Cooperative Strategy: Managing Alliances, Networks, and Joint Ventures Review

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Cooperative Strategy: Managing Alliances, Networks, and Joint Ventures ReviewStrategies Of Cooperation: Managing Alliances, Networks, And Joint Ventures 2nd Edition by John Child, David Faulkner (Oxford University Press) excerpt: Strategic alliances and other forms of interfirm cooperation have grown remarkably since the mid-1980s. They are one of the more important new organizational forms. Despite the managerial and organizational challenges they undoubtedly present, there is no sign that alliances are a transient phenomenon. A survey based on 323 questionnaire responses and over 400 interviews with senior executives in 2000 indicated that alliances were `expected to account for 16 percent to 25 percent of median company value within five years and, astonishingly, more than 40 percent of market value for one-quarter of companies' (Contractor and Lorange 2002: 4).
Alliances are, along with outsourcing and virtual value-chains, one of the defining forms of modern networking among firms. As noted, they represent a clear break away from the internalized, hierarchical model of the firm, of which General Electric and IBM were salient examples in the 1980s. Today, leading corporations such as these have as many as 1,000 alliances. In the past, such corporations might have regarded alliances as a relatively peripheral activity, primarily for entering emerging country markets in which risks were high or government regulations required jVs or licensing agreements. Today, alliances are regarded as a means to achieving fundamental strategic objectives such as a strong market position, significant knowledge acquisition, and major cost reductions.
This book attempts to take stock of current thinking on the subject of cooperative strategy. The focus will he on cooperation between firms, though many of the insights into establishing and managing interfirm cooperation can also be applied to partnerships between other types of organization. Alliances, which are partnerships between firms, are the normal agent for cooperative strategy. "they are often `strategic' in the sense that they have been formed as a direct response to major strategic challenges or opportunities
which the partner firms face. Alliances are a means to an end, and consequently they are not necessarily formed with a long-term cooperative relationship in mind. But they may be established with this intention, the more so when the partners invest substantially in them. Once alliances are up and running, partners may also perceive unanticipated benefits from cooperation, such as mutual learning, which lead them to reevaluate it positively.
However, alliances can also be formed with shorter-term objectives in view. A firm may intend to use an alliance as a means of appropriating competencies and knowledge from its partner, which it continues to regard as an actual or potential competitor. Or it may enter into an alliance as a way of taking out an option for the future in conditions of uncertainty-for example, entering an unfamiliar national market. Once it has mastered the uncertainty, it may no longer attach much value to continuing the cooperation.
Whatever the underlying motivation for its formation, any alliance requires an ability to manage cooperation in order to generate returns to the partners. The ever-growing prevalence of alliances, and the need to understand the basis for their successful management, provides the main justification for the present book. It is informed by John Child's work on JVs in China and to a lesser extent Brazil and Eastern Europe, David Faulkner's work on strategic alliances between companies in developed nations, and Stephen Tallman's work on understanding the processes and motivations for alliance strategies. It also attempts to integrate what the authors believe to be the salient ideas of other writers on cooperative strategy in tackling some of the key issues currently under debate in the field. A number of important ideas emerge from the writers' efforts in this endeavor, which are perhaps worth capturing before the reader embarks on the task of a detailed reading of the book:
Cooperative strategy is not new; it has always been with us. It means what it suggests, namely the achievement of an agreement and a plan to work together; not the giving of orders down hierarchies. Firms embarking upon alliances with other firms need to keep this in the forefront of their consciousness when devising systems and controls, and activating them in the joint enterprise. This book, whilst concentrating on perhaps the pre-eminent form of cooperation-namely, the various forms of strategic alliance-encompasses other forms of cooperation as well that are met in business activity, even down to the humble distributor or supplier agreement.
Commitment and trust are the key attitudes most strongly associated with success in alliances. No amount of energy and clear direction will compensate for their absence. And it should be noted that commitment can exist without trust and vice versa, but both are necessary for a lasting and stable relationship.
Strategic alliances, including JVs, collaborations, and consortia, are at base all about organizational learning, and should be structured towards that end. However, many other types of cooperation, such as networks or virtual corporations, are primarily about skill substitution-that is, Company A cooperates with Company B because it sees that its partner can exercise a particular skill better than it can.
Other forms of cooperative strategy, such as virtual organizations, networks, and outsourced corporations, are about capability substitution. Their strength lies in
their specialization, adaptability, and flexibility, but not necessarily in the learning opportunities they afford.
Cooperative enterprises do not do away with the need for intelligent purpose, a brain, and a central nervous (information) system if they are to achieve competitive advantage in relation to integrated corporations that more self-evidently have these characteristics.
To cooperate does not mean to allow all proprietary information to pass unchecked to the partner. As Richardson (1972) warns: 'Firms form partners for the dance but, when the music stops, they can change them.'
Issues of control need to be addressed, but more subtly than in hierarchies, as too great a degree of control in cooperative enterprises stifles innovation and motivation, and can lead to the breakdown of the cooperation.
A successful alliance is one that evolves into something more than was perhaps foreseen at the outset. Conscious attempts must be made to cause the alliance to develop if it is to attract the best people, and contribute most to the partner companies.
The interface between the two (and sometimes more) company cultures is the crucible of potential achievement. Sensitivity to each other's cultures is vital to effective joint operation. Its absence leads to a failed alliance, however great the potential economic synergies between the partners.
Information technology (IT) makes the task of coordinating cooperative strategy that much easier, but it cannot and must not be allowed to substitute for bonding between cooperating company executives.
These and other key lessons from the research behind this hook are developed in more detail in the chapters that follow.
Part I is concerned with the nature of cooperation and its role in strategy. Chapter 2 outlines the main perspectives from economics that contribute to an understanding of cooperative strategy. The theory of cooperative strategy is related to market-power theory, transaction-cost economics, agency theory, resource-based theory, transaction value theory, real options theory, and increasing-returns theory. Chapter 3 continues to address major theoretical models of cooperation, but from managerial and organizational perspectives, such as game theory, strategic-management theory, resource dependence, social network theory, and organizational theory. It summarizes the relevance of these theories and draws out the complementarities between them.
Cooperation depends on trust between partners. Chapter 4 presents the insights into trust that can be derived from psychological and sociological research. This identifies the factors on which trust can he based and through which it can develop. The first step is to find a basis on which the risks of depending on partners become mutually acceptable.
As the partners get to know more about each other, this improved understanding should breed further mutual confidence. Eventually, the cooperation may become firmly established on the basis of genuine personal friendships between the key participants. These elements in trust development can support the phases through which cooperation within an alliance can develop. The chapter closes with guidelines for developing trust within cooperative relationships between firms.
Part II is concerned with how cooperation between firms is established and the various forms it can take. Chapter 5 introduces the idea of an alliance process by which two firms find each other for a cooperative venture and discusses the principal motives behind a cooperative strategy. It considers the most common reasons for setting up a collaborative activity with a competitive or complementary firm. The various types of resource and skill deficiency are rated in relation to their importance as stimuli to cooperative activity. It is emphasized that it is not only competence vulnerabilities, but also the desire to spread risk and the need to reach markets fast, whilst 'windows of opportunity' last, that drive organizations to set up cooperative arrangements. Strategic, transaction-costreducing, and organizational learning motives for cooperative activity are compared and contrasted (Kogut 1988).
Chapter 6 considers the criteria to be highlighted in selecting a partner and deciding upon...Read more›Cooperative Strategy: Managing Alliances, Networks, and Joint Ventures Overview

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