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Presentation design by Charlie Cook
Chapter 9
Cooperative Strategy
Part 2 Strategic Actions: Strategy Formulation
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Strategic Alliance
Cooperative Strategy
A strategy in which firms work together to achieve a shared objective.
Strategic Alliance is 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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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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3
Business-Level Cooperative Strategies
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Combine partner firms assets in complementary ways to create new value.
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.
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.
Complementary
Strategic Alliances
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Competition Response Strategy
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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
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Uncertainty-Reducing Strategy
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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
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Competition-Reducing Strategy
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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 firms actions and responses.
Complementary
Strategic Alliances
Competition Response Alliances
Uncertainty Reducing Alliances
Competition Reducing Alliances
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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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Figure 9.4 Corporate-Level Cooperative Strategies
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Diversifying Strategic Alliances
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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
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Synergistic Strategic Alliances
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Creates joint economies of scope between two or more firms.
Creates synergy across multiple functions or multiple businesses between partner firms.
Diversifying Strategic Alliance
Synergistic Strategic Alliance
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Franchising
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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
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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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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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Managing Cooperative Strategies (contd)
Opportunity Maximization Approach
Maximize partnerships value-creation opportunities
Learn from each other
Explore additional marketplace possibilities
Maintain less formal contracts, fewer constraints
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