TITLE : KNOWLEDGE LINK: HOW FIRMS COMPETE THROUGH STRATEGIC ALLIANCES, THE.

ln teaching about strategy and management at the Harvard Business School, I once concentrated on management tasks "outside" companies and on the competitors and markets "outside" companies. Other academics, manager, and consultants split up the world in the same fashion Firms were, as one economist put it, islands of managerial coordination in a sea of market relationships But this is an outdated view Companies are now breaking down barriers which, like the Berlin Wall have endured for decades Their managers are now working in a world that consist not simply of markets and firms, but of complex relationships with a variety of other organizations

Four years ago, when I began this study, I did not anticipate this conclusion. My plan was to understand why many U.S. companies had been forming strategic alliances such as joint ventures, supplier partnerships, and research consortia The book examines these alliances in depth But it goes futher and presents them as the conseguences of a deeper, potentially evolutionary change.

I have called this change the globalizaion of knowledge In essence, a rapidly growing number of countries, companies, universities, and other organizations are contributing to an enormous worldwide pool of commercializable knowledge Some of this knowledge migratory : it moves rapidly across company and country boundaries Other knowledge is deeply embedded in social elationships. In response, many executives are now linking their companies to other organizations in innovative ways. Thus, the focus of this book is not "the firm" as it appears in traditional books on business and economics. It is the vast, emerging, partially charted territories of knowledge- driven relationships that now tie many companies to scores of other organizations around the world.

This is an unusual topic-as a focus of scholarly effort, the subject is embryonic. Data are scarce, and many basic concepts are in flux. Only recently have scholars recognized that the complex sphere of alliances around many firms may be a full-fledged form of organization, just as important as the markets and internal activities that have been studied so carefully for decades. From a managerial perspective, too, the topic is a new one. The large-scale "strategic alliance experiment" by U. S. companies is scarcely a decade old. For these reasons, this book and the research behind it are inevitably unorthodox.

Early in my research, I realized that no single discipline, including business administration, would provide a complete perspective on the issues. Hence, I have drawn upon and synthesized ideas from scholars in several fields. Some were economists, such as Kenneth Arrow and Kenneth Boulding, who have studied the economics of knowledge; others were sociologists, such as Daniel Bell, who have studied the so-called knowledge explosion. Historians, political scientists, and some organizational theorists have studied how technology is transferred among companies, groups, or nations. Searching further afield, I drew upon ideas developed by the Oxford philosopher Gilbert Ryle and the Hungarian-born chemist and philosopher of science, Michael Polanyi. To make this research accessible to a wide range of readers, I have presented my ideas in a long interpretive essay written in ordinary English. The endnotes, however, show in detail the intellectual genealogy of ideas and findings drawn from other scholars.

This study differs from virtually all previous work on strategic alliances. Other studies typically examine a large sample of a particular kind of alliance. Such a study might examine the international joint ventures created by 50 major American companies. This is the equivalent of studying all the shortstops on a large number of baseball teams. In contrast, I examined the wide range of alliances created by just two firms, General Motors and IBM-the equivalent of studying all the players on two baseball teams. This approach provided a useful perspective on the issues I hoped to understand. I could examine how the many alliances created by GM and IBM related to one another and how each firm's particular constellation of alliances helped it, or failed to help it, achieve its long-term objectives and meet the competitive demands of its industry. I could also look at the full range of alliances from the perspective of the firm's executives and examine how they had altered and managed their boundary relationships in response to the forces of knowledge. Of course, neither GM nor IBM is a "representative" company, but the dramatic changes in their boundaries during the 1980s provided abundant evidence for developing and testing the basic ideas of this book.

This research also reflects personal and professional experiences. My thinking and writing reflect my study of philosophy at St. Louis University and Oxford University, and its unusual alliance with nine years of teaching strategy and general management at the Harvard Business School. I enjoy searching for order and coherence in the large, complicated, messy, open-ended issues that arise in firms and affect their strategic interests. I also admire writers who do this in imaginative and provocative ways, without over simplifying the issues.

Of course, a wide-ranging subject like this one needs to have boundaries, and I have focused mys research on the alliances that GM and IBM have created in the United States and in East Asia (principally Japan). These alliances are important in their own right, and they also have parallels in other American companies that faced or now face challenges from intensified competition in the United States or from across the Pacific. This focus also enabled me to draw upon some of my own experiences. During the last ten years, I have made a dozen trips to Japan and other countries in Asia to study business-government relations, to write cases about Asian companies, to teach at the Nomura School of Advanced Management in Tokyo, and to conduct interviews for this project.

The data and ideas I have synthesized in this book lead to many conclusions. Perhaps the most far-reaching is that the boundaries of U.S. companies will continue to blur, as firms create more alliances in response to the powerful, knowledge-driven forces reshaping their economic environment. Such a statement is, of course, quite broad, and its terms require clear definition. The statement also reflects the triumph of hope over experience that inspires scholars to illuminate a complicated phenomenon through a few basic ideas. The proliferation of knowledge does not explain everything. The story behind firms' changing boundaries is, inevitably, more complex, and I have tried to take account of these complexities throughout the book. But my central focus is on the ways in which knowledge is reshaping firms' boundaries, altering the work of managers, and undermining many of our familiar, deeply rooted ways of thinking about companies.

I am grateful to many people and organizations for their help with this study. I am particularly indebted to the more than 60 executives at GM, IBM, and their business partners, who provided data, observations, and ideas, and, in some cases, arranged for me to tour plants and other facilities. I cannot mention all of them, but I am particularly grateful to Barton Brown, vice president for Asian and African Operations at GM; Bernard Bryant, formerly executive director of Isuzu-Suzuki Affairs at GM; Richard Gerstner, formerly head of the Asia Pacific Group at IBM; Elmer Johnson, formerly executive vice president of GM; Maryann Keller, managing director of research at Furman Selz Mager Deitz & Bernie; Richard LeFauve, president of the Saturn Corporation; John Middlebrook, vice president for marketing and product planning at GM; Eric Mittelstadt, president of GMFanuc Robotics Corporation; Takeo Shiina, president of IBM Japan; and Kim Woo-Chong, chairman of Daewoo Corporation.

Dean John McArthur, the other senior faculty of the Harvard Business School, and its generous alumni provided me with the time and resources this work required. Many colleagues and friends provided encouragement, suggestions, and insights. I am particularly grateful to Christopher Bartlett, Richard Ellsworth, J. Ronald Fox, Patricia O'Brien, Andrall Pearson, Thomas Piper, Howard Stevenson, Michael Yoshino, and Hugh Warren. Carliss Baldwin, Joseph Bower, Benjamin Gomes-Casseres, Richard Hackman, Thomas McCraw, Malcolm Salter, William Veghte, Richard Vietor, and David Yoffie all read one or more of the "final" versions of the manuscript and gave me many ideas that improved the book's substance, structure, and style. Finally, in many long, pleasant conversations over the past several years, Colyer Crum helped me to think through and clarify many of the ideas in this book.

The Nomura School of Advanced Management in Tokyo made invaluable contributions to my research in Japan. Under former Deans Jiro Tokuyama and Masao Okamoto and Dean Toichiro Miyakawa, the school, its staff, and the many executives who have participated in its executive programs provided me, as a faculty member, with an extraordinary window on Japanese business life. Over the years, my friend Masasuke Ide, the school's associate dean, has provided me with encouragement, ideas, and many helpful suggestions. I am also grateful to the Nomura School for introductions to analysts at the Nomura Research Institute who follow the computer and automobile industries.

From the very beginning of this project, Michael Stevenson, a business industry analyst at the Harvard Business School, helped me greatly by providing abundant but carefully targeted library research. So did Naomi liasagawa, for a briefer period. Cynthia Mutti and Eliza Collins made many thoughtful editorial suggestions on an earlier version of the manuscript, and I am extremely grateful for all that Carol Franco, my editor at the Harvard Business School Press, contributed to this work through her persistent, intelligent questions and insightful suggestions.

Finally, I want to thank Carolyn Holland and Sally Markham who typed version after version of the manuscript. Among their many virtues is the patient, good-natured skepticism they showed each time I gave them yet another draft and said, "Once you've done this, it's finished." I am also grateful to Rose Giacobbe and the personnel in the Word Processing Department at the Harvard Business School who helped with the typing, often on short notice in crucial moments. Their patience, intelligent queries, and attention to detail improved this work.