THE RELATIONAL VIEW: COOPERATIVE STRATEGY AND SOURCES OF INTERORGANIZATIONAL COMPETITIVE ADVANTAGE

JEFFREY H. DYER

HARBIR SINGH

Realized by:- Sonia Infante- Alice Carboni- Simona Morganti

SOURCES OF COMPETITIVE ADVANTAGES

Sources of competitive advantages

Resource based view

Industry structure view

WHAT IS THE RELATIONAL RENT?

Supernatural profit jointly generated in an exchange relationship that cannot be generated

by either firm in isolation and can only be created through the joint idiosyncratic

contribution of the specific alliance partners.

SOURCES OF RELATIONAL RENT

Investment in relational-specific assets;

Substantial knowledge exchange;

Combining of complementary resources;

Lower transaction costs than competitor alliances.

SOURCES OF RELATIONAL RENT

Investment in relational-specific assets;

Substantial knowledge exchange;

Combining of complementary resources;

Lower transaction costs than competitor alliances.

Specialization of assets is a “necessary condition for rent”

Site specificity

Physical specificity

Human asset

specificity

Three kind assets specificity:

(Williamson, 1985)

DEFINITION ADVANTAGES

SITE SPECIFICITYSuccessive production

stages are located close to one another

- Reduce inventory and transport costs;- Lower costs of coordinating activities

PHYSICAL ASSET SPECIFICITY

Transaction specific capital investments (i.e.

customized machinery, tools..)

- Allow product differentiation;- May improve quality

HUMAN ASSET SPECIFICITY

Transaction specific know how accumulated by

transactors through long standing relationships

- Reduce communication errors;- Increase speed to market

…THERE ARE OTHER SCHOLARS THAT HAVE ACKOWLEDGED THE MULTIDIMENTIONAL PROPERTY OF ASSET SPECIFICITY…

MALONE, 1987

JOSKOW, 1988

ERRAMILLI & RAO, 1993

- Site specificity- Physical asset specificity- Human asset specificity- Time specificity

- Site specificity- Physical asset specificity- Human asset specificity- Dedicated specificity

- Professional skills- Specialized know- how- Customization

SUBPROCESSES OF RELATION- SPECIFIC ASSETS

1) The length (in years) of the governance arrangement designed to safeguard against

opportunism influences the ability of alliance partners to invest in relation specific assets

SUPPLIER RELATIONS: JAPANESE COMPANIES

Japanese automobile producers are successful at building close cooperative ties with suppliers

It generated surplus profits and competitive advantages for collaborating firms

HOWEVER: REMEMBER!..: there is an opportunity cost associated with maintaining long term, continuous relationships with suppliers

…infact in 1995 Nissan and Toyota supported large teams of more than 60 internal consultants to provide assistance to

suppliers

TOYOTA CASE-It has built strong and close relationships with its suppliers based on the need for mutual support and a harmonious society-It helped quickly restore normality to production systems after the Great East Japan Earth quake

http://www.youtube.com/watch?v=IrjvfihcboY&feature=youtu.be

SUBPROCESSES OF RELATION- SPECIFIC ASSETS

2) Ability to substitute special- purpose assets for general purpose assets is influenced by the

total volume and breadth of transaction between the alliance partners

SOURCES OF RELATIONAL RENT

Investment in relational-specific assets;

Substantial knowledge exchange;

Combining of complementary resources ;

Lower transaction costs than competitor alliances

INTERFIRM KNOWLEDGE-SHARING ROUTINES

Interorganizational learning is critical to competitive success…

…but

Organizations often learn by collaborating with other organizations

KNOWLEDGE-SHARING ROUTINES:

Is the second potential source of interorganizational competitive advantage

Firm’s alliance partners: source

of new ideas and information

that result in performance-enhancing technology and innovations.

Alliance partners rents by developing superior interfirm knowledge-sharing routines.

Def: “regular pattern

of interfirm interactions that permits the transfer, recombination, or creation of specialized

knowledge . (Grant, 1996)

------- interfirm processes: are useful to facilitate knowledge exchanges between alliance partners

SUBSTANTIAL KNOWLEDGE EXCHANGE

2. The greater the alliance partners' investment is in interfirm knowledge-sharing routines,

the greater the potential will be for relational rents.

Many scholars divide knowledge into two types:

information

and

know-how

Information:

easily codifiable knowledge that can be transmitted

Know-how :

involves knowledge that is tacit, complex, difficult to codify and difficult to imitate and transfer

---However, compared to information, know-how is more likely to result in advantages that are sustainable.

SUBSTANTIAL KNOWLEDGE EXCHANGE

2 (a). The greater the partner- specific absorptive capacity is, The greater the potential will be to generate relational rents through knowledge sharing.

2 (b). The greater the alignment of incentives by alliance partners is to encourage transparency and reciprocity and to discourage free riding,

The greater the potential will be to generate relational rents through knowledge sharing

A COMPARISON OF TOYOTA'S AND GM'S PRODUCTION NETWORKS

Toyota: knowledge transfers to-and among-suppliers . (These transfers: increase partner-specific absorptive capacity.)

… there is significantly greater knowledge sharing between Toyota and its suppliers than between GM and its suppliers.

GM:

and its suppliers have a history of keeping innovations proprietary.

GM has not cultivated a stable network of supplier companies and consequently, suppliers rationally refuse to engage in costly knowledge-sharing activities

SOURCES OF RELATIONAL RENT

Investment in relational- specific assets;

Substantial knowledge exchange;

Combining of complementary resources ;

Lower transaction costs than competitor alliances.

COMPLEMENTARY RESOUCES ENDOWMENT

“Distinctive resources of alliance partners that collectively generate greater rents than the sum of those obtained from the individual endowments of

each partner”.

COCA-COLA & NESTLE ALLIANCE

Nestle’s brand names and

competence in producing

soluble coffee and tea

Coca-Cola’s powerful

international distribution and vending

machine network

“ The greater the proposition is of synergy- sensitive resources owned by alliance partners that, when combined,

increase the degree to which the resources are valuable, rare and difficult to imitate, the grater the

potential will be to generate relational rents”.

COMPLEMENTARY RESOURCES ENDOWMENT

SUBPROCESSES OF COMPLEMENTARY RESOURCES ENDOWMENT

1) Ability to identify potential partners and value their complementary resources.

Prior alliance experience;

Evaluation capability ;

Acquisition of information.

SUBPROCESSES OF COMPLEMENTARY RESOURCES ENDOWMENT

2) Ability to develop an organizational complementary .

compatible organizational system , processes and culture

SOURCES OF RELATIONAL RENT

Investment in relational-specific assets;

Substantial knowledge exchange;

Combining of complementary resources;

Lower transaction costs than competitor alliances

EFFECTIVE GOVERNACE

1.Third-party enforcement of agreements

2.Self-enforcing agreements

informal formal

SUBPROCESSES OF EFFECTIVE GOVERNANCE

1) Ability to develop a self-enforcing mechanism rather than a third-party

enforcement .Avoid

contracting costs

Lower costs of monitoring

Lower costs of adaptation

No time limitation

SUBPROCESSES OF EFFECTIVE GOVERNANCE

2) Ability to imploy an informal self-enforcing mechanism rather than a formal self-

enforcing .

Lower marginal costs

Difficult to imitate

MECHANISMS THAT PRESERVE RELATIONAL RENTS

generated by alliance partners:

-Interorganizational asset interconnectedness -Partner scarcity -Resource indivisibility -Institutional environment

Interorganizational Asset Interconnectedness

alliance partners may need to make "bundles" of related relation specific investments in order to realize the full potential of those investments in an alliance relationship.

Partner Scarcity

The creation of relational rents is often contingent on a firm's ability to find a partner with:

---complementary strategic resources

---a relational capability

<<< there are strong first mover advantages >>>

Resource Indivisibility

Partners may combine resources or jointly develop capabilities in such a way that the resulting resources are both:

idiosyncratic and indivisible

Institutional Environment

An institutional environment that encourages or fosters trust among trading partners may facilitate the creation of relational rents (North, 1990)

IN SUMMARY…

the relational rents generated by alliance partners are preserved because competing firms:

cannot imitate practices or investments cannot find a partner with the requisite complementary strategic

resources or relational capability cannot access the capabilities of a potential partner because these

capabilities are indivisible cannot replicate a socially complex institutional environment

COMPARING DIFFERENT VIEW…

RBV VIEW: focuses on individual firms generate supernatural returns based upon resources, assets and capabilities that are housed within firm

VS

RELATIONAL VIEW: a firm in isolation, irrespective of its capabilities or resources cannot enjoy these rents

RBV VIEW: an individual firm should attempt to protect valuable proprietary know- how

VS

RELATIONAL VIEW: share valuable know- how with alliance partners

INDUSTRY STRUCTURE VIEW: firms should increase number of suppliers

VS

RELATIONAL VIEW: firms can increase profits by increasing their dependence on a small number of suppliers

Relationships between firms are an increasingly important unit of analysis for

explaining supernatural profit results

The relational view offers a useful theoretical lens through wich researches can

examine and explore value- creating linkages between organizations

…Conclusion…

Thanks for your

attention!!!

BIBLIOGRAPHY/ SITOGRAPHY

- “The relational View: Cooperative strategy and Sources of Interorganizational Competitive Advantage”, Dyer and Singh, 1998

- “Remade in America, translating & transforming japanese management systems”, edited by Jeffrey K. Liker, W. Mark Fruin & Pave S. Adler

- “The determinants of inter-firm trust in supplier- automaker relationships in te U.S., Japan, Korea”, Jeffrey H. Dyer, 1997

- http://www.toyota-global.com/sustainability/of_initiatives/stakeholders/partners/#supplier

- www.youtube.com