Chapter 08

Collaboration Strategies
True/False
1. Stapler Corporation is developing a superior prosthetic leg and has world-renowned
researchers on staff. It also has the financial and marketing resources to take the product
to market as it has done in the past. Most likely, Stapler will not take on a partner.
Answer: True
Difficulty: Easy
Page: 159
2. Some firms avoid collaboration as they do not wish to expose their proprietary
technologies.
Answer: True
Difficulty: Easy
Page: 160
3. It is unusual for a company to lack certain complementary assets required to transform
a body of technological knowledge into a commercial product.
Answer: False
Difficulty: Easy
Page: 161
4. The National Cooperative Research Act (NCRA) of 1984 restricted collaborative
research among firms in the same industry.
Answer: False
Difficulty: Moderate
Page: 162
5. Currently, the use of strategic alliances is on the rise.
Answer: True
Difficulty: Moderate
Page: 162-163
6. A firm cannot collaborate with its competitor.
Answer: False
Difficulty: Moderate
Page: 164

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7. When Dynamite Pictures formed an alliance with Independence Studios to market

movies it produced, this freed up badly needed capital for Dynamite to put into other
projects, exemplifying a benefit of an alliance.
Answer: True
Difficulty: Easy
Page: 164
8. Fisher Athletics and Truly Great Deals entered into an alliance. Fisher wanted access to
online sales but did not know how to do it as well as Truly Great Deals. Truly Great
Deals wanted to sell Fisher exercise mats from its online website. This is an example of
quadrant Cindividual alliance with capability transfer.
Answer: False
Difficulty: Hard
Page: 165
9. When two companies enter into a joint venture the result is often a new separate
company that is formed.
Answer: True
Difficulty: Easy
Page: 166
10. Hammerschmidt Copiers has developed and patented a new copy machine. It wishes
to penetrate a wider market and is short on funds. A licensing arrangement would be a
good way to accomplish this goal.
Answer: True
Difficulty: Easy
Page: 166-167
11. Licensing a technology from another firm is typically more
expensive for a licensee than developing a new technology in-house.
Answer: False
Difficulty: Moderate
Page: 167
12. A trade association can take the form of a collective research organization.
Answer: True
Difficulty: Easy
Page: 168

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13. Solo internal development is, on average, a relatively faster way of

developing a technology.
Answer: False
Difficulty: Easy
Page: 169
14. In licensing, a firm loses a significant amount of control over the
technology.
Answer: False
Difficulty: Moderate
Page: 170
15. A strategic alliance may not offer potential for accessing another
firms competencies.
Answer: True
Difficulty: Moderate
Page: 170
16. A firms effectiveness at managing its collaborations will increase
with the number of collaborations to which it is committed.
Answer: False
Difficulty: Easy
Page: 171
17. Strategic fit refers to the degree to which potential partners have resources that can be
effectively integrated into a strategy that creates value.
Answer: False
Difficulty: Easy
Page: 172
18. The objectives of collaboration may change over time, requiring modification of the
terms of the collaboration or the termination of it.
Answer: True
Difficulty: Easy
Page: 173
19. A periodic audit of the members of a strategic alliance may be conducted by a partner
organization or a third party in order to ensure adherence to the collaboration agreement.
Answer: True

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Difficulty: Easy
Page: 175
20. Effective collaboration agreements should be flexible enough to provide a graceful
exit strategy for members that no longer wish to participate in the collaboration.
Answer: True
Difficulty: Moderate
Page: 176

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Multiple Choice
21. A firm that chooses to engage in solo development of a project usually
a. lacks the required capabilities.
b. can better protect its intellectual property.
c. relinquishes some amount of control over the use of technology.
d. lacks the opportunity to challenge the abilities of its employees.
Answer: b
Difficulty: Easy
Page: 160
22. Gerusa is a company of former Soviet scientists who have developed a special
chemical to kill cancer cells. It has decided to not take on a partner in developing
Photodynamic Therapy for cancer. This will
a. give Gerusa exclusive control over the technology.
b. prevent Gerusa from leveraging its capabilities.
c. reduce Gerusas potential profit.
d. destroy Gerusas competitive advantage.
Answer: a
Difficulty: Easy
Page: 160
23. When technology is progressing rapidly, firms are more likely to
a. commit themselves to fixed assets.
b. focus on developing the necessary skills in-house.
c. use linkages with other specialized firms to access resources they do not possess.
d. focus on broadening their capabilities.
Answer: c
Difficulty: Moderate
Page: 161
24. Gerusa is a company of former Soviet scientists who have developed a special
chemical to kill cancer cells. While the scientists have the knowledge, they are short on
equipment, money, and marketing know-how. It would seem that Gerusa should
a. give up the idea altogether.
b. find a partner with which to collaborate.
c. forge forward and develop this technology on their own.
d. come up with a new concept in which they possess all the necessary capabilities.
Answer: b
Difficulty: Easy
Page: 161

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25. One result of collaborative research has been

a. more anti-trust cases being prosecuted.
b. more legal barriers being put into place due to seepage of patented information among
collaborators.
c. more innovation than before.
d. less individual motivation to be innovative.
Answer: c
Difficulty: Hard
Page: 161
26. Gerusa has developed a technology called Photodynamic Therapy (PDT) for cancer
treatment. The scientists who started the company want to learn how to set up clinics and
actually treat patients with this technology; hence they want to begin opening clinics
quickly. To meet this objective Gerusa should
a. collaborate with a company who has gone through a similar process to learn from
them.
b. hire marketing professionals to market the product and managers to run the clinics.
c. go ahead with the project on its own to develop the desired capabilities and skills.
d. seek the help of consultants.
Answer: a
Difficulty: Moderate
Page: 162
27. In 1983, Niraldy Systems and Obermeir Products wanted to collaborate on research
but could not. In 1985 they entered into a collaborative research arrangement. What
change made this possible?
a. Passage of the National Cooperative Research act (NCRA) of 1984
b. Repeal of the Sherman Anti-Trust Act in 1984
c. A Supreme Court Decision of Niraldy versus the United States
d. The Open Mobile Architecture Act of 1984
Answer: a
Difficulty: Moderate
Page: 162
28. Red Hat Systems is a small company started by two computer programmers who have
come up with a medical diagnosis software program that is truly amazing. They can try to
market it themselves, but there are only two of them and they have very little money for
mass marketing efforts as well as no contacts in the medical field. They have heard that
other companies are developing similar products. They have decided to form an alliance
with United Medical Systems. What would seem to be the major reason for doing so?
a. To gain rapid access to the market
b. To maintain control of the product
c. To reduce the potential level of competition

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d. To challenge itself to develop the necessary capabilities

Answer: a
Difficulty: Moderate
Page: 164
29. Eden Enterprises and Brushco Systems formed an alliance to develop a new line of
technologically advanced stoves for cooking. What outcomes can they expect from this
alliance?
a. Getting the product to the market faster
b. Increased security of proprietary knowledge
c. Less opportunities to pursue other projects
d. Fewer resources to cope with contingencies
Answer: a
Difficulty: Easy
Page: 164
30. Brintle Enterprises entered into an alliance with several other trucking companies to
use high tech communications to manage its trucks across the nation more effectively. In
this arrangement, firms will help each other keep track of trucks of the entire alliance, but
will share no other information. This alliance would be considered in
a. quadrant Aindividual alliance with capability complementation.
b. quadrant Bnetwork alliances with capability complementation.
c. quadrant Cindividual alliance with capability transfer.
d. quadrant Dnetwork alliances with capability transfer.
Answer: b
Difficulty: Hard
Page: 165
31. Brintle Enterprises entered into an alliance with Surry Trucking Company to use high
tech communications to manage its trucks across the nation more effectively. In this
arrangement, both firms will help each other keep track of trucks of the each other and
will share their knowledge about other ways to make the businesses more effective and
efficient. This would be consider in
a. quadrant Aindividual alliance with capability complementation
b. quadrant Bnetwork alliances with capability complementation
c. quadrant Cindividual alliance with capability transfer
d. quadrant Dnetwork alliances with capability transfer
Answer: c
Difficulty: Hard
Page: 165

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32. Fisher Athletics and Truly Great Deals entered into an alliance. Fisher wanted access
to online sales but did not know how to do it as well as Truly Great Deals. Truly Great
Deals wanted to sell Fisher exercise mats from its online website. This is an example of
a. quadrant Aindividual alliance with capability complementation
b. quadrant Bnetwork alliances with capability complementation
c. quadrant Cindividual alliance with capability transfer
d. quadrant Dnetwork alliances with capability transfer
Answer: a
Difficulty: Hard
Page: 165
33. Which of the following collaborative arrangements is usually considered to be the
most complex and expensive?
a. Strategic alliance
b. Joint venture
c. Licensing
d. Outsourcing
Answer: b
Difficulty: Moderate
Page: 166
34. Dreyfuss WebMakers Company developed a template for a web page that included a
shopping cart and other capabilities to market its software. However, Dreyfuss soon
realized it could make more money by selling this template in modules to others wishing
to quickly build web pages to sell their products. Dreyfuss should
a. forget about this idea because it will just be creating its own competition on the
Internet.
b. become a licensor of web page template modules.
c. become a licensee of web page template modules.
d. start a joint venture with any other company wishing to use its template.
Answer: b
Difficulty: Moderate
Page: 166
35. Glory Cosmetics wants to sell its products on the West Coast, but does not have either
the manufacturing facility or the labor force to meet the increase in demand. It also is
worried that building such a big facility could impose a lot of risk on the firm if it turns
out that the products are not successful on the West Coast. Glory should probably
a. outsource production by using contract manufacturing.
b. slightly decrease the quality of the product and use the money saved to hire new
workers for a second shift.
c. use its credit cards to meet the first couple of payrolls of newly hired workers and then
when profits come in from increased sales, pay off the credit cards.

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d. seek a small business development loan from the local bank.

Answer: a
Difficulty: Easy
Page: 167
36. Contract manufacturing:
a. enhances a firms in-house capabilities.
b. allows firms to meet the scale of market demand by committing to long-term capital
investments.
c. enables a firm to tap the greater economies of scale.
d. decreases organizational responsiveness to the environment.
Answer: c
Difficulty: Moderate
Page: 167
37. Cardoff Aluminum Company has come up with a new type of metal. However,
producing it would take up 75 percent of its manufacturing capacity and would hinder its
ability to continue producing its other products. An appropriate mode of producing this
new product would be
a. outsourcing.
b. a joint venture.
c. licensing in.
d. solo internal development.
Answer: a
Difficulty: Moderate
Page: 167
38. Which of the following is not true regarding outsourcing?
a. It involves significant transaction costs.
b. It is a way to meet market demand without a long-term commitment.
c. It is a great way for a company to develop needed manufacturing capabilities.
d. There is some risk of the contract manufacturer exposing the technology to other
customers.
Answer: c
Difficulty: Moderate
Page: 168
39. Virtual Baskets wants to develop its technology very fast, but with low cost and
medium control. It would like to leverage its existing competencies, not develop new
competencies, and may need to access the competencies of other firms. Which is the best
mode of development for Virtual Baskets to meet these criteria?
a. Strategic alliance

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b. Joint venture
c. License out
d. Collective research organization
Answer: c
Difficulty: Hard
Page: 169
40. Which of the following collaborative arrangements is usually thought to offer the
most opportunity for firms to learn from each other?
a. Strategic alliance
b. Joint venture
c. Licensing
d. Sole internal development
Answer: b
Difficulty: Moderate
Page: 170
41. Which of the following is not true of a collective research organization?
a. It will help the firm leverage its own competencies.
b. A company can learn from other participating organizations.
c. It is a great way to gain immediate returns.
d. It allows the firm to share the cost and risk of basic research.
Answer: c
Difficulty: Easy
Page: 171
42. Parker Computer Company is considering entering into collaboration with Sandlot
Software Company, but is not sure if the resources of Sandlot are a good fit. How would
you address this concern?
a. Do not enter into the agreement until you are 100 percent sure of the fit.
b. It may be difficult to determine the fit. Research it the best you can and then go with it.
c. Resource fit does not matter; all that really matters is cooperativeness.
d. Purchase insurance to cover any uncertainty you feel.
Answer: b
Difficulty: Hard
Page: 172
43. Even though JetShoes is doing fine on the East Coast in the shoe gliding market, it
has decided to collaborate with FastShoes before tackling the West Coast market and
trying to compete with SunShoes who is currently the market leader on the West Coast.
This is the pooling of
a. supplementary resources.

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b. complementary resources.
c. scarce resources.
d. monopolistic resources.
Answer: a
Difficulty: Moderate
Page: 172
44. One way to minimize the risks associated with collaboration is to
a. increase the number of collaborations in which the company engages in order to gain
experience in managing them.
b. use quantitative tools to screen out unsuitable partners.
c. establish appropriate monitoring and governance mechanisms.
d. incorporate no-liability clauses in all collaboration contracts.
Answer: c
Difficulty: Easy
Page: 173
45. Which of the following elements would not be included in a collaboration contractual
agreement?
a. Levels of contribution
b. Authority and control
c. Distribution of proceeds
d. Level of competition
Answer: d
Difficulty: Moderate
Page: 173

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Essay
46. What are the advantages and disadvantages of collaborating for research and product
development?
Answer: Collaboration allows a company to get the necessary skills or resources more
quickly. It also gives the company more rapid access to important complementary assets.
Another advantage is that it can help a company reduce its asset commitment to a specific
project thus giving the firm more flexibility in the market place and the ability to develop
other projects. Companies can learn from collaborating partners and can even develop
more creative projects than they could have done alone. Collaboration also means a
sharing of the costs and risks of the project and facilitating the creation of a shared
standard. Disadvantages are that the company must also share the profits and knowledge
or proprietary technologies that it might want to keep secret. By relying on a partner the
company does not develop in-house capabilities for the future. Collaboration also means
giving up some control over how the technology is developed and used.
Difficulty: Easy
Page: 159-162
47. Gerusa is a company of former Soviet scientists who have developed a method of
killing cancer cells with light in a process called Photodynamic Therapy (PDT). While
the scientists have the medical knowledge, they are short on equipment, money, and
marketing know-how. As a consultant what would you advise Gerusa to do?
Answer: It would seem that Gerusa should find some help. It could sell the process to a
major drug company, enter into an alliance or joint venture with a major company, or just
find financing and hire the experts it needs. Given the inexperience of the former Soviet
scientists in developing and running a business, the best course would seem to be to sell
or license the product to a major company. That would probably be the first
recommendation of a consultant. The second option would be to form a joint venture that
would enable the company to develop the needed competencies while working with a
partner.
Difficulty: Hard
Page: 166-167
48. Dreyfuss WebMakers Company developed a template for a web page that included a
shopping cart and other capabilities to market its software. However, Dreyfuss soon
realized it could make even more money by selling this template in modules to others
wishing to quickly build web pages to sell their products. Dreyfuss is considering using
licensing to distribute its templates. Discuss the advantages and disadvantages to this
approach.
Answer: One advantage of licensing is that it will allow the company to rapidly distribute
its product and continue to collect royalties into the future. It will allow Dreyfuss to

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penetrate into the market and maintain control of the software. Moreover, licensing is less
expensive to do. On the downside, Dreyfuss will be providing others with access to the
web that may be selling products that will compete with its other offerings. The
companies who become licensees may simply copy the Dreyfuss templates, fulfill their
legal obligations, and then modify the templates slightly and use the templates
themselves. Another problem is that in this field things change so rapidly that better web
page templates are sure to be developed and the life of this product may be short so that
the stream of royalties may not last very long.
Difficulty: Moderate
Page: 166-167
49. Dr. Low, a chemistry professor at Purdue University, has been working on a new
cancer treatment method. She has formed her own company to develop and market her
results. She has heard about collective research organizations and is considering joining
one sponsored by a medical society. Explain to her the factors she should consider in
making this decision.
Answer: Collective research organizations are involved in more basic research so they
will tend to be slow in bringing applied ideas to the market. While the cost and amount of
control she can expect from such collaboration varies, it will give her the opportunity to
leverage her existing capabilities in chemistry and develop new competencies in the
medical sciences. It will also provide her with access to the research others are doing
which may help her further her own research. It may also help her get acquainted with a
suitable joint venture partner for bringing the product to market.
Difficulty: Hard
Page: 171
50. Frantol Laboratory is planning on entering into a collaboration agreement with Acgra
Pharmaceuticals but is concerned about how much effort Acgra will put into the effort.
What would you suggest that Frantol do to overcome this problem?
Answer: Frantol should first communicate its expectations to Acgra. A carefully crafted
legal document specifying the expectations of both parties will help a lot. Frantol should
also set up an agreed upon mechanism for reviewing Acgras contributions and
performance. Frantol could do the reviews itself or bring in a third party to do it.
Difficulty: Moderate
Page: 173-175

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