294 Part 2: Strategic Actions: Strategy Formulation
more extensively as a way of creating value for customers by offering many goods and
services in many geographic (domestic and international) markets.
A network cooperative strategy is particularly effective when it is formed by geo-
graphically clustered firms,^86 as in California’s Silicon Valley and Rome, Italy’s aerospace
cluster. Effective social relationships and interactions among partners while sharing their
resources make it more likely that a network cooperative strategy will be successful,^87
as does having a productive strategic center firm (we discuss strategic center firms in
detail in Chapter 11). Firms involved in networks gain information and knowledge from
multiple sources. They can use these heterogeneous knowledge sets to produce more
and better innovation. As a result, firms involved in networks of alliances tend to be
more innovative.^88 However, there are disadvantages to participating in networks as a
firm can be locked into its partnerships, precluding the development of alliances with
others. In certain network configurations, such as Japanese keiretsus, firms in a network
are expected to help other firms in that network whenever support is required. Such
expectations can become a burden and negatively affect the focal firm’s performance
over time.^899-5a Alliance Network Types
An important advantage of a network cooperative strategy is that firms gain access
to their partners’ other partners. Having access to multiple collaborations increases
the likelihood that additional competitive advantages will be formed as the set of
shared resources expands.^90 In turn, being able to develop new resources further
stimulates product innovations that are critical to strategic competitiveness in the
global economy.
The set of strategic alliance partnerships that firms develop when using a network
cooperative strategy is called an alliance network. Companies’ alliance networks vary by
industry characteristics. A stable alliance network is formed in mature industries where
demand is relatively constant and predictable. Through a stable alliance network, firms
try to extend their competitive advantages to other settings while continuing to profit
from operations in their core, relatively mature industry. Thus, stable networks are built
primarily to exploit the economies (scale and/or scope) that exist between the part-
ners, such as in the airline and automobile
industries.^91
Dynamic alliance networks are used in
industries characterized by frequent prod-
uct innovations and short product life
cycles.^92 The industries in which Apple and
IBM compete are examples of this situation.
Partly in response, these two firms recently
formed a partnership through which they
collaborate on business services. The pur-
pose of the partnership is to “get more
iPhones and iPads into corporate hands and
more IBM services such as analytics, data
storage, and supply-chain management onto
mobile devices.”^93 Of course, Apple and IBM
each partner with a host of other firms to
develop component parts that are critical to
producing the products that are central to
the success of their recently-formed part-
nership. Thus, a network of relationshipsMathias Rosenthal/Shutterstock.com
Shown in the middle here is representation of a strategic center firm
with links to other firms in an alliance network.