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Please write 1-2 page answer to the discussion questions for the case Redbox,

Discussion questions for Case Redbox and Chapter 9 Cooperative Strategies:

1. What are the challenges Redbox is facing now? What’s Redbox’s core competency, if any? What strategies do you recommend Redbox to take to deal with these challenges? Based on your analysis on Redbox’s core competency and external environment, do you think Redbox can effectively implement your recommendations? 

2. If you believe Redbox’s own core competency or resource and capabilities are not sufficient to respond to the challenges, what resources and/or capabilities do you think Redbox will need? Can Redbox acquire theses resources/capabilities through merger and acquisition, through strategic alliance (either equity alliance or non-equity alliance)? What are the pros and cons of each approach?  

3. Consider the current relationships between Redbox and its strategic alliance partners, including movie studios and supermarkets, how do you characterize them (equity or non-equity alliance, business-level, corporate-level alliance)? What type of market (slow, fast, or standard cycle) is Redbox competing in? What are the reasons to form strategic alliance based on the market-type? 

4. How can Redbox benefit from these alliances (think in terms of economy of scale/scope, market power, financial economies, etc.)? What are the potential risks in these relationships? What measures can Redboxtake to mitigate the risks?

© 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Presentation design
by Charlie Cook

Chapter 9

Cooperative Strategy

Part 2 Strategic Actions: Strategy Formulation

1

Studying this chapter should provide you with
the strategic management knowledge needed to:

Learning Objectives

Define cooperative strategies and explain why firms use them.

Define and discuss the three major types of strategic alliances.

Name the business-level cooperative strategies and describe their use.

Discuss the use of corporate-level cooperative strategies in diversified firms.

Understand the importance of cross-border strategic alliances as an international cooperative strategy.

Explain cooperative strategies’ risks.

Describe two approaches used to manage cooperative strategies.

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9–2

2

Case Application

Case Redbox/Coinstar

Types of strategic alliance (L.O. 1&2 )

Business/Corporate level cooperative strategy (L.O. 3&4 )

Risks (L.O. 6)

Approaches used to manage cooperative strategies (L.O. 7)

Competing in a fast-cycle market

9–3

Discussion Questions for Case Redbox

1. What are the challenges Redbox is facing now? What’s Redbox’s core competency, if any? What strategies do you recommend Redbox to take to deal with these challenges? Based on your analysis on Redbox’s core competency and external environment, do you think Redbox can effectively implement your recommendations?

2. If you believe Redbox’s own core competency or resource and capabilities are not sufficient to respond to the challenges, what resources and/or capabilities do you think Redbox will need? Can Redbox acquire theses resources/capabilities through merger and acquisition, through strategic alliance (either equity alliance or non-equity alliance)? What are the pros and cons of each approach?

3. Consider the current relationships between Redbox and its strategic alliance partners, including movie studios and supermarkets, how do you characterize them (equity or non-equity alliance, business-level, corporate-level alliance)? What type of market (slow, fast, or standard cycle) is Redbox competing in? What are the reasons to form strategic alliance based on the market-type?

4. How can Redbox benefit from these alliances (think in terms of economy of scale/scope, market power, financial economies, etc.)? What are the potential risks in these relationships? What measures can Redbox take to mitigate the risks?

9–4

Cooperative Strategy

Cooperative Strategy

A strategy in which firms work 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.

© 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9–5

5

Strategic Alliance

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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9–6

6

Strategic Alliance Behaviors

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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9–7

7

Strategic Alliance

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9–8

Combined

Resources

Capabilities

Core Competencies

Resources

Capabilities

Core Competencies

Resources

Capabilities

Core Competencies

Firm A

Firm B

Mutual interests in designing, manufacturing,

or distributing goods or services

8

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.

© 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9–9

9

© 2015 Cengage Learning. All rights reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

9–10

Figure 9.1

Reasons for

Strategic Alliances

by Market Type

10

Reasons for Strategic Alliances

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9–11

Market

Reason

Slow Cycle

Gain access to a restricted market

Establish a franchise in a new market

Maintain market stability (e.g., establishing standards)

11

Reasons for Strategic Alliances (cont’d)

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9–12

Market

Reason

Fast Cycle

Speed up development of new goods or service

Speed up new market entry

Maintain market leadership

Form an industry technology standard

Share risky R&D expenses

Overcome uncertainty

12

Reasons for Strategic Alliances (cont’d)

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9–13

Market

Reason

Standard Cycle

Gain market power (reduce industry overcapacity)

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

13

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9–14

Figure 9.2 Business-Level Cooperative Strategies

14

Business-Level Cooperative Strategies

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9–15

Combine partner firms’ assets in complementary ways to create new value.

Include distribution, supplier or outsourcing alliances where firms rely on upstream or downstream partners to build competitive advantage.

Complementary

Strategic Alliances

15

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9–16

Figure 9.3
Vertical and Horizontal Complementary Strategic Alliances

16

Complementary Strategic Alliances

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.

Outsourcing is one example of this type of alliance.

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.

Focus is on 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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9–17

17

Competition Response Strategy

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9–18

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

18

Uncertainty-Reducing Strategy

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9–19

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

19

Competition-Reducing Strategy

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9–20

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 firm’s actions and responses.

Complementary

Strategic Alliances

Competition
Response Alliances

Uncertainty
Reducing Alliances

Competition
Reducing Alliances

20

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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9–21

21

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9–22

Figure 9.4 Corporate-Level Cooperative Strategies

22

Corporate-Level Cooperative Strategy

Corporate-level Strategies

Help the firm diversify in terms of:

Products offered to the market

The markets it serves

Require fewer resource commitments.

Permit greater flexibility in terms of efforts to diversify partners’ operations.

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9–23

23

Diversifying Strategic Alliances

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9–24

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

24

Synergistic Strategic Alliances

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9–25

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

25

Franchising

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9–26

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

26

Assessing Corporate-Level
Cooperative Strategies

Compared to business-level strategies

Broader in scope  More complex

More costly

Can lead to competitive advantage and value when:

Successful alliance experiences are internalized.

The firm uses such strategies to develop useful knowledge about how to succeed in the future.

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9–27

27

International Cooperative Strategy

Cross-border Strategic Alliance

A strategy in which firms with headquarters in different nations combine their resources and capabilities to create a competitive advantage.

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.

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9–28

28

International Cooperative Strategy (cont’d)

Synergistic Strategic Alliance

Allows risk sharing by reducing financial investment.

Host partner knows local market and customs.

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

Must gauge partner’s strategic intent such that the partner does not gain access to important technology and become a competitor.

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9–29

29

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.

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9–30

30

Network Cooperative Strategies (cont’d)

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9–31

Long term relationships that often appear in mature industries where demand is relatively constant and predictable

Stable networks are built for exploitation of the economies (scale and/or scope) available between the firms

Stable Alliance
Network

31

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9–32

Network Cooperative Strategies (cont’d)

Arrangements that evolve in industries with rapid technological change leading to short product life cycles.

Primarily used to stimulate rapid, value-creating product innovation and subsequent successful market entries.

Purpose is often exploration of new ideas

Stable Alliance
Network

Dynamic Alliance
Network

32

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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9–33

33

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9–34

Figure 9.5 Managing Competitive Risks in Cooperative Strategies

34

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9–35

Managing Risks in Cooperative Strategies

Creating value

Risk and Asset
Management
Approaches

Desired Outcome

Competitive
Risks

Detailed contracts and management

Developing trusting relationships

Inadequate contracts

Misrepresentation of competencies

Partners fail to use their complementary resources

Holding alliance partner’s specific investments hostage

35

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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9–36

36

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9–37

Managing Cooperative Strategies (cont’d)

Opportunity Maximization Approach

Maximize partnership’s value-creation opportunities

Learn from each other

Explore additional marketplace possibilities

Maintain less formal contracts, fewer constraints

37