Strategic Management - Chapter 9

Firms build a superior alliance management capability through

"learning-by-doing" and by establishing a dedicated alliance function.

Alliance management capability consists of a firm's ability to effectively manage three alliance related tasks concurrently:

(1) partner selection and alliance formation (2) alliance design and governance, and (3) post-formation alliance management.

As a corporation strategy, firms use horizontal integration to:

(1) reduce competitive intensity, (2) lower costs, (3) increase differentiation, and (4) access new markets and distribution channels.

The most common reasons why firms enter alliances are to:

(1) strengthen competitive position, (2) enter new markets, (3) hedge against uncertainty (4) access critical complementary resources, and (5) learn new capabilities.

M&As are a popular corporate-level strategy for three reasons:

(1) the desire to overcome competitive disadvantage, (2) the quest for superior acquisition and integration capability, and (3) because of principal-agent problems.

Alliances management capability

A firm's ability to effectively manage three alliance-related tasks concurrently: (1) partner selection and alliance formation, (2) alliance design and governance and (3) post-formation alliance management.

Managerial hurbis

A form of self-delusion, in which managers convince themselves of their superior skills in the face of clear evidence to the contrary.

Strategic network

A social structure composed of multiple organizations (network nodes) and the links among the nodes (network ties).

joint ventures

A standalone organization created and jointly owned by two or more parent companies.

Strategy alliance

A voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.

hostile takeover

Acquisition in which the target company does not wish to be acquired.

corporate venture capital (CVC)

Equity investments by established firms in entrepreneurial ventures; CVC falls under the broader rubric of equity alliances

explicit knowledge

Knowledge that can be codified (e.g., information, facts, instructions, recipes); concerns knowing about a process or product.

Non-equity alliance

Partnership based on contracts between firms. The most frequent forms are supply agreements, distribution agreements, and licensing agreements.

equity alliance

Partnership in which at least one partner takes partial ownership in the other partner.

Small-world phenomenon

Situation in which a network exhibits local clusters, each with high degree centrality.

learning races

Situation in which both partners in a strategic alliances are motivated to form an alliance for learning, but the rate at which the firms learn may vary; the firm that accomplishes it goal more quickly has an incentive to exit the alliance or reduce it knowledge sharing.

Structural holes

Spaces where tow organizations are connected to the same organization, but are not connected to one another. Firms that bridge structural holes (brokers) gain information and control benefits over the non-connected firms.

relational view of competitive advantage

Strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span firm boundaries.

Merger

The joining of two independent companies to form a combined entity.

Horizontal integration

The process of acquiring and merging with competitors, leading industry consolidation.

A firm not connected to any other firm in a network is

an isolate (firm E in Exhibit 9.8). Given its lack of connections, an isolate frequently is at a competitive disadvantage.

Alliance management capability can

be a source of competitive advantage.

Alliances can be governed by the following mechanisms:

contractual agreements for non-equity alliances, equity alliances, and joint ventures.

Most mergers and acquisitions

destroy share-holder value because anticipated synergies never materialize.

A network broker firm connects

different network clusters (firm B in Exhibit 9.8). The broker often spans structural holes, which strengthens it position, especially in a small-world network.

An alliance qualifies as strategic

if it has the potential to affect a firm's competitive advantage by increasing value and/or lowering costs.

A firm with a high degree centrality in a strategic network

is connected to many other firms, provides social capital to the central firm, and is trusted in the closely connected network cluster (firm A in Exhibit 9.8)

If there is any value creation in M&As,

it generally accrues to the shareholders for the firm that is taken over (the acquiree), because acquires often pay a premium when buying the target company.

tacit knowledge

knowledge that cannot be codified; concerns knowing how to d a certain task and can be acquired only through active participation in that task.

The distinction between

mergers and acquisitions (M&A) and acquisition can be blurry. Many Observers simply use the umbrella term M&A to describe horizontal integration.

Strategic alliances have the goal

of sharing knowledge, resources, and capabilities in order to develop processes, products, or services.

A merger describes

the joining of two independent companies to form a combined entity.

Degree centrality

the number of direct ties a firm has in a network, out of the possible direct ties; the more direct ties , the more centrally located the firm is.

Horizontal integration is

the process of acquiring and merging with competitors, leading to industry consolidation.

An acquisition describes

the purchase of (hostile) takeover of one company by another

Acquisition

the purchase or takeover of one company by another; can be friendly or unfriendly.

A strategic network is an alliance of several firms

to pursue a common purpose. It is a social structure of multiple organization (network nodes) and the links among the nodes (network ties).

Firms can use M&A activity for competitive advantage

when they posses a superior relational capability, which is often built on superior alliance management capability.