Custom Essays and Free Coursework

Essay on Strategic Marketing Management

Virtual Corporations; the Future of Strategic Market Management.
Summary
This assignment discusses the question that the same forces that brought us strategic alliances, might also develop these into something new. In many cases, the virtual corporation can be the best solution. Other trends that point in the same direction will also be briefly discussed. In the empirical study, it can be found that managers do think the virtual corporation could be a good idea, and that a certain acceptance for the virtual corporation already exists. However, managers sometimes appear to feel slightly reluctant to introduce this new form of co-operation in their own companies. Reviewing the literature from the time when strategic alliances were unchartered territory, I found that the attitude towards the virtual corporation is similar now to what it was towards strategic alliances before they started to grow in importance.
1 Introduction
In the mid-eighties, a shift came about in the way authors, managers and other experts perceived management systems. The concept of strategic market management was born. Before this, there had been innumerable other ways of managing businesses, all of which seemed to be the right way of running a company at the time. With this new way of thinking, key concepts like company flexibility and speed, managing surprises in the environment, and dealing with fast-changing opportunities and threats, became guidelines for the way organisations were lead.

Figure 1: Evolution of Management Systems by Aaker, p11, 1995.
As can be seen in the figure, this presented many and significant changes in the different aspects of management. There were perhaps more and bigger changes now than ever earlier during the evolution of management systems in the 1900s. At about the same time, the occurrence of strategic alliances started to grow rapidly. These could be found to some extent even before this period in time, but as a means of incorporating the new management concepts into the organisation (for instance either through learning from other organisations or benefit from their competencies, resources or markets) they now became paramount. Strategic alliances have filled the literature for some while now, and the occurrence has increased rapidly in practice as well.
The management emphasis and assumptions discussed by Aaker can also be found in a vast range of the literature covering strategic alliances.[1] It could therefore be said that strategic alliances have been, and still are, a big part of the strategic management of today, and a means of handling some of the major challenges on today’s markets. For instance, Child and Faulkner write: “strategic management theory is oriented towards co-operation as a strategic choice.” [2]
The key aspects of management mentioned above have developed into certainties in both literature and the business world of today. Their importance has intensified and the question is no longer whether to focus on these aspects of business, but how to do it and how to best handle the chosen methods. Formation of alliances or networks is nowadays a fully accepted method of coping with new marketing challenges. As Spekman et al write: “strategic alliances are today a fact of business life and are found on every corner of the corporate landscape”. [3]The question is now how this phenomenon will develop.
As the formation of alliances and networks have increased during the last few years, so has the struggle towards the added benefits that they provide, both by alliance/network members and companies that have chosen other methods. The added benefits mentioned in most texts on the topic are e.g. reducing investment and the accompanying inflexibility and risk,[4] adding competences or resources to the company, or incorporating speed and flexibility,[5] with the ultimate objective of exploiting market opportunities.
2 The Virtual Corporation
To answer the question I asked earlier: “how will strategic alliances develop?”, I would like to begin with underlining the fact that the key issues of strategic market management and the added benefits of alliances/networks continue to be paramount, both in the literature and in the world of business. Secondly, I want to point out that, what is known as the Virtual Corporation, is a development of the traditional strategic alliance that is characterised by an even bigger emphasis on issues such as high flexibility, speed, and utilising sudden changes in the environment.[6] A virtual corporation is according to Peter Doyle “a temporary network of companies that come together quickly to exploit fast-changing opportunities”. As in strategic alliances they share, for instance, costs, resources or risk. The different members contribute with what they do best. Virtual corporations differ from the traditional alliance in that they are less permanent, less formal and more opportunistic. Organisations come together to meet a certain market opportunity and, more often than not, go their separate ways once the need disappears.[7] Many authors argue that these co-operations will be largely based on information systems and IT. Child and Faulkner, for instance, claim that the virtual corporation is “a loosely coupled enterprise in which the parts are held together through the medium of sophisticated information-technology packages”. Furthermore, “they may be loosely packaged specialist functions co-ordinated by one firm to meet a market opportunity that may be short term”.[8] Most authors agree that speed and flexibility is crucial.
To put it simply, as markets change, companies need to act, or the opportunity may be lost forever. As virtual corporations are more characterised by speed and flexibility than the traditional alliance, it seems better suited to handle the strategic surprises and fast developing threats or opportunities discussed by Aaker [9] that is reviewed in the beginning of this text.
What I have tried to convey so far, is that the forces that “invented” the strategic alliance, will also develop it to something better fitted for companies’ (future) needs. However, there is also evidence from another viewpoint that I feel is worth mentioning. This is that of demerging of companies [10] and failure of strategic alliances. [11]
This is probably the best indicator to prove that companies, even in co-operations with others, are moving along the lines of other current trends, such as down-sizing and delayering, in order to create flexibility as well as effectivity and efficiency. Perhaps it also proves that companies and their managers are becoming more opportunistic, and keen on engaging in short-term commitments. If so, this indicates that the virtual corporation should be something that appeals to businesses of today, and tomorrow.
In short, if one can say that The Current Big Thing in marketing management is strategic alliances and networks, then The Next Big Thing in marketing management would, if the development proceeds logically, be the virtual corporation.
To prove my point I would like to quote Peter Doyle, who says that “to some managers today, joint ventures and strategic alliances are an early glimpse of the business organisation of the future. The new concept is termed the virtual corporation” [12] . In addition, John Child and David Faulkner argue: “just as network theory and the strategic alliance have become popular phrases to describe the growing intra-organisational forms of the 1990s, it seems likely that the “virtual corporation” will fill that role in the first decade of the new millennium”.[13]
2.1 Possible Implications
What I have argued so far, is that a number of trends point towards a development of the virtual corporation as the next big thing in marketing. It certainly involves many advantages for ambitious companies looking for new market opportunities. Furthermore, authors and experts have begun to gain interest in this form of co-operation and predicts its occurrence to grow. But what will the implications be? This area still remains somewhat blurred. Some authors have tried to look into the matter.
Child and Faulkner claim that it really is possible to set up a virtual corporation by identifying a strategically vital centre, outsourcing everything else, and linking the whole by IT packages, with the hub representing the brain and maintaining motivation even amongst the outlier partners by sophisticated relationship development. On the other hand, they say it is a different matter to cut back an existing integrated organisation and convert it into a virtual corporation. The demotivation resulting from being thrown into the margins, or from fear that one will be the next to go, makes such a transformation very difficult to achieve successfully.[14] Hence, just as with strategic alliances the virtual corporation will not be appropriate in every situation.
Further difficulties may lie in the short-term nature of the partnership. Since the alliance will not be given time to mature or settle, the assumption is made that companies are capable of finding an exact match in one attempt, and will not make any mistakes. This is obviously an overly daring assumption. Furthermore, Debora Spar, claims that even if the benefits are blatant, the co-operation makes sense and is relatively easy to achieve, co-operative solutions frequently go unheeded.[15] If this is true, then it might be reasonable to presume that it would be even harder to establish an alliance when the potential partners are explicitly opportunistic and have their minds set on short-term commitment.
It is still early days for making assumptions about the exact implications of this new form of co-operation. Whatever the implications might be though, it is of interest for this study to know what managers think about the matter. Are things as good as they seem? Is there really an acceptance for this new phenomenon? Can it be perceived as too far-fetched a solution to managers of today? Will the implications prove to be too many or too complicated, i.e. will they deter companies from engaging in virtual corporations? These are questions that I will try to find answers for in the following chapters.
3 Method
In order to measure the potential acceptance, and the future occurrence of the virtual corporation a simple quantitative empirical study has been conducted. It was kept short and fairly straightforward, considering the length of the assignment, but also to increase the response rate. I still felt that doing a quantitative study was appropriate, since I am trying to measure the future potential occurrence. The population used was the FTSE Eurotop 300 (E300), which measures the performance of the largest 300 European companies in terms of market capitalisation. This target population was chosen since I made the assumption that large corporations will be the ones to set a potential trend. For practical reasons, all non-UK companies were excluded from the study, which left me with 103 companies. I randomly chose one third (34) of these to study. A questionnaire was e-mailed to managers in these companies together with a brief explanation of the study. With one reminder per every company that did not answer the first time and one telephone call to companies that did not answer the second time, the response rate came up to 68%. The data was thereafter analysed to measure the occurrence of different variables, and to detect correlations.
4 Findings and analysis
As a background to each company’s views on the topic, I decided to ask whether they were already involved in any kind of strategic alliances or networks. As it turned out, 74% were, which underlines the impact that alliances have had on industries of today. I begin with a chart showing how the sample was made up, with regards to characteristics and opinions. The question asked was whether the companies believed that the virtual corporation had a future as a form of co-operation.

Figure 2: Has the virtual corporation a future?
“A”: companies involved in co-operations and believe in the virtual corporation.
“B”: companies involved in co-operations that do not believe in virtual corporations.
“C”: companies not involved in co-operations that believe in the virtual corporation.
“D”: companies not involved in co-operations that do not believe in the virtual corporation.

The answers could probably in some cases depend on what type of industry the companies are in, but it could also be that members of alliances or networks are more keen on the thought than others. They might have seen the possibilities that alliances open, and may even want to pursue another form of alliance that they think would be better for certain purposes. We can also, even if the difference is not very significant, see that if one is not a partner in an alliance or a network, the possibility is bigger that one does not believe in the new form of co-operation.
It is one thing to believe in the future occurance of the virtual corporation, but would the companies themselves engage in such an alliance? This is what I am trying to answer below.

Figure 3 a & b: participation in virtual corporations.
These charts support the theory that companies that have seen the possibilities of alliances are also enthusiastic about virtual corporations. Considering category “C”, the overwhelming majority of the sample that think they might be a part of a virtual corporation in the future. So what is it that is so appealing? According to the literature, the virtual corporation is characterised by opportunism and short-term commitment.[16] Does this pose any problems, or could it be this that is so tempting?

Figure 4 a & B: short-term commitment.
As you can see, a significant proportion of the companies (both alliance partners and non-partners) in the study believe that short-term forms of commitments such as the virtual corporation is something that appeals to managers of today. It is interesting to see that so many of the companies already involved in strategic alliances have thoughts like this, since strategic alliances normally are long-term arrangements.

So why is it that the virtual corporation is not already established as a form of co-operation? Most companies seem to think that it does have a future, and that short-term commitments will soon be a part of business life. Is it just because some companies are not used to alliances and networks, or could it be, as I mentioned in the literature review, that managers at the moment might think that the implications involved will be too many or complicated?

Figure 5 a & b: fear of implications.
As discussed earlier, organisations with experience from co-operation with other companies seem far more confident in this new form of alliance. This could very well be the explanation why companies without experience from alliances or networks said that they could not really see themselves as partners in a virtual corporation. It could be that one is more reluctant towards virtual corporations if one has not yet taken the first step. Everything may seem more complicated than it has to be. The overall answers indicating that implications might be too harsh had the approximate proportion 40/60 for “yes” and “no” respectively. It was thus one of the questions that caused the greatest separation between respondents. This could be an indication of unawareness of the implications. This is not a very surprising discovery at this moment in time, and is only typical for a trend that is about to set off. At the time being, managers seem to believe in the virtual corporation, and only a poor knowledge about its implications on business appears to be in the way of a dissemination of the phenomenon.
To conclude this chapter I have to say that it was very interesting to analyse the answers to the open-end question: Why is it that you think/do not think you will be involved in virtual corporations in the future? Almost every answer corresponded near enough exactly to Aaker’s model “evolution of management systems” . The typical answer generally included fast-developing threats or opportunities.[17] A few answers that came close, also indicated an increased acceptance towards the virtual corporation. These included anticipating market trends and accepting that ideal structures are not always available. Some meant that alliances sometimes are made with "allies" who would not be their first or even second choice.
Another answer was that the need for reducing the cost base automatically meant less people and more task orientated projects, requiring specific skills that were not available internally. These meant that out-sourcing was the solution to their problems, which was also interesting, since Child and Faulkner claim that the virtual corporation is “similar to outsourcing, but with electronic information controls and communication”, and that “the growth of the predilection for creating firms around key competences with outsourcing has led to the corresponding growth of virtual-corporation theory”. [18]
4.1 Concluding thoughts
However big the uncertainties might be regarding the implications of the virtual corporation, managers seem to agree that this way of working together is attractive. Whether or not one already is engaged in alliances, or thinks that the virtual corporation is a complicated form of co-operation, the acceptance is there, at least to a certain extent.
I would like to point out the fact that the limited amount of literature on the subject that is to be found, has mostly covered reasons for setting up virtual corporations. Hence it is not surprising that the implications are unknown, and that managers feel uncertain. A comparison can be made with the literature on strategic alliances that is nowadays so vast. The debating process appears to follow a certain pattern. In the mid-80s the emphasis was on reasons for forming strategic alliances. These were mainly along the lines of the key assumptions of strategic market management mentioned in the beginning of this assignment.[19] When authors realised the need for it, they started criticising earlier authors and focus on formation of co-operations . [20] Now that the focus is on managing strategic alliances and networks,[21] the literature on virtual corporations is still only focusing on the reasons for formation. Soon the emphasis may be on actually forming virtual corporations. With this an increased awareness about the topic might follow, and thereafter the occurrence may increase.
Note also that the attitude conveyed by the companies in this study is almost the same as when strategic alliances were a new thing. Few knew exactly how it was supposed to happen, the debate was all about reasons and advantages. For instance: by that time, Aubrey Wilson claimed that many co-operations failed because of “the perversity of human nature” and lack of knowledge about how to run alliances.[22] Now the lack of knowledge is about how to form and manage virtual corporations. Once managers get used to the thought of strategic alliances taking a new direction though, I am sure that they will start learning.

1. E.g. Aaker, D.A.; 1995, p.311., Doyle, P.; 1998, p.413., Child, J., and Faulkner, D.; 1998, p.114., and Mowery, D.C., Oxley, J.E., and Silverman, B.S.; 1996, pp750.[Return]
2. Child, J., and Faulkner, D.; 1998, p.331.[Return]
3. Spekman, R.E., Forbes III, T.M., Isabella, L.A., and Macavoy, T.C.. 1998, p.747.[Return]
4. Aaker, D.A., 1995, p.311.[Return]
5. Doyle, P., 1998, p.413.[Return]
6. Doyle, P., 1998, p.436, and Child, J., and Faulkner, D., 1998, p.114 and pp126.[Return]
7. Doyle, P., 1998, p.437.[Return]
8. Child, J., and Faulkner, D., 1998, p.122.[Return]
9. Aaker, D.A., 1995, p.11.[Return]
10. For instance, British Gas and Centrica demerged on february 12th, 1997 (source: www.britishgas.co.uk), Hanson and BTR, and Thorn and EMI in 1996 (www.news-review.co.uk), and Granada is currently planning on selling part of its hotel business (www.ukbusinesspark.co.uk).[Return]
11. According to Spekman, R.E., Forbes III, T.M., Isabella, L.A., and Macavoy, T.C.. 1998, p.747, success rates are low, and estimates suggest that as many as 60 per cent of all alliances fail.[Return]
12. Doyle, P., 1998, p.436.[Return]
13. Child, J., and Faulkner, D., 1998, p.126.[Return]
14. Child, J., and Faulkner, D., 1998, pp335.[Return]
15. Spar, D.L., 1994, p.1.[Return]
16. Doyle, P., 1998, p.437.[Return]
17. Aaker, D.A., 1995, p.11.[Return]
18. Child, J., and Faulkner, D., 1998, p.335.[Return]
19. Aaker, D.A., 1995, p.11.[Return]
20. E.g. Fornell, C., Lorange, P., and Roos, J., 1990, p.1246-1262., and Amit, R., Glosten, L., and Muller, E., 1990, p.1232-1245.[Return]
21. E.g. Cartwright, S., 1995., Lorange, P., and Roos, J., 1992.[Return]
22. Wilson, A., 1986, p.33.[Return]

• BIBLIOGRAPHY:
  
• AAKER, D.A. Strategic Market Management. 4th ed. John Wiley & Sons, Inc. New York, 1995.
• AMIT, R., GLOSTEN, L., and MULLER, E., Entrepreneurial Ability, Venture Investments, and Risk Sharing. Management Science, p.1232-1245. Vol.36, issue 10. The Institute of Management Sciences, Rhode Island, 1990.
• CARTWRIGHT, S., Managing Mergers, Acquisitions and Strategic Alliances: Integrating People and Cultures. 2nd ed. Butterworth Heinemann, Oxford, 1995.
• CHILD, J., and FAULKNER, D. Strategies of Co-operation; Managing Alliances, Networks, and Joint Ventures. Oxford University Press, London,1998.
• DOYLE, P. Marketing Management and Strategy. 2nd ed. Prentice Hall, London, 1998.
• FORNELL, C., LORANGE, P., and ROOS, J., The Cooperative Venture Formation Process: a Latent Variable Structural Modeling Approach. Management Science, p.1246-1262. Vol.36, issue 10. The Institute of Management Sciences, Rhode Island, 1990.
• LORANGE, P., and ROOS, J., Strategic Alliances: Formation, Implementation and Evolution. Blackwell Publishers, Cambridge, 1992.
• MOWERY, D.C., OXLEY, J.E., and SILVERMAN, B.S. Strategic Alliances and Interfirm Knowledge Transfer. Strategic Management, p.77-91, vol.17, The December Special Issue. Wiley, Chichester, 1996.
• SPAR, D.L., The Cooperative Edge; the Internal Politics of International Cartels. Cornell University Press, Ithaca, 1994.
• SPEKMAN, R.E., FORBES III, T.M., ISABELLA, L.A., and MACAVOY, T.C. Alliance Management: A View from the Past and a Look to the Future. Journal of Management Studies, p.747-769, vol.35, issue 6. Blackwell Publishers, Oxford, 1998.
• WILSON, A., The Fruits of Marketing Togetherness. Management Today, p.33-35. The July issue. British Institute of Management, Bradford, 1986.