. Joint ventures are an attractive way to deal with uncertain competitive conditions, such as economic downturns. Joint ventures are effective mechanisms for establishing long-term relationships and transferring tacit knowledge. Tacit knowledge It is learned through experience. It can be difficult to for rivals to duplicate, making it an important source of competitive advantage. Strategic Objectives of Cooperative Strategies 13 Figure 7.1: Strategic Objectives of Cooperative Strategies – Alliances and cooperative strategies can be divided into categories based on their primary strategic objectives. The most common types of cooperative strategies are listed on Figure 7.1. Cooperative Strategies to Differentiate or Reduce Costs Complementary Strategic Alliances Network Cooperative Strategies 14 Cooperative Strategies That Enhance Differentiation or Reduce Costs – introduces a discussion of business level cooperative strategies used to combine resources and capabilities to improve firm performance in individual product markets and create competitive advantages that cannot be created by the individual firm There are two general categories of cooperative strategies which are used to enhance differentiation or reduce costs. Complementary Strategic Alliances Key Terms Complementary strategic alliance Business-level alliance in which firms share some of their resources and capabilities in complementary ways to develop competitive advantages Vertical complementary strategic alliance When firms share resources and capabilities from different stages of the value chain to create a competitive advantage Horizontal complementary strategic alliance When firms share resources and capabilities from the same stage of the