Failing to Obtain Desired Levels of Success with Cooperative Strategies

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Ch apte r 9. Mini -Case

Failing to Obtain Desired Levels of Success with Cooperative Strategies

Th e co mplex ity assoc iated with mos t coope rative strateg ies inc rease s the difficu lty of

success fully us ing the m. One caus e of this co mplex ity is the fac t tha t often , firms co llabo rating

on ce rtain projec ts are simultaneous ly co mpe ting with eac h othe r as well. As exp laine d ea rlier,

this rea lity desc ribe s the relationsh ip be twee n Cisc o an d IBM as well as thos e ex isting with

airline co mpan ies tha t hav e joine d allianc e ne tworks (suc h as Star, One world, an d Sky Tea m).

Ano the r co mplica tion is tha t firms so metimes form a pa rtne rsh ip with a co mpan y tha t is itse lf a

co llabo ration be twee n othe r co mpan ies . Fo r exa mple, Fo rd Motor Compan y formed a joint

ven ture with ca rbo n manu fac turer DowAksa , a firm tha t is a joint ven ture organ ize d by Dow

Che mica l Compan y an d Istanbu l-base d Aks a Ak rilik Kimya Sanay ii A.S. Th e pu rpos e of the

Fo rd/DowAks a co llabo ration is to find way s to deve lop cheape r grade s of ca rbo n fibe r

co mponen ts tha t ca n be integ rated into Fo rd’s au tomob iles an d trucks . Becaus e it is muc h ligh ter

tha n stee l, ca rbo n fibe r he lps au to manu fac turers reduc e the weigh t of the ir produc ts, which in

turn fac ilit ates the ir efforts to inc reas e produc ts’ ga s mileage . W e se e the n tha t, for multiple

reasons , the co mplex ities of coope rative strateg ies inc reas e the cha lleng e of effec tive ly

implemen ting the m an d may con tribu te to allianc e failure.

Redbo x an d Verizo n termina ted the ir relationsh ip tha t was origina lly deve lope d to beco me the

strea ming subsc ription co mponen ts of Redbox ’s ren tal bus ines s after on ly two yea rs. (Outerwall

founde d Redbo x in pa rtne rsh ip with McDona ld’s Ven tures , LL C. McDona ld’s hope d to distribu te

DVDs throug h ren tal kiosk s at its res tau ran ts as a mean s of attrac ting cus tomers an d prov iding

the m with a un iqu e se rvice .) Compe ting aga ins t the like s of Netfli x an d Hulu Plus , Redbox ’s

strea ming se rvice failed to attrac t a su fficien t nu mbe r of cus tomers, pe rhap s in pa rt becaus e it

was ab le to strea m to cus tomers on ly items tha t its compe titors were also strea ming . Unlike

Netfli x an d Hulu Plus , Redbo x was no t deve lop ing its own origina l con ten t as a mean s of crea ting

un iqu e va lue for cus tomers. Becaus e the se rvice mad e ava ilab le throug h the Redbo x an d

Verizo n co llabo ration was los ing mone y an d was no t ga ining a su fficien t nu mbe r of subsc ribe rs,

the pa rtne rs chos e to termina te the ir relationsh ip.

Carefully execu ting the ope rationa l de tails of a planne d coope rative strateg y is founda tiona l to its

pe rformanc e an d influence s if it will succee d or fail. In mid-201 5 for exa mple, First So lar, Inc . an d

SunPo wer Corpo ration , the two larges t U.S. so lar-pane l manu fac turers, were in the plann ing

stage s to form a joint ven ture tha t wou ld own an d ope rate so me of the firms’ projec ts. Th e

propose d pa rtne rs be lieve d tha t the co llabo ration wou ld crea te va lue by co mbining “SunPo wer’s po lys ilico n techno log y with First So lar’s thin-film pane ls.” Howeve r, SunPo wer reco rde d a los s in

the first qua rter of 2015 , pa rtly becaus e of cos ts it was incu rring to struc ture the propose d

relationsh ip with First So lar. Th is de mons trates the impo rtanc e of iden tifying efficien t as well as

effec tive way s to struc ture a propose d co llabo ration be twee n co mpan ies as a mean s of

inc reas ing the like lihoo d of ope rationa l success .

Ea rlier, we no ted tha t MillerCoo rs, the joint ven ture formed be twee n Molso n Coo rs an d

SAB Miller, is encoun tering difficu lties . So me ana lys ts be liev e tha t a reaso n for this is tha t, while

the pa rtne rsh ip ha d bee n ve ry success ful du ring its first six yea rs in terms of subs tan tially

reduc ing cos ts by crea ting econo mies of sca le, it ha d failed to inc reas e the marke t sha res he ld

by two of its impo rtan t produc ts, Miller Lite an d Coo rs Ligh t. Th e situa tion with the MillerCoo rs

pa rtne rsh ip sugges ts tha t long -term coope rative strateg y succes s resu lts whe n pa rtne rs find

un iqu e way s to crea te va lue for cus tomers in add ition to find ing way s to reduc e ope rating cos ts.

Sou rces : M. Armen tal, 2015 , SunPo wer swing s to los s on cos ts related to planne d joint ven ture,

W all Stree t Jou rna l Online , ww w.wsj.co m, Ap ril 30 ; D. Harris, 2015 , China joint ven tures : How

no t to ge t bu rned , Abov e the La w, ww w.above the law.co m, Feb rua ry 9; Molso n Coo rs, U.S. joint

ven ture MillerCoo rs fac ing stiff cha llenges , W all Stree t Jou rna l Online , ww w.wsj.co m, May 7; J. D.

Stoll, 2015 , Fo rd to deve lop ca rbon -fibe r material for ca rs, W all Stree t Jou rna l Online ,

ww w.wsj.co m, Ap ril 17 ; P. E. Fa rrell, 2014 , Th e 7 dead ly sins of joint ven tures , En trep reneu r,

ww w.en trep reneu r.co m, Sep tembe r 2; Q. Plumm er, 2014 , Redbo x ins tan t will be killed Oct. 7: A

failed joint ven ture, Tec h Times , ww w.tech times .co m, Octobe r 6.

Cas e Discuss ion Ques tion s

1. W ha t are so me of the major co mplex ities encoun tered in deve lop ing coope rative strateg ies

suc h as strateg ic alliance s an d joint ven tures ?

2. W ha t role doe s co mpe titi on from riva ls play in the even tua l succes s of coope rative strateg ies ?

Pleas e exp lain.

3. W ha t cos ts are incu rred in deve lop ing strateg ic alliances ? How ca n thes e cos ts be managed ?

4. Sh ou ld cos t minimiza tion or oppo rtun ity max imiza tion be the primary goa l of a coope rative

strategy ? Can bo th be ach ieve d simultaneous ly? W hy or why not?