Abstract
Strategic alliances—voluntary interfirm arrangements involving resource sharing—are critical to firm success. To help strategic management students better understand alliance negotiation and formation, we developed a simple game that places them in a real alliance negotiation situation, involving simultaneous cooperation and competition (i.e., co-opetition), in which they negotiate and potentially build alliances. Teams receive either production or knowledge resources and cooperate and/or compete with each other to build a product. In the process, they understand that partners have different objectives, they analyze available resources, and they evaluate whom to trust. In this article, we describe the game and provide debriefing suggestions.
Strategic alliances are “voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services” (Rothaermel, 2017, p. 262). Because strategic alliances matter to managers (PWC, 2015), scholars (Furrer, Thomas, & Goussevskaia, 2008), and teachers (Rothaermel, 2017), it is imperative that students of business administration understand them. However, building alliances present complexities that often challenge students. They are often “co-opetitive” because they may involve cooperation by competitors to achieve a strategic objective (Brandenburger & Nalebuff, 1996; Rothaermel, 2017). They provide firms a strategic alternative to either developing internal capabilities or engaging in mergers and acquisitions to accomplish their objectives (Kogut, Shan, & Walker, 1992). They provide firms an alternative means to access complementary resources (Lorange & Roos, 1998). Because of their co-opetitive nature, enduring alliances must generate win-win outcomes (Arino & Ring, 2010; Ring & Van de Ven, 1994). However, doing so is difficult because partners’ objectives (Shan, Walker, & Kogut, 1994) and resources (Pfeffer & Salancik, 1978) differ. Hence, negotiating an alliance is an important part of the alliance formation process and is rife with difficulties such as Arrow’s (1971) information paradox and the need for trust (Kanter, 1989; Ring & Van de Ven, 1994).
Teaching students about alliance negotiations is both similar to and different from other negotiation settings. All negotiations share important characteristics, such as the importance of trust and information, and goal asymmetries. Therefore, in some ways, teaching alliance negotiations is similar to teaching any negotiation. However, alliances often include unique elements not found in other negotiations. First, negotiating alliances involves a search for relevant information. At the outset, partners may not fully understand their potential partners’ objectives, their resource base, or their willingness to contribute those resources (Lorange & Roos, 1998). Second, while many negotiations are bilateral (e.g., hiring negotiations between an employer and a potential employee), negotiating alliances may require multiplex, multiparty negotiations, both because alliances may be formed across more than two parent companies (e.g., Airbus as it was originally structured) and may involve multiple levels of negotiations within the firms. Finally, alliances also normally include a termination formula (a specific means to determine how and when to terminate the alliance and what to do with the alliances’ resources), which is often not explicitly a part of other negotiations (Child, Faulkner, & Tallman, 2005), except perhaps in the case of noncompete clauses in employment contracts.
Because of these unique qualities of alliance negotiations, we developed a simple experiential exercise (Kolb, 1984) for use in the capstone Strategic Management course that helps students better understand both the decision to ally and the complexities underlying alliance negotiations. We believe that our game offers advantages compared with many other alternatives. Generally speaking, alternatives either cost more or take longer to play. Many computer-based games fail to stimulate the level of emotion, trust, and interactions that occur when students play our game.
Learning Objectives
Students will do the following:
Recognize 1 that different actors have different objectives underlying cooperation and that identifying these differences is a key to cooperative success.
Analyze resources held by their own group and others and decide how to access the resources they need.
Evaluate whether they can trust others or otherwise control the situation. In so doing, students understand the different bases underlying trust and control.
Explain how negotiations simultaneously involve cooperation and competition.
Overview of the Strategic Alliance Game
In the Strategic Alliance Game, student groups produce a product that will be bought by a customer (the instructor). Each group gets a unique resource packet. One group’s packet consists of a knowledge resource that tells students what the customer wants. The other groups receive packets containing production resources that can be used to build output. Groups must produce output that meets customer needs before the time expires. Appendix A explains how to prepare for the game, and Appendix B explains how the game is run and normally unfolds.
Our game includes several simplifying assumptions. First, it assumes that the product to be produced is identical across all competitors. Of course, in reality many firms compete by differentiating their products from those of their rivals (Porter, 1980). Second, we make the simplifying assumption that one group fully understands what the customer wants and has no ability to produce that product, while all other groups have production capability but no knowledge of what to produce. These assumptions make the game much simpler and easier than would other options, such as having multiple groups with partial knowledge of what to produce. However, these assumptions also run counter to the reality that many firms have at least a reasonable idea of what their customers want (Drucker, 2001).
Because of the similarities between negotiating alliances and other negotiation settings that we described in the introduction, our alliance game can be used as a context for teaching negotiations. However, our game includes dynamics related to strategic management and strategic alliances that distinguish it from many other negotiation exercises. First, our game involves a search for relevant information. At the outset, students do not know the composition or distribution of resources or the nature of the desired product; during the game, they must come to understand them. This search for knowledge and understanding mimics the uncertainty involved in forming a strategic alliance (Lorange & Roos, 1998). Therefore, the first step both in building an alliance and in our game is determining the nature of demand and resource allocation rather than deciding upon an appropriate negotiation style. Second, while many negotiation exercises are bilateral in nature (e.g., negotiating a merger or acquisition), our game requires that teams simultaneously negotiate with several others, mimicking the parallel negotiations often undertaken during alliance formation (Lorange & Roos, 1998). Multiple parallel negotiations are more challenging than a dyadic negotiation. In addition, the strategy literature highlights the importance of a lead firm in many alliances (e.g., Apple in Apple’s ecosystem), which parallels our Scenario III (described in Appendix B), where an all-team alliance emerges. If no group acts to lead an all-team alliance, it will not form, and students may instead make smaller bilateral or multilateral deals.
Debriefing Overview
Debriefing is an important part of any experiential learning exercise (Kolb, 1984), and our game is no different. The debrief helps students understand the alliance-building process and examines the learning objectives detailed above. The primary questions that we ask to stimulate discussion during the debrief are the following:
What does winning look like?
Why was your group able or unable to make a product?
Which resource is more important, knowledge or production units? Which resource category (tangible vs. intangible) does knowledge represent in the value creation process?
Why is it so difficult to get needed resources? Which groups were you willing to work with and which were you not?
We detail the debrief in Appendix C, specifically discussing how these questions relate to our learning objectives.
Conclusion
Negotiating a strategic alliance has elements common to many negotiations, but it also presents unique challenges. Because of those unique challenges, we developed a fun, hands-on game for Strategic Management students to understand the alliance negotiation process. We find that students are more engaged in the simulation than in a lecture. In the game, students play the role of firms seeking to build a product, and they are tasked with working with others to understand what is needed and to assemble the resources needed to make the product. The game fosters student understanding of many of the unique challenges of alliance negotiation and formation, including the co-opetitive nature of alliances (Brandenburger & Nalebuff, 1996), differing partner goals, resource uniqueness, the role of trust or controls, and information asymmetry.
Footnotes
Appendix A
Appendix B
Appendix C
Appendix D
Acknowledgements
The authors thank Drs. Jannifer David and Jon Pierce for their comments on various drafts of this article.
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The authors received no financial support for the research, authorship, and/or publication of this article.
Notes
References
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