ANALYSING THE CO-OPERATIVE ENVIRONMENT

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ANALYSING THE CO-OPERATIVE ENVIRONMENT

The four links model

As well as competing with rivals, most organisations also co-operate with others, for example

through informal supply relationships or through formal and legally binding joint ventures. Until

recently, such links were rarely analysed in strategy development – the analysis stopped at Porter’s

Five Forces and some in-depth studies of one or two competitors . However, it is

now becoming increasingly clear that co - operation between the organisation and others in its environment

is also important as

• it may help in the achievement of sustainable competitive advantage;

• it may open up new markets and increase business opportunities;

• it may produce lower costs;

• it may deliver more sustainable relationships with those outside the organisation

 It should be noted that an extreme form of co-operation – collusion between competitors to rig markets – is illegal in most countries and is not explored further here. But there are many other forms of co-operation that are highly benefi cial and should form part of any analysis of the environment. For example, European steel companies have formed joint ventures with Brazilian steel companies for the benefi t of both parties, and Krupp Thyssen Stahl is co-operating with its energy suppliers to reduce costs. Moreover, all the main European steel companies are co-operating with the government of the EU on policy matters aff ecting the industry. Equally, North American steel companies are co-operating with Federal and state governments for the benefi t of the industry.

The basic co-operative linkages between the organisation and its environment can usefully be explored under four headings:

1 informal co-operative links and networks

2 formal co-operative links

3 complementors

4 government links and networks.

The objective of such an analysis is to establish the strength and nature of the co-operation that

exists between the organisation and its environment. It can be conducted through the Four Links

Model – see Figure 3.6 .

Opportunities and threats from informal co-operative links and networks

Informal co-operative links and networks are the occasions when organisations link together for a mutual or common purpose without a legally binding contractual relationship. They have long been recognised as providing an important means of understanding the strategy of the fi rm. 32 By their nature, they may well occur by accident as well as by design. They will include many forms of contact,

ranging from formal industry bodies that represent industry matters with other interested parties –

for example, the European Confederation of Iron and Steel Industries – to informal contacts that

take place when like-minded individuals from a variety of industries meet at a social function – for

example, a local Chamber of Commerce meeting.

The analysis will need to assess the opportunities that such links and networks present. Occasionally, there may also be threats from arrangements. In analysing them, it is the strength or weakness of the relationship that matters. For example, in some parts of the world such as Japan and Korea, the networks are called keiretsu and chaebol , respectively, and have provided strong mutual support to those companies that belong to them. In some services, such as international banking, it is the strength of the network that provides the competitive advantage for those involved in it and excludes those that are not.

Opportunities and threats from formal co-operative linkages

Formal co-operative linkages can take many business forms but are usually bound together by some form of legal contract. They diff er from the networks described above in the higher degree of formality and permanence of the link with the organisation. They are shown in alliances, joint ventures, joint shareholdings and many other deals that exist to provide competitive advantage and mutual support over many years.  . Some companies like the UK retailer Marks & Spencer, the Japanese car manufacturer Toyota and the Italian clothing company Benetton have developed such linkages into vital contributors to the uniqueness of their strategies. Suppliers, distributors and other formal co-operators with such companies provide essential products and services at lower prices and higher service levels than those off ered to others in the industry. Essentially, formal co-operative linkages develop out of many years of discussion and understanding. They are very diffi cult for other companies to copy.  The strengths and weaknesses of such linkages should therefore be measured in terms of their depth, longevity and degree of mutual trust. Although the main interest may come from opportunities off ered by such

formal linkages, threats may arise from those developed by competitors.

The opportunities and threats presented by complementors

Complementors are those companies whose products add more value to the products of the base organisation than they would derive from their own products by themselves. 35 For example, computer hardware companies are worth little without the software that goes with them – one product complements the other. In strategic terms, there may be real benefi ts from developing new complementor opportunities that enhance both parties and contribute further to the links that exist between them. Typically, complementors come from diff erent industries with diff erent resources and skills that work together to present new and sustainable joint off erings to customers. Again, it is the strengths and weaknesses of the relationship that need to be analysed. Although the main interest may come from opportunities off ered by complementors, threats may arise from the complementor

linkages developed by competitors.

Opportunities and threats from government links and networks 

Government links and networks concern the relationships that many organisations have with a country’s national parliament, regional assemblies and the associated government administrations. In the case of the EU and other international treaties, these clearly extend beyond national boundaries. Such contact may be formal, through business negotiations on investment, legal issues and tax matters. It may also be informal, through representation on government/industry organisations in

connection with investment and trade.

Government links and networks can be vital in tax and legal matters, such as the interpretation of competition law. Equally, governments can be important customers of organisations, for example in defence equipment and pharmaceuticals. Many organisations have come to devote signifi cant time and eff ort to developing and cultivating such relationships through lobbying and other related activities. Because of the nature and role of government, it may need to remain relatively remote in its legislative and regulatory dealings with outside organisations. However, it is appropriate to evaluate the degree of co-operation or hostility between government and outside bodies. Thus outside organisations will wish to consider the opportunities and threats posed by government activities. These may form a signifi cant part of their corporate strategic development, especially at very senior levels within an organisation.

Critical comment on Four Links Model

At least in part, such a model may not have the precision and clarity of the Five Forces Model and other competitor analyses: networks come and go, complementors may come to disagree, alliances may fall apart and democratic governments fail to be re-elected. All linkage relationships lack the simplicity of the bargaining power and competitive threat analyses of the Five Forces Model. However, the Four Links Model is essentially concerned with co-operation between organisations (see Figure 3.6 ). This will have many facets that go beyond simple bargaining relationships

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