9th Global Conference on Business & EconomicsISBN : 978-0-9742114-2-7

A Conceptual Investigation of the Relationship between a Firm’s Strategic Orientation and Strategic Alliances

Danielle A. Chmielewski, PhD (Contact author)

Department of Management and Marketing

Faculty of Economics and Commerce

The University of Melbourne

Level 10, 198 Berkeley Street

VIC 3010 Australia

Ph: +61 3 8344 1886

Fax: +61 9348 1921

Christoph Latteman, PhD

Universität Potsdam

Bebel-Str. 89

14482 Potsdam, Germany

Ph: +49 (0) 331 977 3839

* Both authors contributed equally to this paper

A Conceptual Investigation of the Relationship between a Firm’s Strategic Orientation and Strategic Alliances

ABSTRACT

The principal purpose of this conceptual paper isto investigate the relationship between different strategic orientations and the likelihood of engaging in strategic alliances. The paper also investigates whether the dynamism of a firm’s environment moderates the relationship between market and resource orientation and the likelihood of engaging in strategic alliances. This paper proposes that market-oriented firms (with a greater outward-focus) are more likely to engage in strategic alliances than more inward-focused resource-oriented firms and that the relationships will be robust in the presence of environmental dynamism.Thisresearch is important as it helps to understand the meaning of strategic orientation of firms in a hypercompetitive environment and to explain different strategies in engaging in alliances.In a practical sense this research will provide valuable insights for practitioners on implementing value-creation strategies in dynamic competitive environments.

INTRODUCTION

Firms are confronted by a lot of internal and external challenges within a dynamic competitive environment, including technological change, diffusion of new innovations, globalization, andthe development of new business models (Slater, Olson and Hult 2006; Bettis and Hitt 1995). These fiercely increasing dynamics in many industries are some of the main reasons for the increasing number of strategic alliances such as joint ventures, virtual organizations, and loose contractual agreements among firms (Bryan and Fraser 1999), as firms manage to cope with the often changing market conditions and competitive intensity (Butler 2008).

Empirical research has confirmed that strategic alliances are an important source for gathering assets, such as knowledge (Gulati 1995; Eisenhardt and Schoonhoven 1996) andcontribute to firm success (Stuart 2000).

Undoubtedly, the global hypercompetitive marketplace has modified the strategic focus of global organizations to shift from a resource-based orientation with anexploitation of given, tangible assets to a market orientation with agile exploration of new intangible assets. The keys to this hypercompetitive shift are the dynamic capabilities of the firm, or the ease with which it can create/recreate new strategic assets (Thomas 1996).However, firms are still existing in (hyper-)competitive business environments which are not engaged in strategic alliances. Obviously, they find alternative strategies to survive in the market not by seeking new assets outside the firm, but still by mainly exploiting resources inside the firm.

Both market orientation and resource orientation are two examples of a strategic orientation. According to Morgan and Strong (1998, p 1055), a strategic orientation is “central to organizational effectiveness in that it represents the competitive strategy implemented by a firm to create continuing performance improvements.” A resource-oriented firm focuses inward on exploiting existing assets as a source of value creation, whilst a market-oriented firm, which typically has a stronger outward-focus, is intent on looking outside the firm for new ways to engage in value creation. Hence, this seems to suggest that a firm’s strategic orientation will influence the likelihood of a firm implementing and executing an innovative, outward-focused strategy such as a strategic alliance.

In light of this, the purpose of this research is two-fold: First, to investigate the relationship between different strategic orientations (namely market and resource orientation) and the likelihood of engaging in strategic alliances; and second, to investigate whether the dynamism of a firm’s environment moderates the relationship between market and resource orientation and the likelihood of engaging in strategic alliances.The importance of this study is to understand the meaning of strategic orientation of firms in a hypercompetitive environment and to identify the impact that a firm’s strategic orientation has on the likelihood of engaging in a strategic alliance.

An additional contribution of this conceptual paper is that it combines an analysis of the impact of both resource-based and marked-based factors on strategic decision-making. Resource orientation and market orientation are two strategic perspectives that prescribe the process of leveraging a firm’s resources (i.e., firm-based factors) and competitive environment (i.e., market-based factors) in order to successfully implement strategic decisions. Researchers have advocated the importance of conducting strategy research that links resource-based factors with market-based factors (Cockburn, Henderson, andStern 2000; Priem andButler 2001), as both factors affect a firm’s strategic decision-making and profitability (Doyle 2000; McGahan andPorter 1997). Ghingold and Johnson (1998, p 72) argue that “neither external nor internal taken alone is sufficient to ensure competitive success. They must be wedded to each other.” Consequently, combining an analysis of resource and market orientation will help a firm to balance its resources with the demands of the market when undertaking the decision as to whether or not to engage in a strategic alliance.

This conceptual paper starts with the statement of research questions followed by a brief literature review of strategic alliances, different strategic orientations, and dynamic environments. The relationships between market and resource orientation and the engagement in alliances will be outlined conceptually. This paper is the basis for further empirical work on the relationship between a firm’s strategic orientation and the likelihood of engagement in strategic alliances in competitive business environments.

RESEARCH QUESTIONS

The two broad research questionsthat this study is aiming to examineare diagrammatically represented in the following conceptual model (see figure 1).

(1.)(i) Are market-oriented firms (which are typically more outward-focused) more likely to engage in strategic alliances?

(ii) Are resource-oriented firms (which are typically more inward-focused) less likely to engage in Strategic Alliances?

(2.) To what extent does a firm’s external environment moderate the relationship between a firm’s strategic orientation and its likelihood of engaging in strategic alliances?

--- Insert Figure 1 about here ---

Literature Review and Conceptual Background

Strategic alliances are defined as cooperative agreements of any form with the aim of strengthening the partner’s position in an industry (Arino andla Torre 1998).The initialization of alliances is a strategic option to enable an access to specific resources of other firms (Powell, Koput,and Smith-Doerr 1996),to share risks, or to explore new markets (Arino and la Torre 1998).

Strategic orientations “are the guiding principles that influence a firm’s marketing and strategy-making activities” (Noble, Sinha, andKumar 2002, p 25). They are a component of a firm’s culture which helps a firm to manage its interaction with its competitive environment, customers, and competitors (Noble, Sinha, andKumar 2002). As identified earlier, market orientation and resource orientation are two examples of a strategic orientation.

Narver and Slater (1990) define market orientation as the organizational culture that most effectively and efficiently encourages the three key behaviors – (1) customer orientation, (2) competitor orientation, and (3) interfunctional coordination–that will help an organization to achieve a sustainable competitive advantage by creating and providing superior value to its customers. Market oriented firms follow a Market-Based view (MBV). They are externally oriented, with a thorough understanding of their customers’ needs and wants, as well as a strong awareness of present and potential competitors(Kumar, Subramanian, and Yauger 1998; Pelham and Wilson 1999). Further, a market orientation facilitates innovative behaviour within a firm, because it ensures a proactive mind-set within a firm, allowing firms to search for new and/or unserved markets (Slater andNarver 1998). So, a market orientation enables a firm to respond quickly and efficiently to changes in its external environment. Lado, Maydeu-Olivares, and Rivera (1998, p 25) see market orientation as a “strategy used to reach a sustainable competitive advantage.” Previous research studies have found a positive relationship between market orientation and innovation which is one important key to succeed in hypercompetitive markets (see Gatignon andXuereb 1997; Han, Kim, andSrivastava 1998; Hurley andHult 1998; Lukas andFerrell 2000).

A resource orientation describes the degree to which a firm practices a Resource-Based View (RBV) and is used to assess the extent to which a firm is oriented towards the development of valuable and unique resource bundles (Paladino 2006).A resource orientation focuses on how firms create and deploy firm-specific resources when making strategic decisions and is intent on leveraging existing resources to enhance performance. A resource-oriented firm takes an inside-out approach to strategic decision-making, in that it evaluates its existing stock of resources to determine how well they can be used to satisfy market opportunities (Chmielewski andPaladino 2007). In other words, a resource-oriented firm ensures that an appropriate fit exists between its resources and market opportunities before implementing strategic decisions (Paladino 2006). This suggests that a resource-oriented firm may not be in a position to be as innovative as a market-oriented firm as it is more likely to“use and build on their existing knowledge base rather than entering unfamiliar areas”(Schilling 1998, p 273).

Hence, as resource oriented firms are taking an inside-out perspective and market-oriented firms are taking an outside-in perspective, it can be proposed that market-oriented firms are seeking resources (for exploration or exploitation) by (strategic) alliancing instead of thinking of strengthening their own internal resources in a first place. Our research question 1 (i) (are market-oriented firms more likely to engage in Strategic Alliances) addresses this line of argument. According tothe approaches of the Market- and Resource-Based View, aresource-oriented firm is thus less likely to engage in outward-oriented strategic alliances to seek business opportunities. It first tries to achieve an appropriate fit between its own internal resources and market opportunities, before looking externally for new resources.This links in with research question 1 (ii) (are resource-oriented firms less likely to engage in Strategic Alliances?).

Contemporary researchers have described global competition and environmental dynamism as worldwide interactions requiring major resource commitments (i.e., through cross-border mergers and acquisitions, networks, and alliances) and the development of dynamic cross-border (on a firm and country level) capabilities, wherein companies achieve competitive advantage through acts of innovation and reformulation of existing strategies (D’Aveni 1999).

Regarding environmental dynamism, the strategic marketing and management literature has long argued that a firm’s external environment affects the linkage between strategy and performance (Miller 1987; Tan andLitschert 1994). In order for a firm to be successful, strategic decision-making needs to revolve around analysing and responding to changes in a firm’s external environment, such as competitors’ actions (Cockburn, Henderson, andStern 2000; Spanos andLioukas 2001). This in turn helps a firm to position itself in an industry in such a way as to best defend itself from competitive actions (Teece, Pisano, andShuen 1997). Conducting an analysis of a firm’s external competitive environment enables a firm to better understand and measure “the attractiveness of industries for long-term profitability and the factors that determine it” (Porter 1985, p 1). The implication of this is that different environmental contexts require firms to make different strategic choices. Innovation and change have become inextricably linked together and must be addressed proactively by management.

As a consequence, the competitiveness of an industry should positively influence the likelihood of strategic alliances of outward/market-oriented firms. As resource-oriented firms ensure that an appropriate fit exists between its resources and market opportunities before implementing strategic decisions (Paladino 2006), these companies are inward orientated, and the dynamism of the environment should have less impact on their alliancing decisions. Rather, with a resource orientation,the internal fit or misfit of a firm’s resources should have a higher impact on the engagement in strategic alliances than the degree of competitiveness of the environment. These implications are addressed by research question 2 (To what extent does a firm’s external environment moderate the relationship between a firm’s strategic orientation and its likelihood of engaging in Strategic Alliances?).

Conclusion

Since the mid 1990s there has been an increasing trend toward the engagement of strategic alliances in competitive environments. Previous research found a positive relationship between market orientation and innovation which is one important key to succeed in hypercompetitive markets. Here, the choice of the strategic orientation is key to reach sustainable competitive advantages (Lado, Maydeu-Olivares,and Rivera 1998). Global competition and environmental dynamism require major resource commitments e.g. through cross-border alliances and the development of dynamic cross-border capabilities to achieve competitive advantage (D’Aveni 1999). These arguments leads us the still not raised research question about the relationship between different strategic orientations (namely market and resource orientation) and the likelihood of engaging in strategic alliances, in particular in hyper competitive markets.

This extends the existing body of research by linking together two strategically important concepts, that of strategic orientation and its impact on strategic alliancing.This research also has practical applications in that it will provide valuable insights for practitioners on implementing value-creation strategies in different levels of competitive environments.

As this is a conceptual paper further empirical research is necessary. The research questions will be further formulated as hypothesis. They will be validated by quantitative (ANOVA) analyses. The data for the analyses will gathered by a survey based on a questionnaire developed by Chmielewski (2005). Firms will be asked about their engagements in strategic alliances during the last ten or so years as a measurement for the dependent variable. The independent variables are the degree of resource orientation, the degree of market orientation,the market attractiveness, and technological orientation of the firm. Moderating variables are the competitiveness of the market. Control variables will be, for example, the size and the international orientation of the firm.

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