Faculty of Business, Finance, and

Information Technology

STRATEGIC MANAGEMENT
Lesson 7 : Strategy Implementation through
Integration

If its important to you, you will find a way. If its not, you’ll find an excuse.
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 Learning Outcomes

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 INTRODUCTION
COOPERATIVE STRATEGY

• Firms collaborate for the purpose of working

together to achieve a shared objective.
• Cooperating with other firms is a strategy
that:
• Creates value for a customer
• Exceeds the cost of constructing
customer value in other ways
• Establishes a favorable position relative
to competitors
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 • Examples of cooperative behavior known
to contribute to alliance success:
• Actively solving problems
• Being trustworthy
• Consistently pursuing ways to combine
partners’ resources and capabilities to create
value
• Collaborative (Relational) Advantage
• A competitive advantage developed through a
cooperative strategy
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 STRATEGIC ALLIANCES AS A PRIMARY
TYPE OF COOPERATIVE STRATEGY

Strategic alliance: cooperative strategy

in which firms combine resources and
capabilities to create a competitive
advantage
Three types of strategic alliances
1. Joint venture
2. Equity strategic alliance
3. Nonequity strategic alliances, which include:
• Licensing agreements
• Distribution agreements
• Supply contracts
• Outsourcing commitments
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 TYPES OF MAJOR STRATEGIC
ALLIANCES
1.Joint venture: two or more firms create a legally
independent company to share resources and
capabilities to develop a competitive advantage

• Optimal when firms need to combine their

resources and capabilities to create a
competitive advantage that is substantially
different from individual advantages, and when
highly uncertain, hypercompetitive markets are
targeted.

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 2. Equity strategic alliance: two or more firms
own different percentages of the company they
have formed by combining some of their resources
and capabilities for the purpose of creating a
competitive advantage

• Many foreign direct investments, such as those

companies from multiple countries are making
in China, are completed through an equity
strategic alliance

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 3. Nonequity strategic alliance: two or more
firms develop a contractual relationship to share
some of their unique resources and
capabilities to create a competitive advantage

• Separate independent company NOT

established, thus no equity positions: less
formal, fewer partner commitments, and
intimate relationship among partners is not
fostered

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 1. Joint Venture
• EXAMPLE: 1999 - Germany’s Siemens AG and Japan’s Fujitsu Ltd.
each owned 50 percent of the joint venture Fujitsu Siemens
Computers B.V., later to become Fujitsu Technology Solutions when
Fujitsu bought Siemens’ share of the joint venture.
2. Equity Strategic Alliance
• EXAMPLE: Japanese telecom operator NTT DOCOMO Inc. and
Chinese Internet search operator Baidu Inc. established an equity
strategic alliance in China to distribute games and other mobile-phone
content.
3. Nonequity Strategic Alliance
• EXAMPLES: Licensing agreements, distribution agreements, and
supply contracts. Hewlett-Packard (HP) actively uses this type of
cooperative strategy to license some of its intellectual property.

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 Nonequity Strategic Alliance
• Outsourcing, a type of nonequity strategic
alliance, is the purchase of a value-creating
primary or support activity from another firm.
• Dell Inc. and most other computer firms outsource
most or all of their production of laptop computers
and often form nonequity strategic alliances.
• To protect IP, modularity is employed, which
prevents the contracting partner from gaining too
much knowledge or from sharing certain aspects
of the business the outsourcing firm does not want
revealed.
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 REASONS FIRMS DEVELOP
STRATEGIC ALLIANCES

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 • Most firms lack the full set of resources and
capabilities needed to reach their objectives
• Cooperative behavior allows partners to create value
that they could not develop by acting independently
• Collaborative strategies are particularly valuable for
small firms with constrained resources for reaching
new customers and broadening their distribution
channels
• Aligning stakeholder interests (both inside and outside
the organization) can reduce environmental uncertainty

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 Alliances can:
• provide a new source of revenue (can account
for 25% or more of a firm’s sales revenue)
• be a vehicle for firm growth

• enhance the speed and depth of responding to

market opportunities, technological changes,
and global conditions
• allow firms to gain new knowledge and
experiences to increase competitiveness

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 In summary, strategic alliances:
• Can reduce competition and enhance a firm’s
competitive capabilities
• Create an avenue for the firm to gain access to
resources
• Allow a firm to take advantage of opportunities,
build strategic flexibility, and innovate
The competitive market conditions:
1. Slow-cycle markets
2. Fast-cycle markets
3. Standard-cycle markets

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 Slow-cycle markets – firm’s competitive
advantages are shielded from imitation for
relatively long periods of time and where
imitation is costly

• These markets are close to monopolistic

conditions. Railroads and, historically,
telecommunications, utilities, financial
services, and steel manufacturers are
industries characterized as slow-cycle
markets.
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 Slow-cycle markets are becoming rare due to:
• Privatization of industries and economies

• Rapid expansion of the Internet's capabilities

• Quick dissemination of information

• Speed with which advancing technologies permit

imitation of even complex products)
Cooperative strategies can help firms transition from
sheltered markets to more competitive ones.

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 Market Reason
Slow- • Gain access to a restricted
cycle market
• Establish a franchise in a new
market
• Maintain market stability
(e.g., establishing standards)

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 Fast-cycle markets: hypercompetitive,
unstable, unpredictable, and complex
• Firm’s competitive advantages are not shielded
from imitation, preventing their long-term
sustainability.
• These conditions virtually preclude establishing
long-lasting competitive advantages, forcing
firms to constantly seek sources of new
competitive advantages while creating value by
using current ones.
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 Fast-cycle markets
• “Collaboration mindset” is paramount.
• Alliances between firms with current
excess resources and capabilities and
those with promising capabilities help
companies compete in fast-cycle
markets to effectively transition from the
present to the future and to gain rapid
entry into new markets.

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 Market Reason
Fast- • Speed up development of new
cycle goods or service
• Speed up new market entry
• Maintain market leadership
• Form an industry technology
standard
• Share risky R&D expenses
• Overcome uncertainty

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 Standard-cycle markets
Competitive advantages are moderately
shielded from imitation in these markets,
typically allowing them to be sustained for
a longer period of time than in fast-cycle
market situations, but for a shorter period
of time than in slow-cycle markets.

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 Standard-cycle markets
Alliances are more likely to be made by
partners that have complementary
resources and capabilities, e.g., airline
alliances provide opportunities to reduce
costs and have access to additional
international routes.

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 Market Reason
• Gain market power (reduce
Standard- industry overcapacity)
cycle • 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
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 BUSINESS-LEVEL
COOPERATIVE STRATEGY

BUSINESS-LEVEL COOPERATIVE
STRATEGY: firms combine some of
their resources and capabilities for the
purpose of creating a competitive
advantage by competing in one or more
product markets

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 BUSINESS-LEVEL
COOPERATIVE STRATEGY
• Firms share some of their resources
Complementary and capabilities in complementary
Strategic ways to develop competitive
Alliances advantages
• Include distribution, supplier, or
outsourcing alliances where firms rely
on upstream or downstream partners
to create value
• Partners may have different
▪ Learning rates
▪ Capabilities to leverage
▪ Complementary resources
▪ Marketplace reputations
▪ Types of actions they can
legitimately take
• Two forms include vertical and
horizontal
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 COMPLEMENTARY
STRATEGIC ALLIANCES
Vertical Complementary Strategic Alliance
• Partnering firms share resources and capabilities from
different stages of the value chain to create a competitive
advantage
• Outsourcing is one example of this type of alliance

Horizontal Complementary Strategic Alliance

• Partnering firms share resources and capabilities from the
same stage of the value chain to create a competitive
advantage
• Commonly used for long-term product development and
distribution opportunities
• The partners may become competitors, which requires a
great deal of trust between the partners.
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 BUSINESS-LEVEL
COOPERATIVE STRATEGY
Complementary • Competitors
Strategic ▪ Initiate competitive
Alliances actions to attack rivals
▪ Launch competitive
Competition responses to their
competitor’s actions
Response Strategy
• Strategic alliances
▪ Can be used at the
business level to respond
to competitor’s attacks
▪ Primarily formed to take
strategic vs. tactical actions
▪ Can be difficult to reverse,
expensive to operate

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 Complementary • Are used to hedge against risk and
Strategic uncertainty
Alliances • These alliances are most noticed in
fast-cycle markets
Competition • Uncertainty is reduced by combining
Response Strategy knowledge and capabilities

▪ For example, when entering new

Uncertainty product markets, emerging
Reducing Strategy economies, and establishing
technology standards, these are
unknown areas, so by partnering with
a firm in the respective industry, a
firm’s uncertainty (risk) is reduced.

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 Complementary • Collusive strategies differ from
strategic alliances in that they are
Strategic usually illegal
Alliances • Created to avoid destructive or
excessive competition
Competition • Explicit collusion: Direct negotiation
among firms to establish output
Response Strategy levels and pricing agreements that
reduce industry competition. (illegal)
• Tacit collusion: Indirect coordination
Uncertainty of production and pricing decisions
Reducing Strategy by several firms, which impacts the
degree of competition faced in the
industry.
Competition • Mutual forbearance: (tacit collusion)
Firms do not take competitive actions
Reducing Strategy against rivals they meet in multiple
markets.

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 ASSESSING BUSINESS-LEVEL
COOPERATIVE STRATEGIES
• Used to develop competitive advantages for contributing to
successful positions and performance in individual product
markets.

• Developing a competitive advantage using a strategic alliance,

the integrated resources and capabilities must be valuable, rare,
imperfectly imitable, and nonsubstitutable.

• Vertical alliances have greatest probability of creating

competitive advantage; horizontal are sometimes difficult to
maintain since they are usually between competitors.

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 • Strategic alliances designed to respond to
competition and reduce uncertainty are more
temporary than complementary (horizontal
and vertical) strategic alliances.

• Of the four business-level cooperative

strategies, the competition reducing strategy
has the lowest probability of creating a
sustainable competitive advantage; it also
tends to be temporary.

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 CORPORATE-LEVEL
COOPERATIVE STRATEGIES
CORPORATE-LEVEL COOPERATIVE
STRATEGY is a strategy through which a
firm collaborates with one or more
companies for the purpose of expanding its
operations
● Helps a firm diversify itself in terms of
products offered, markets served, or both
● Requires fewer resource commitments
● Permits greater flexibility in terms of
efforts to diversify partners’ operations
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 • Firms share some of their resources
and capabilities to diversify into
Diversifying new product or market areas
Strategic Alliance • Allows a firm to expand into new
product or market areas without
completing a merger or 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

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 Diversifying • Firms share some of their
Strategic Alliance resources and capabilities
to create economies of
scope
Synergistic • Creates synergy across
Strategic Alliance multiple functions or
multiple businesses
between partner firms

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 • Firm uses a franchise as a
contractual relationship to describe
Diversifying and control the sharing of its
resources and capabilities with
Strategic Alliance partners
• Franchise: contractual agreement
between two legally independent
Synergistic companies whereby the franchisor
Strategic Alliance grants the right to the franchisee to
sell the franchisor's product or do
business under its trademarks in a
given location for a specified period
Franchising of time
• Spreads risks and uses resources,
capabilities, and competencies
without merging or acquiring
another company
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 ASSESSING CORPORATE-LEVEL
COOPERATIVE STRATEGIES

Compared to business-level strategies

 Broader in scope
 More complex therefore more costly
Costs incurred regardless of type selected
• Important to monitor expenditures!

Can lead to competitive advantage and value

when:
• Successful alliance experiences are
internalized
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 Can lead to competitive advantage and value
when (cont’d):
• The firm uses such strategies to develop
useful knowledge about how to succeed in
the future
• The firm gains maximum value from this
knowledge by organizing it and verifying
that it is always properly distributed to
those involved with forming and using
alliances
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 INTERNATIONAL
COOPERATIVE STRATEGY
CROSS-BORDER STRATEGIC ALLIANCE:
an international cooperative strategy in
which firms with headquarters in different
nations combine some of their resources
and capabilities to create a competitive
advantage

● These alliances are sometimes formed

instead of mergers and acquisitions, which
can be riskier
● Cross-border alliances can be complex
and hard to manage
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 INTERNATIONAL
COOPERATIVE STRATEGY
Why form cross-border strategic alliances?
• A firm may form cross-border strategic alliances to
leverage core competencies that are the foundation
of its domestic success to expand into international
markets.
• Multinational corporations outperform firms that
operate only domestically.
• Due to limited domestic growth opportunities,
firms look outside their national borders to
expand business.
• Some foreign government policies require
investing firms to partner with a local firm to enter
their markets.
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 NETWORK COOPERATIVE
STRATEGY
Network cooperative strategy: a cooperative
strategy wherein several firms agree to form
multiple partnerships to achieve shared
objectives
• Stable alliance network
• Dynamic alliance network
• Effective social relationships and interactions
among partners are keys to a successful
network cooperative strategy.
• Firms involved in networks of alliances use
heterogeneous knowledge and are more
innovative.
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 NETWORK COOPERATIVE
STRATEGY
• There are disadvantages to participating in networks,
as a firm can be locked into its partnerships,
precluding the development of alliances with others.
• In certain network configurations, such as Japanese
keiretsus, firms in a network are expected to help other
firms in that network whenever support is required.
• Such expectations can become a burden and negatively
affect the focal firm’s performance over time.

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 NETWORK COOPERATIVE
STRATEGY
• Long-term relationships
Stable Alliance that often appear in mature
Network industries where demand is
relatively constant and
predictable
• Stable networks are built
for exploitation of the
economies (of scale and/or
scope) available between
the firms

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 NETWORK COOPERATIVE
STRATEGY
• Arrangements that evolve
Stable Alliance in industries with rapid
Network technological change
leading to short product
life cycles
Dynamic Alliance • Primarily used to stimulate
Network rapid, value-creating
product innovation and
subsequent successful
market entries
• Purpose is often
exploration of new ideas
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 COMPETITIVE RISKS WITH
COOPERATIVE STRATEGIES
• Partners may choose to act opportunistically
• Partner competencies may be misrepresented
• Partner may fail to make available the
complementary resources and capabilities that
were committed
• One partner may make investments specific to
the alliance while the other partner may not

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 MANAGING COOPERATIVE
STRATEGIES

Two primary approaches:

1. Cost minimization
2. Opportunity maximization

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 1. Cost minimization
• Relationship with partner is formalized with
contracts
• Contracts specify how cooperative strategy is to be
monitored and how partner behavior is to be
controlled
• Goal is to minimize costs and prevent opportunistic
behaviors by partners
• Costs of monitoring cooperative strategy are greater
• Formalities tend to stifle partner efforts to gain
maximum value from their participation

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 2. Opportunity maximization
• Focus: maximizing partnership's value-creation
opportunities
• Informal relationships and fewer constraints allow
partners to:
• take advantage of unexpected opportunities
• learn from each other
• explore additional marketplace possibilities

• Partners need a high level of trust that each party

will act in the partnership's best interest, which is
more difficult in international situations

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