Content M-4: Strategic alliances and strategic change

Question 1

Recap: How to overcome intertia?

Answer 1

• A new business unit with decision-making authority focusing on new technology or business model that works separately from the rest of the organization.
• Open innovation: Getting input for innovation processes from outside of the organization.
• ** Strategic alliances with other organizations to develop new products based on the new technology or business model **

Question 2

What is a strategic alliance?

Answer 2

Voluntary collaboration agreements between two or more organizations to achieve a business purpose.

Question 3

What is a contract? What is the advantage and disadvantage?

Answer 3

A contract specific how the alliance will work and the roles and responsibilities of the partners.

• Advantage: Relatively easy to set up and dissolve.
• Disadvantage: Not all future situations can be foreseen at the time of contract –> partners can use unexpected future developments to neglect their responsibilities.

Question 4

What is a joint venture? What is the advantage and disadvantage?

Answer 4

Partners form a separate company that they jointly own to carry out the purpose of the alliance.

• Advantage: Creates incentives to collaborate and to work for the success of the alliance.
• Disadvantage: Costly to set up and dissolve.

Question 5

Why are strategic alliances an important tool for strategic change?

Answer 5

They enable companies access to:
- New resources
- New learning opportunities

Question 6

Why form a strategic alliance? In perspective of the resource-based view (RBV).

Answer 6

RBV:
- Firms can create competitive advantage based on their resources, or combinations of them, that are valuable, rare inimitable, non-substitutable.
> R&D knowledge
> Distribution channels
> Relationships with suppliers
> Innovation culture

• Such resources are sticky to their owners: it is very difficult to move such resources across firms.
• Alliances enable firms the access to valuable, rare, inimitable, non-substitutable resources without having to own them.

Question 7

What are two reasons for strategic alliances?

Answer 7

• Exploiting complementarities
  > Many products are based on combinations of multiple technologies.
  > A firm’s resources can become more valuable when combined with another firm’s resources.
• Accessing outside knowledge and ideas
  > Managers’ cognitive frames and organizational processes are shaped by old ways of doing business.
  > Established organizations struggle when new technologies or business models require firms to revise the way they create value.

–> Alliances can provide new perspectives to how to reconfigure resources differently as a response to external development.

–> Alliances can also enable firms to internalize their partners’ knowledge through organizational learning.

Question 8

Alliances can also enable firms to internalize their partners’ knowledge through organizational learning. Correct?

Answer 8

Yes! Think about the Polaroid example. Alliances may have helped Polaroid not only to develop a great digital camera, but also to understand that they need to focus on the camera, not film or print material, as the main source of profits.

Question 9

Alliances and competitive advantage

Answer 9

• Alliances enable firms to access to VRIN resources without having to own them by weakening the “immobility” of resources.

Question 10

What are the four types of rents (gains) that are relevant for a firm in an alliance?

Answer 10

1. Internal rents
2. Relational rents
3. Inbound spillover rents
4. Outbound spilloverrents

Question 11

Strategic alliances and competitive advantage. What are internal rents?

Answer 11

• Gains that a firm generates based on its own resources
  (e.g. cars produced by GM with its own resources int he NUMMI alliance provide internal rent to GM).
• Complementary resources of alliance partners increase a firm’s internal rents because they make the firm’s own resources more valuable
  (e.g. Toyota production knowledge allowed GM to utilize its own resources more effectively to produce cars).

Question 12

Strategic alliances and competitive advantage. What are relational rents?

Answer 12

• Gains that a firm generates based on its relationship-specific assets with its alliance partner.
  > Partner-specific absorptive capacity
  > Knowledge-sharing routines
  > Trust
  (e.g. during their cooperation, GM and Toyota created practices to share knowledge and develop trust, which increased not only the efficiency of the cooperation but also the learning effect for GM).
• Relational rents will be greater in repeated collaborations with the same partner.

Question 13

Strategic alliances and competitive advantage. What are inbound spillover rents? Also known as involuntary knowledge spillovers.

Answer 13

• Gains from resources that the partner DID NOT INTEND to share
  > During collaborations it is not always possible to separate relevant knowledge elements -> some knowledge elements are involuntarily exposed or shared with partners -> partners internalize that knowledge even though it is not part of the deal.

(e.g. during their cooperation, GM probably learned more than Toyota wanted to share because both as a by productof joint work).

Question 14

Strategic alliances and competitive advantage. What are outbound spillover rents?

Answer 14

• Gains by the partner (losses for the focal firm) from resources that a focal firm did not intend to share.
  > Firms use knowledge protection mechanisms to prevent the appropriation of their resources not shared within the alliance.

(e.g. Toyota put specific clauses int he alliance contract to limit interactions with GM engineers to prevent outbound spillover rents).

Question 15

What formula can be used to view a firm’s net gains from an alliance?

Answer 15

Internal rents + Relational rents + Inbound spillover rents - Outbound spillover rents.

Question 16

What can be a consequence of purposefully attempt to appropriate more knowledge than the partner intends to share?

Answer 16

• Greater inbound spillover rents BUT:
• May be perceived as opportunistic behaviors by partners
  > Partners will raise barriers to protect their resources
  > Trust will be damaged

–> Reduced relational rents in the focal and future alliances

Question 17

A closer look at competitive advantage and alliances: The relational view.

What are relationship-specific assets?

Answer 17

• Assets that are valuable only within a specific relation sip context.
  > Partner-specific absorptive capacity
  > Knowledge-sharing routines
  > Trust

Question 18

A closer look at competitive advantage and alliances: The relational view.

According to relational view, why do alliances contribute to competitive advantage?

Answer 18

• Alliances contribute to firm’s competitive advantage because they enable firms to build and exploit relationship-specific assets.
• Relationship-specific assets are difficult to imitate and substitute by rivals, making them critical resources for firms.

Question 19

Recap: What is absorptive capacity?

Answer 19

The ability to locate valuable external knowledge, evaluate its usefulness, and utilize it for commercial purposes.

Question 20

What is partner-specific absorptive capacity? How can it be developed?

Answer 20

The ability to understand and evaluate, and learn the knowledge of a specific partner.

• In an alliance, partner-specific absorptive capacity is developed as individuals within the alliance partners get to know each other well enough to know who knows what, and where critical expertise resides within each firm.
• This knowledge develops informally overtime through interfirm interactions.

Question 21

What are knowledge-sharing routines?

Answer 21

A regular pattern of interfirm interactions that permits the transfer, recombination, or creation of specialized knowledge.

Question 22

Knowledge consists of information and know-how.
What is information, and what is know-how?

Answer 22

• Information: Easily codifiable knowledge that can be transmitted without loss
  > The number of questions in an exam
  > The procedure to land a plane
• Know-how: Knowledge that is tacit, “sticky”, complex, and difficult to codify
  > Making a story interesting
  > Landing a plane smoothly in difficult weather conditions

Question 23

Which one is more likely to result in sustainable advantages, information or know-how? Why?

Answer 23

• Since know-how is tacit, sticky, and difficult to codify, it is difficult to imitate and transfer.
• Therefore, compared to information, know-how is more likely to result in advantages that are sustainable.
• As a result, alliance partners that are particularly effective at transferring know-how are likely to outperform competitors.

Question 24

How can know-how be “learned”?

Answer 24

• Since know-how is tacit, sticky, and difficult to codify, it can be only be learned through observation and joint application.

“Students learn form masters, often without realizing, by observing them and hanging out with them”.

In an alliance, knowledge-sharing routines facilitate observation and joint application of know-how.

Question 25

Why would a firm with valuable know-how allow the development of knowledge-sharing routines and share its know-how with alliance partners?

Answer 25

• Sharing know-how may mean erosion of competitive advantage
• BUT it is also a big incentive for potential partners to collaborate.
• Trust helps a lot - without trust alliances can quickly become learning races.

Question 26

What are the advantages of trust in an alliance? Why would a firm care about being trusted?

Answer 26

Trust in the partner that the partner will not engage in opportunistic behavior by abusing its access to focal firm resources and know-how.

• Is earned over time within a single relationship or over repeated transactions

–> Reduced the need for costly knowledge protection mechanisms
–> Encourages the sharing of valuable knowledge

Question 27

How can relational rents be increased?

Answer 27

• Investing in developing knowledge sharing routines and trust, and so develop partner-specific absorptive capacity.
• Having complementary resources to start with leads to greater potential gains for both partners, which leads to greater incentives to cooperate and to develop knowledge-sharing routines.
• Easier when partners have compatible organizational structures and cultures.

Question 28

When do two things complement each other?

Answer 28

Two things complement each other when having more of one increases the value of the other.

Partner resources, especially knowledge-based resources should be:
- Similar enough for partners to make sense of each other’s resources and their value.
- Different enough to facilitate unique resource combinations and valuable learning opportunities.

Question 29

How compatible are alliance partners in their way of working, interacting and decision making? Differences in three areas can be particularly important. Which ones?

Answer 29

• Hierarchical vs. fluid organizational structure
• Formal vs. information interactions
• Slow and firm vs. quick and dirty decision-making

Big differences in these areas can lead to frustration in interaction between partners, increase coordination challenges, and reduce knowledge change.

Question 30

The individuals in an organization are learning. What about the rest of the company?

Answer 30

• Newly learned knowledge should be codified (imperfect process)
• This codified knowledge should be diffused within the company (how?)
• Learning from alliance partners remains an appealing but difficult thing!

Question 31

Conclusion. What are the main reasons/advantages of alliances? Challenges?

Answer 31

• Alliances can quickly, but temporarily, expand a firm’s resource base to include new and complementary resources.
• Alliances also provide learning opportunities that can provide valuable insights about new ways of utilizing resources.
• Alliance learning requires deliberate intent and mindful effort, as well a partner willing to share knowledge, it is therefore very difficult.

> Expand a firm’s resources
Provide learning opportunities
It’s difficult

Question 32

What are the two ways of governance through which an alliance takes place?

Answer 32

• Contract
• Joint venture

Question 33

In summary, why would firms want to form strategic alliances?

Answer 33

• Alliances enable firms to access VRIN-resources without having to own them.
• Alliances can quickly, but temporarily, expand a firm’s resource base to include new and complementary resources.
• Alliances can provide new perspectives on how to reconfigure resources differently as a response to external developments.
• Alliances can also enable firms to internalize their partners’ knowledge through organizational learning.