LØRN case C1220 -
LØRN. ENTERPRISE

Lars Huemer

Professor

BI

A new framework for cooperative strategy and sustainability

Why is there so little research done on cooperative strategy in relation to competitive strategy? Professor at BI Lars Huemer meets Silvija Seres in this conversation about the 17th sustainability goal, new analytics tools and tension between cooperative strategy and competitive strategy among other subjects.
LØRN case C1220 -
LØRN. ENTERPRISE

Lars Huemer

Professor

BI

A new framework for cooperative strategy and sustainability

Why is there so little research done on cooperative strategy in relation to competitive strategy? Professor at BI Lars Huemer meets Silvija Seres in this conversation about the 17th sustainability goal, new analytics tools and tension between cooperative strategy and competitive strategy among other subjects.
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Velkommen til Lørn.Tech - en læringsdugnad om teknologi og samfunn med Silvija Seres og venner. 

 

Silvija Seres: Hello and welcome to this Learn series with BI about sustainability and cooperative strategy. My name is Silvija Seres and today I host Lars Huemer. The theme for this case is Sustainability Driven Strategies, a new framework for cooperative strategy and sustainability. We discuss, among other things, how digitalization, but also sustainability creates a need for a new way of thinking about strategies and perhaps also how the existing body of strategic work is over focusing on competition. While we believe that cooperation and collaboration is probably going to be the main strategic driver going forward. Welcome to Lars Huemer as well.

 

Lars Huemer: Thank you very much.

 

Silvija: We will talk about strategy and you are a strategy guy that I think has found a very, very exciting way of thinking about strategy based on sustainability somehow, sometimes also perhaps to your own surprise, from what I have heard. But I would like to ask you to introduce yourself first, and then we will get on with your strategy. Who are you?

 

Lars: Thank you. My first name is Swedish and my surname is Austrian, but I've been living in Norway for a long time, and I work as a professor at the Department of Strategy and Entrepreneurship at BI Norwegian Business School. I did my PhD in 1998 on trust in business relationships and I've on and off kept to that theme, which is, I think, also foundational when it comes to the idea of cooperative strategy.

 

Silvija: So I usually ask people if they can tell us something non professional about themselves. Do you have an eccentric hobby of some sort?

 

Lars: I don't know if it's eccentric, but I'd say outdoor activities, outdoor life.

 

Silvija: That's so mainstream in Norway. You have to think of something better. Do you like rock music with the focus on drums or something like that?

 

Lars: Actually we're going to listen to Toto this evening. And we went to Øya Festivalen To listen to Nick Cave. Music is fine, but it's sort of mainstream as well. Maybe I'm taking the outdoor thing to a bit of an extreme, but not super extreme.

 

Silvija: Very nice. And Nick Cave, I'll follow you on that, I wish I was there. When we started preparing this part of the sustainability series with BI, I got really excited when you told me how you think that so much of the theoretical body of knowledge in the subject of strategy is focused on competition. And we educate our students to think about competitive positioning. It's Porter's forces, and it's always about finding a competitive edge over somebody. And it ends up in the behavior that you describe. I'll bleed, but you will bleed more. When times get really rough and there is polarization and there'll be more and more of that. And you say that the ecosystems and the platforms of tomorrow actually create a space for a completely new way of thinking about strategy. And it is a strategy based on collaboration when you can, competition when you must. And so I would like you to tell us a little bit more about how you started thinking about these cooperative, collaborative strategies?

 

Lars: I think there are many explanations. If we look at how business life or organizational life actually functions, of course there's tons of examples of cooperative partnerships, alliances and so forth. So there's nothing uncommon as such about this, at all in real life. And there are examples, of course, also in the academic literature about cooperative and diverse alliances and partnerships. There's plenty of such articles in this domain. But as you say, it's still in the strategy domain. We are still, I would say, obsessed by the idea of being competitive and having a competitive advantage. And sometimes I describe it as maybe an unfortunate dance or interaction between us and practitioners. We go out and ask people about what business life is like? And you look at me seriously and say Lars, it's a jungle out there. It's really tough. It's really hard and margins are really thin and so forth. And then I listen to you and I go back to my office and I write an article or a book which, if it becomes successful, will be used for teaching purposes. And then the new bachelor students come in and they read in the book that all business life is about eat or be eaten, and it's very competitive. We create the idea that this is a jungle. We say that strategy is about winning. And of course, I agree with that statement, but we have to put it in perspective. Because in a win lose setting, strategies about winning implies that someone must lose. And then as you mentioned Porter's five forces, which is a great framework for what it does. But it really describes all the forces in an industry as threats. The industry would actually like to have weak, uninformed suppliers and weak, uninformed customers. Which is troublesome at times. If you search for competitive advantage in one of our search engines on the school, you'll get more than 200,000 articles. And competitive advantage is a notion that I am better than you. We're looking at the individual firm, the individual organization, and we think about being better than someone else. I'm interested in how we can become better together, and how we can co-create value. I'm not by far alone in doing that. But what we will hopefully come to at the end of this talk will be more of what we have tried to contribute with is a concrete analytical framework, that resides within the cooperative strategy domain and not the competitive strategy domain.

 

Silvija: You just made me think back to my time at INSEAD, I did my MBA there ages ago. And I remember the big strategic breakthrough at the time was this blue ocean strategy, which was also about competition. But the idea is, of course, get out of the bloody red ocean where everybody is competing and find a space where you have no competitors. But it's still about competition rather than finding yourself a really friendly beach. Make sure that there are lots of people to play with and then build something amazing there.

 

Lars: I totally agree. The Blue Ocean. If you've been out swimming or diving and you find yourself in a truly blue ocean, it's quite scary because there's nothing there. It's just deep.

 

Silvija: Except a few sharks. Perhaps.

 

Lars: Maybe a few sharks. Instead of using the blue ocean metaphor I use the reef. This is an expression I've stolen from some colleagues, Louise Young and Ian Wilkinson. Because winning in a competitive strategy mode, it's about being better than someone else, winning in the reef or in a rainforest metaphor, which is another metaphor I've stolen from colleagues. Is that how can you become a viable participant in this evolving network or in this evolving ecosystem? How can you help others to co-create value and how can you get help from them? So it's a question about goal alignment. It's not zero sum gains.

 

Silvija: I love the idea of the reef actually, and I think I like it more than the rainforest because I think of a reef also as consisting of these corals. And they are a symbiotic armada of tiny little animals, and it is all about creating a sustainable life for all of them. And I think of these new digital platforms, and they talk a lot about creating an ecosystem, but very often they are dominated or controlled by one company. There is the Google ecosystem, there is the Amazon ecosystem, there is the Microsoft ecosystem, there is the Alibaba ecosystem and the game is to get everybody on it and control it completely and make sure nobody can ever get out. So it's that kind of monopolizing of the reef that is not very good for the reef.

 

Lars: No, it's not good for the reef. You don't want to be locked in into a relationship, be that a business relationship or your private relationships, you don't want to feel locked in. You want to be there because you want to, not because you have to or you have no other options. So I think in another podcast in this series, we can learn, for instance, from the Parqio ecosystem when it comes to making garages into service hubs. Their approach to making this ecosystem is not so much based on locking effects, but open sharing of data. Where you see that, Hey, I would like to hang out in this reef, this is a good reef for me. And actually I feel appreciated because the other species and the corals seem to benefit from my presence. It's all about interdependencies and competitive strategy is, I would say, not too good at highlighting interdependencies. We focus on independence. We don't see the big picture.

 

Silvija: I think you've just given me a new way of talking about digital strategy, because I think when I try to create a sense of urgency, I believe we are moving too slow when it comes to taking positions in the new digital business space. I think we haven't really appreciated the data's value creation capacity. We think of data as something we will get around to use. I think we need to experiment with it and find out very quickly how it creates new value and new services and so on. So I'm really worried that we are moving too slow. I'm really worried about the locking effect towards the large international mega monopolies. But of course the practical problem is that there are very few alternatives. So what we are really, I think, in a hurry to do is build our own reefs that we have some control over in terms of regulation, in terms of cultural values being translated into algorithms and the way we handle data. So Parqio, as you mentioned, is a wonderful example of a reef related to garage and mobility services. And the way also of moving our thinking from selling a product which might be four concrete walls and the garage space in-between them, to mobility, logistics, even something else. Service space.

 

Lars: I would agree. This line of thinking is probably what has driven me towards, including the notion of sustainability as well. The last year or so I've been asked to give talks in different settings or say things about sustainability. And at first I was a bit confused because I haven't explicitly, to a great extent at all focused on sustainability, which made me look closer at the UN sustainability goals. And there you have goal 17, which is sort of a meta mega goal in terms of alliances, partnerships and cooperation. Once I started to look at that and then realized the importance of goal 17 to achieve goal 1 to 16, then you can see there is an important connection between strategy, cooperative strategy and these sustainability goals. Because we have a challenge. If we do only focus on competitive strategy, we won't see the interdependencies between these goals.

 

Silvija: I think that's a very important cultural point as well. And I think that when we talk about sustainability goals, the seventeen of them, even when we talk about them in light of this new taxonomy, which sorts them as environment, society, governance. First of all, we overfocus on the E; environment, the green side of sustainability, plastic in oceans or carbon capture or natural diversity or clean energy. There is so much of that climate and nature focus when we talk about sustainability that we forget that the other two thirds are about healthy societies and also healthy businesses innovation, governance and not least collaboration. And so I feel like goal 17 becomes an obvious thing, of course, we are going to collaborate. Now can we move on to plastic in the oceans or carbon capture? And yet that's the thing that's hardest to achieve.

 

Lars: It is very hard because you need to change the way you perceive yourself and the world. I think I said initially there's lots of cooperative examples out there in practice. But to try to illustrate. We had a project some years ago on looking into the development of seamless travel networks. Seamless travel networks would be good for the environment. It would be sustainable. It would be good for the service providers and would be really good for the travelers not to have all these issues that may occur when you're out traveling. So we looked into certain organizations, among one of them, the Airport Express Train- Flytoget. At the time Flytoget had in its vision statement that it wanted to deliver the supreme part of the journey to its customers. At first that seems like a very reasonable vision statement. And many organizations have similar ideas- We want to deliver the Supreme. I'm not interested in the supreme part of a journey, I'm interested in a supreme journey. As one of the managers at the time said "You can have really lousy mornings, you can have a number of hours of flight delays, But our 19 minutes were great". It doesn't matter and then you're back again about strategies, about winning. It's about being better than the others. Instead of trying to become better together with them to actually try to work towards a seamless travel network. Then you can't focus solely on your own competitive advantage and your benefits. You need to see the bigger picture, and that is challenging.

 

Silvija: I have been on a reading rampage for the last four or five years. I discovered Audible audiobooks and they have an amazing breadth of content, but also with Amazon's recommendation algorithms, etc. They are hitting me just where they should be, with every new recommendation. The first book that started this all off was Peter Thiel's Zero to One. And I remember reading that and he says "I hate competition" And I perked up and I was like, Oh, exciting. One of the most competitive people in the world says, I hate competition, you know?

 

Lars: That was unexpected.

 

Silvija: But then he said, I'm not really interested in people who think that I'm competing with them because I'm doing something completely new and different. So basically I thought maybe he'll go somewhere about collaboration. But he just said that, you know, I don't even consider them competitors. I'm so much better. I do my own thing. I create new markets. Thats the blue ocean strategy, right?

 

Lars: Yes.

 

Silvija: So I think this idea of bringing your friends along creates value for everybody. It is quite foreign to many of the hyper competitive leaders of our industries today. So I think you need a whole new generation of leaders as well.

 

Lars: We need to take our part of the responsibility. We need to educate them in ways that are consistent with a more collaborative approach. Again, this is not saying that competition is irrelevant. Competing can be fun. It's an important driving force. But I think personally, I think my domain is too obsessed with the idea of being better than others instead of trying to co-create value with others, at least in terms of the lack of analytical frameworks. So for the new students at BI and INSEAD, where are the new frameworks? There's been a call for these new frameworks for quite some time, at least, by scholars doing open innovation research. Saying we need new frameworks. So we sat and waited for these bright researchers to come up with new frameworks, but they didn't materialize in every part anyhow. So we started to try to do the work on our own several years ago.

 

Silvija: So tell us, is there a tool or is there a methodology we could use to go about building or reconstructing our strategy?

 

Lars: Well, five forces have been for some time complemented by brandenburger & Nalebuff and they emphasize on complementarity. So saying it's a bit too focused on the competitive dimension. And of course you could read through the five forces and just think about the potential co-operative forces. What we did was to look at the resource dimension. 

 

Silvija: Can I just stop you for a second? Because you're going a little too fast for our students outside of BI, because this will be listened to by your students, but also by many, many others. And so let's just spend one minute on Porter. And then you said something about Brandenburg and ?

 

Lars: Nalebuff.

 

Silvija: And it was not about competition, but it was about complementarity. So just help us understand one minute on each idea.

 

Lars: So the traditional five forces is a tool to analyze an industry. You define the industry and the competitive rivalry that is characterizing that industry. And then you look into the supply side, the customer side. You look into potential new entrants and potential substitutes. And all these forces are, by definition, threats to the industry's profitability. How interesting it is and what type of positions you could find in this industry. So in a sense, by default, you don't want to have too informed suppliers because that is bad for the industry. It's a negotiation game. Their bargaining power will increase and you don't want to have too informed customers, because that will increase their bargaining power. So all these forces are threats to an industry's profitability. And, of course, one can imagine the opposite scenario, where you ask for the co-operative inclination of the suppliers. Are they willing to engage in early supplier involvement just in time? Interactions and the clients do they want to work closely with? The lead users of the industry to develop your products and make them better. What is the cooperative climate? But that is totally out of the scope in a sense of a traditional five forces analysis. It's clearly focused on competitive strategy and helping you to find, at the end of the day, a position where you can enjoy a competitive advantage. We haven't added or contributed an alternative to the five forces. That is part of what we call the external strategy analysis. Then you have the internal strategy analysis where you analyze, among other things, resources, and that's where we have tried to make a contribution.

 

Silvija: Just help me. What do you think about complementarity? What does it really mean?

 

Lars: Complementarity in that sense means that, for instance, we have this Parqio case, the Parqio ecosystem making garages, service hubs etc. An additional number of service providers will add value to that ecosystem, so they complement one another in making the ecosystem more sustainable by integrating more and more services.

 

Silvija: They extend each other and serve better in areas where another one might not serve so well. So it's really a good puzzle.

 

Lars: For instance, or add a completely new service which will increase the value of the garage or which will make city planners rethink what they're doing, or architects when design, or real estate developers when they build.

 

Silvija: So they extend and strengthen each other.

 

Lars: Right. And that is not necessarily what you see when you do a traditional five forces analysis.

 

Silvija: So this resource game, what is that?

 

Lars: There were a number of reasons why we developed this because the classical resource analysis developed by Jay Barney and massively influential, probably used in every MBA program in the world I assume. Has its advantages.

 

Silvija: This is where I admit I've forgotten about it. So help me; what does it mean?

 

Lars: The nirvana of the strategist is a sustainable competitive advantage. So the objective of the VRIO, the resource analysis, is to see will this resource give you a sustainable competitive advantage or not? And VRIO is sort of an acronym for how you identify a resource, you look at it and then you say, is this resource valuable? Is it rare? Is it inimitable, hard to imitate and is it non substitutable and or well organized? That's sort of the analytical sequence that you do when you look at these resources in order to expose the-.

 

Silvija: What did V stand for?

 

Lars: Valuable. 

 

Silvija: Valuable. So Valuable-Rare-Inimitable and Organized.

 

Lars: N stands for non substitutable, it was initially VRIN. And then it developed into VRIO. The challenge with the tool from a cooperative strategy standpoint is that, first of all, the objective is to find a competitive advantage. Many organizations do not seek a competitive advantage. They are not in that position. And other organizations only at times seek a competitive advantage. But they are always interested in value creation of some kind and that can be defined in many different ways. So we wanted to design a tool that was focusing on value creation. That was one of the notions. And then we felt the need to redirect the focus on how you evaluate resources, because rare and inimitable can be great if you want to achieve a competitive advantage. But they're not necessarily of importance when you want to create value. So we need to ask other questions, for instance, to try to illustrate. The Corona vaccine- do we want the corona vaccine to be rare and inimitable? I think most of us, unless you are a shareholder in the one fortunate company holding the patent. You would say no, that's the last thing you want. You want many to have access to the vaccine, you don't want it to be rare and you want many to imitate it. So the problem with VRIO is that it also looks at resources in isolation. It doesn't see interdependencies. Wine and food could be an example. If you go to the restaurant and you ask the waiter for the restaurant's absolutely best wine, he or she may look at you and ask, very well, madam. What do you intend to eat? It's about pairing wine and food to sort of increase the experience. So we can't look at resources in isolation. If you want another metaphor, which I personally like, we have this alliance with food on school and management in an MBA program in Shanghai. We call it an interactive bundle analysis. So we look at resource bundles and how they create value. And one of the Chinese students said "Well, Professor, you professors from BI Norwegian Business School. You fly over with seeds of knowledge. And you're going to plant them in the Chinese soil?" And seed and soil need to match, right? So sometimes when it's really turbulent over Mongolia and I can't sleep, I start to think about what if I am? Maybe I am a really good seed, but it won't match with the soil. The soil is really good. Will this work out? Will my examples and illustrations and theories and so forth make sense in Shanghai? But we have a tendency to think about the best resource, the weakest link, what is waste and so forth. And that only makes sense if you analyze resources in isolation. If you acknowledge interdependencies between resources, you will start to see that you can see different things and you don't need to talk about rareness and in inimitability, you need to talk about if resources match or not and what happens when they meet if they make one another better or if they deteriorate. 

 

Silvija: Wonderful metaphor. And I think companies collaborate like that as well. And sometimes it even depends on a few people deciding to work together and deciding to create the space for it. I often am frustrated by the sectorial principle that we follow in our public services in Norway, where this is my area, that's your area. Don't mess with my area.  Magic happens if you actually force them to work together, but it requires some people to be very comfortable with taking that strategic risk.

 

Lars: It's usually in the interfaces when these resources meet and this is going back to the Parqio ecosystem. If you take the garage and you do a classical VRIN or VRIO analysis, you won't go very far. It's a very common resource. It's not rare, it's not hard to imitate. It would not result in any competitive advantage. You would ditch it in your analysis.

 

Silvija: Somebody needs to provide a growing ground for a reef.

 

Lars: So if you do the alternative analysis, which we now have labeled the interactive analysis, to do some commercial promotion. The garage in isolation is not what you're looking into. You're looking into the bundle. You're looking into how you can bundle that garage with other resources and exactly what's happening in that ecosystem, and how you make that garage valuable in combination with other resources. That's a cooperative way of analyzing resources and it can explain sustainability, I would argue, in a better way, in a more illustrative way than maybe to restrain focus on single resources and if they can explain a competitive advantage.

 

Silvija: You've made me think about chemistry, actually, because I'm thinking of these resources now almost as chemical elements. And some of them react in a really good and stable way and some of them destroy each other, right? And  it's about finding the things that create these new amalgamations that the world needs.

 

Lars: If we have time for a brief example, this was given to me by one of the executive students on our strategy program. So there was recently a new product that was innovated by a Norwegian company in Overhalla. This is based on a research project at Sintef and I really like the name of the research project, if I remember it correctly. I'm not sure if it's concrete or cement, but let's say it's concrete. Can concrete and aluminum become friends? That's the name of it. And what's the problem here? Well, if you make a concrete bench or anything with concrete, you will put steel rods into it to strengthen the construction. If you could put aluminum in, it would improve sustainability. Considerably because you could have leaner construction, less weight, less maintenance, less transportation, less less, less, less CO2 even. The problem is that you can't use aluminum because cement provides a PH level which destroys the aluminum, so it has a negative impact on it. So the solution here, bringing in the chemistry part, is that they have put some blue calcinate clay into the cement, which makes the PH level friendly to aluminum. This bench is actually the first concrete product with aluminum rods in. And that could be one part of revolutionizing the construction industry. So, yes, it is on sort of the chemistry level. Another assumption or idea in this analysis is that resources do not exist. It's all about resource bundles and then I challenge the students- can you give me an example of one solid individual single resource? And then often water comes up. Water is, of course, a bundled resource if you look into it at the chemistry level and that's why we're making hydrogen. It's bundled and it's about interdependencies. And if you have a resource that you call waste according to this way of thinking, it just means that you have not managed to bundle that resource in an efficient way with something else.

 

Silvija: And then you can leave the very rare and inaccessible resources, and that strategic game to people who can't think of creation. And you can create a lot of value by finding these new materials.

 

Lars: You can create lots of value. And it's really interesting because it expands the search, because competitive strategy tells you to search for superior resources. Superior resources are rare and inimitable. We open up for all kinds of questions like; where are the combinations? Because they may create value together, but then you need to ask other questions. Maybe you've seen what it says on the garbage trucks in Oslo.

 

Silvija: No more rubbish. Nothing is rubbish or something like that.

 

Lars: No, Verdi Transport.

 

Silvija: Verdi Transport. I like that, and value transportation. Lars, we have to stop because of time, but I would like to ask you, where can we read more about these tools, those of us that might not be sitting in your auditorium?

 

Lars: Thank you for asking. We published the conceptual and theoretical version of this paper in the Journal of Business Research last year in 2021. It's called Resource Bundles and Analytical Framework. I'm currently working on making a more, let's say, applied version, actually showing how to do this analysis. So I hope that will be accepted somewhere in not too long.

 

Silvija: Okay. We can attach a PDF of some of these papers to the course here.

 

Lars: Absolutely.

 

Silvija: Excellent. Thank you so very much for a very fun and very inspirational case and conversation.

 

Lars: Thank you, Sylvia. Pleasure being here.

 

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YOU WILL LØRN ABOUT:
  1. Introduce and illustrate cooperative strategies; goal 17 is central to all other goals; the strategic discipline has been obsessed by competition and  positioning in existing value chains; value chains change; focus on value creation, not on competitive advantage; The essence of cooperative strategies is not about beating someone, but on how to be better with someone; boost everyone's unique values; relational rents; goal 17 in ESG is central to all other goals achievements
  2. Tension between cooperative strategy and competitive strategy. “I will bleed but you will bleed more.” Platform monopolies? Multinational companies and indiganous people. Which logic do you belong to? What makes a successful alliance? Competition often wins. 
  3. Collaborative strategies need new analytics tools. New resource tool: alternative to Barney's resource analysis (VRINN analysis to explore competitive advantage). Rareness and inimitability are good? Resource bundles and how do they fit together. 
LITERATURE

See TMP case folder (2 PDF files) 

Håkansson, H., & Snehota, I. (1989). No business is an island. Scandinavian Journal of Management, 5(3), 187–200.

 

TEMA: SUSTAINABILITY AND CIRCULARITY
DURATION : 37 min
DATE : 220818
CASE ID: C1220
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