The Knowledge Link: How Firms Compete Through Strategic Alliances

In 1971, General Motors bought 34 percent of Isuzu, then a producer of small trucks, marking the beginning of GM's journey into alliances with a wide range of companies, including Toyota, Suzuki, and Fuji. Why would such a successful company let down its corporate walls, exposing its organization and strategies to competitors? The answer, according to Joseph Badaracco in this pathbreaking study, is that corporations enter into strategic alliances to capitalize on knowledge: migratory knowledge, often technical in nature, which can be transferred easily between people or organizations in a formula or product, and embedded knowledge, which defines how a particular company organizes itself to do business. In today's business environment, companies need to utilize each type of knowledge to sustain their competitive advantage. The formidable length of time and start-up costs needed to develop new products and enter new markets are forcing companies to enter into these alliances. But Badaracco argues that management should not only use alliances reactively to match a competitor's products or plug gaps in its own product line. The long-term opportunity created by alliances lies in management's learning about a partner's unique manufacturing processes, or other sources of competitive advantage. Absorbing this embedded knowledge offers management a cost-effective way to transform its core operations and strengthen the organization.