strategic management ch10

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Cooperative Strategy

Chapter Ten

© 2006 by Nelson, a division of Thomson Canada Limited.

© 2006 by Nelson, a division of Thomson Canada Limited. 10-2

The Strategic Management Process

Chapter 8:Acquisition & Restructuring

Chapter 9:International

Strategy

Chapter 10:Cooperative

Strategy

Strategy Formulation

Chapter 11:Corporate

Governance

Ch. 12: Org. Structure & Controls

Chapter 13:Strategic

Leadership

Chapter 14:Org. Renewal & Innovation

Strategy Implementation

StrategicActions

Chapter 3:The External Environment

Strategic Competitiveness

Strategic Mission & Strategic Intent

Strategic Objectives & Inputs

Chapter 1: Strategic

ManagementStrategic

Competitiveness Ch. 2: Strat. Mgmt . &

Performance

Chapter 3:The External Environment

Chapter 3:The External Environment

Chapter 4:The Internal Environment

Chapter 5: Bus.-Level Strategy

Chapter 6:Competitive Dynamics

Chapter 7:Corp.-Level

Strategy

Chapter 10:Cooperative

Strategy

© 2006 by Nelson, a division of Thomson Canada Limited. 10-3

Cooperative StrategyKnowledge Objectives:1. Explain cooperative strategies & why firms use them

2. Define & discuss three types of strategic alliances

3. Name the business-level cooperative strategies &

describe their use

4. Discuss the use of corporate-level cooperative

strategies & describe their use

5. Understand the importance of cross border strategic

alliances as an international cooperative strategy

6. Describe cooperative strategies’ risks

7. Describe approaches used to manage cooperative strategies.

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A Cooperative Strategy

A strategy in which firms work together to achieve a shared objective.

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DevelopDevelopDevelopDevelop

ManufactureManufactureManufactureManufacture

DistributeDistributeDistributeDistribute

Goods

Services

where their

are combined to pursue mutual interests to

Core Competencies

CapabilitiesResources

Partnerships between firms

Firm A

Firm B

Strategic Alliances

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Alstream Inc. Microcell & NR Communications

RIM - Research in Motion’s “Blackberry” services used on wireless devices worldwide.

Domtar & Cascades formed Norampac

Types of Strategic Alliances

Independent firm is created by the joining assets from two other firms where each contributes 50% of the total

Joint Venture

Partnership where the 2 partners don’t own equal shares

Equity Strategic Alliance

Contract is given to supply, produce or distribute a firm’s goods or services (without equity sharing)

Non-Equity Strategic Alliance

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Standard Cycle Market

* * Gain market power* * Gain access to complementary resources** Overcome trade barriers* * Meet competitive challenge* * Pool resources for large projects** Learn new business techniques

Fast Cycle Market

* * Form an industry technology standard* * Share risky R&D expenses* * Overcome uncertainty

* * Maintain market leadership* * Speed-up product, service or market entry

* * Gain access to a restricted market* * Establish franchise in a new market* * Maintain market stability

Slow Cycle Market

Reasons for Alliances by Market Type

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Complementary Alliances

Diversification Alliances

Synergistic Alliances

Franchising

Competition Reduction Alliances

Competition Response Alliances

Uncertainty Reduction Alliances

Types of Strategic Alliances

Business-Level

Corporate-Level

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Partnerships that build on the complementarities among firms that make each more competitive

Supplier Value Chain

Buyer Value Chain

Include distribution, supplier or outsourcing alliances where firms rely on upstream partners

Japanese manufacturers rely on close relationships with and among suppliers to implement Just-In-Time inventory systems

Vertical Alliance

Complementary Strategic Alliances

or downstream partnersto build competitive advantage

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Used to increase the strategic competitiveness of the partners

Complementary Strategic Alliances

Horizontal Alliance

Buyer Value Chain Buyer Value Chain

For example: Marketing agreements between Various Airlines

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Explicit Collusion: When firms directly negotiate production output & pricing agreements in order to reduce competition.

Competition Reduction Strategies Often illegal types of cooperative strategy which are used to reduce competition.

Tacit Collusion: When several firms in an industry indirectly coordinate their production & pricing decisions by observing each others competitive actions & responses.

Types of Business-level Strategic Alliances

e.g. the OPEC petroleum cartel

e.g. gas stations

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Firms join forces to respond to a strategic action of another competitor

Competition Response Strategies

Mega Bloks agreement with Disney.

Alliances can be used to hedge against risk & uncertainty

Uncertainty Reduction Strategies

Siemens & Fujitsu – “Fujitsu Siemens Computers” sharing technical resources & capabilities

Types of Business-Level Strategic Alliances

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Create economies of scope between 2 or more firms, creating synergy across multiple businesses between firms.

Synergistic Strategic Alliances

Allows firms to grow with relatively strong centralized control without significant capital investments.

Franchising

Boston Pizza with 200 restaurants in Western Canada.

Cisco Systems has many synergistic strategic alliances.

Allows a firm to expand into a new product or market area without an acquisition.

Diversifying Alliances

Flynn Canada created strategic alliances with U.S. contractors.

Types of Corp.-level Strategic Alliances

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Host partner knows local market & customs

However....

International Cooperative Strategies Allows risk sharing by reducing financial investment

International alliances can be difficult tomanage due to differences in management styles, cultures or regulatory constraints

Must gauge partner’s strategic intent so theydo not gain access to important technology and become a competitor

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Network strategies involve a group of interrelated firms that work for the common good of all

Dynamic Networks

Network Strategies

The types of networks are:

Stable Networks

Built for the exploitation of economies available between firms

Used in industries characterised by frequent product innovations & short product life cycles

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Competitive Risks with Cooperative Strategies

While cooperative systems offer many advantages, there are also significant risks associated with them:

Poor contract development

Misrepresentation of partners’ competencies

Failure of partners to make complementaryresources available

Being held hostage through specificinvestments made with partner

Misunderstanding partner’s strategic intent

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Competitive Risks

Inadequate contracts

**

Holding alliance partner’s specific investments hostage

**

Risk & Asset Management Approaches

Detailed contracts and monitoring

**

Misrepresentation of competencies

**

Partner fails to use complementary resources

**

Developing trusting relationships

**

Outcome

Value Creation

Detailed contracts and monitoring

*

Developing trusting relationships

*

Managing Risks in Cooperative Strategies

Holding alliance partner’s specific investments hostage

*

Inadequate contracts

*

Misrepresentation of competencies

*

Partner fails to use complementary resources

*

© 2006 by Nelson, a division of Thomson Canada Limited. 10-18

The Strategic Management Process

Chapter 8:Acquisition & Restructuring

Chapter 9:International

Strategy

Chapter 10:Cooperative

Strategy

Strategy Formulation

Chapter 11:Corporate

Governance

Ch. 12: Org. Structure & Controls

Chapter 13:Strategic

Leadership

Chapter 14:Org. Renewal & Innovation

Strategy Implementation

StrategicActions

Chapter 3:The External Environment

Strategic Competitiveness

Strategic Mission & Strategic Intent

Strategic Objectives & Inputs

Chapter 1: Strategic

ManagementStrategic

Competitiveness Ch. 2: Strat. Mgmt . &

Performance

Chapter 3:The External Environment

Chapter 3:The External Environment

Chapter 4:The Internal Environment

Chapter 5: Bus.-Level Strategy

Chapter 6:Competitive Dynamics

Chapter 7:Corp.-Level

Strategy

Chapter 10:Cooperative

Strategy