ISSS2007

August 2007

Firmʼs Partnership and Competitive Advantage

ISSS2007
August 6, 2007
Junsei Kado, Digital Management Research Center

1Summary Conventional Resource Based View theory framework isnot sufficient to examine competitive advantage in anindustry in which business with partners is inevitable.
 “Opportunity advantage” brought by partners is able to
be explained by introducing framework of StructuralEmbeddedness.
 This paper analyzes ERP package business as a case toconfirm competitive advantage that is brought by thepartner relationship structure.

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August 2007Conceptual Framework of New RBVIsolation
Physical /Institutional
Characteristic
Inimitability
Exclusivenessbased on first
movingactivities

Pass
Dependency

Difficulty ofAcquisition

Difficulty ofSubstitution

Sticknessof field
activities

Value

Policy ofProfit
Centric

Strategic
Value

Isolation
Mechanism

Sustainable
Competitive
Advantage

Rent

appropriability

some of factors affectIndispensable Condition
Source: Negoro, T., 2005b, Close Examination of Inimitability Concept, Waseda University Research Institute of Information
Technology and Management Working Paper No.15

3The Limitations of Conventional Business Strategy Theories
 An assumption that resources and capabilities that becomesources of heterogeneity among firms or differences ofbusiness performances are produced inside a firm in one way
or another( Konno(2002), p.13)
 There exists a few studies of sustainable competitive
advantage that consider resources including partners’.
 Opportunity advantage has been argued but not clearlytheorized.

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Concept of Opportunity Advantage

 “Opportunity advantage” refers to a state that a firm has acapability to obtain a lot of business opportunities inpartner networks.
 “Opportunity advantage” can be changed by choice ofpartner.
 A partner network that brings more business opportunities
has a possibility of enhancing a competitive advantage.

5A view of Structural Embeddedness
Customer

Structural HolePartner
Dense Network

Package
VendorSparse Network

Structural embeddedness theory argues that an actor that is embedded in asparse network has a possibility to obtain new and advantageous business
opportunities.
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ERP Package Business in Japan A industry that has a typical horizontal business
partnership including hardware vendors, basic software(O/S) vendors, System development companies, and so on.
 A collaboration with other players in IT industry isinevitable for Software package vendor
 Business performance is directly affected by the quality ofthe partners’ strategies.

7Considerations on Case Selection
 Focus on partner strategy of ERP Package vendors
 Focus on large business market of ERP Package businessin Japan– Main battlefield– Easy to capture characteristics of the strategy ofpackage vendors
 Companies for Case Analysis
Focal company : SAP Japan
Compared company : GLOVIA business of FUJITSU8Kado4ISSS2007

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ERP Package Market ShareSAP Japan keeps the top share in the large business ERP market in Japan
1997

1998

1999

2000

2001

2002

2003

SAP

34.2%

46.9%

33.0%

45.6%

50.4%

45.9%

46.1%

OracleE
BS

15.4%

14.4%

24.0%

19.0%

15.7%

19.1%

20.6%

GLOVIA

10.3%

7.2%

9.5%

7.5%

7.9%

9.1%

10.8%

PeopleS
oft

0.9%

2.9%

5.8%

3.2%

4.2%

5.9%

8.1%

SSA

9.4%

7.2%

5.8%

4.6%

3.9%

4.6%

6.3%

3.5%

3.2%

3.0%

3.6%

3.5%

3.4%

3.2%Intentia

0.7%

IFS

0.7%

2.1%

9The Characteristics of Partnership of SAP Japan A Company with a required conditions is able to be apartner

 Diversity is observed in partner types

 SAP Japan focuses on product delivery, sales activities,
technical support services

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The Partnership Characteristics of Glovia Business ofFUJITSU Regardless of providing a partner system that is almost thesame as SAP Japan,
most of GLOVIA partners are FUJITSU group firms.
 Lack of diversity of partners
 Because FUJITSU delivers hardware products andbasic software products, partnerships with competitors( hardware vendors, basic software vendors ) are notobserved

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The Framework for Analyzing Partnership
Network Membership

Network Structure２
Characteristics ofPartner Network
Opportunity
Advantage

Tie Modalities

Start/End of Partnerships

Continuity of Partnership

Isolation Mechanism
Strategic Value

This paper focuseson these 2 points.

Characteristics ofPartner Resources

Sustainable
Competitive
Advantage of Whole
Business System
including Partners

１
Differentiation
Advantage

Isolation Mechanism
Strategic Value

Characteristics of ERP
Package Vendor Resources
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August 2007Evaluation of “Isolation Mechanism”

 To acquire continuous competitive advantage, isolation ofresource is necessary.

 Resource Isolation mechanism consists of “difficulty ofacquisition” and “difficulty of substitution”.

 In this paper, “difficulty of acquisition” is evaluated as“immobility”.
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Evaluation of “Isolation Mechanism”
 SAP Japan need to utilize external resources when it
conducts sales and implementation activities.
 GLOVIA business of FUJITSU accumulates resources
mainly internally.
 SAP Japan is supposed to be inferior to SAP Japan
in immobility.
=> It doesn’t have good “isolation mechanism”

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Evaluation of “Strategic Value”
 ERP packages require generally huge and long term
projects for implementation because the functions ofproducts are very complicated and the scope of
application is very wide.
 Therefore customers should consider the vendors’ past
implementation performance. Because customers think
about uncertainty whether the package will work when
they utilize the software.
 To evaluate the strategic value of the ERP package
businesses, it is required to examine whether the partnerresources contribute to reduce the uncertainty ofimplementation.
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Evaluation of “Strategic Value”
 In the case of SAP Japan, the quality of partners varies andit depends on choice of partner whether the partner
resources might contribute to reduce uncertainty ofutilizing the software.
 In the case of GLOVIA business of FUJITSU, FUJITSU
has much resources in itself and the equivalent way, it
keeps certain level of capability. Therefore uncertainty isalmost avoided.
 GLOVIA business of FUJITSU is comparatively
superior to SAP Japan in “strategic value”.
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Partner Member of SAP Japan Significant Partners– User Company, system development subsidiary ofUser Company’s group, Computer Vendors,
Consulting Firms
 From an interview with consulting firm:– SAP Japan expanded its business not through acollaboration with computer vendors but with
consulting firms.
– Furthermore, some accounting firms that had
human relationship with consulting firms
introduced customers to SAP Japan.
17Partner Member of GLOVIA Business of FUJITSU Total of 80 companies, but almost partners aretargeting to middle and small business market.
 To compare with SAP Japan, as far as considering
partners targeting large business market, half of 26
partners are existing FUJITSU group companies.
 Furthermore, FUJITSU directly sells GLOVIA tocustomers in the large business market and it doesn’t
have any resale system.

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SAP Japan’s Partner Network Image SAP Japan has a lot of possibility of structural holes.
Clients of Accounting
Firm
Prospect

Prospect
Prospect

Accounting
Firm

Prospect

Existing / New customers ofComputer Vendors
UserCompany
Prospect
ComputerVendor

ConsultingFirm
SAP
Japan

UserCompany

System Development subsidiary ofUser Company and other group compan

Prospect
User Company
System development
Subsidiary of User Company

User company

Prospect

Prospect

Prospect
A Possibility ofStructural HoleUser company community

Prospect19

The Partner Network Image of GLOIVIA Business ofFUJITSU GLOVIA Business of FUJITSU has few possibility of structural holes.
Prospect

Prospect
ExistingCustomer

Consulting
Firm

A Possibility ofStructuralHole

FUJITSUA GroupCompanyof
FUJITSUExisting Customerof
FUJITSUA GroupCompanyofFUJITSUExisting CustomerofFUJITSUA GroupCompanyofFUJITSUExisting CustomerofFUJITSU20Kado10

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Summary of Case Analysis
SAP JapanPartnerResourcesPartner
Network

GLOVIA businessof FUJITSU

Isolation Mechanism

×○

Strategic Value△△Membership○×

Network Structure○×Comparing both companies,– GLOVIA business of FUJITSU is superior to SAP Japan
in partner resources– SAP Japan is superior to GLOVIA business of FUJITSU
in partner network
21Discussion (1) From the analysis result based on traditional RBV, SAP
Japan’s partner resource does not contribute to thecompetitive advantage.
 On the other hand, the partner resources of GLOVIAbusiness of FUJITSU have competitive advantage
because most partners are group firms.
 From the framework of conventional RBV, GLOIVA
business of FUJITSU that has superior to SAP Japan inpartner resources can have competitive advantage.
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Discussion (2) But SAP Japan keeps the top market share , GLOVIA
business of FUJITSU just keeps 3rd rank.
 Therefore GLOVIA business of FUJITSU can not fully
utilize its resources that have potential ability to acquirecompetitive advantage.
 This shows that there exists another factor thatconventional RBV can’t fully explain.

23Discussion(3) SAP Japan has diversity in its partner network – user firms,
SI subsidiaries of user groups, many consulting firms.
 This is supposed to be a key factor of taking businesscustomers that are difficult to be reached by SAP Japanitself.
 From the structural embeddedness view, it can be said thatSAP Japan places itself in the position that connect
structural holes.
 Therefore, SAP Japan has the possibility of having“opportunity advantage”.
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A Possibility of Complement and Expansion of RBV with
Structural Embeddedness Theory
 In the framework of conventional RBV, “access” broughtby business partners has not fully been examined.
 By introducing structural embeddedness view, explanationof “opportunity advantage” brought by partner
network become possible.
 In the explanation of competitive advantage brought bybusiness partners, the structural embeddedness theory ispositioned as a theory that complements and expands
conventional RBV.
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Future Research Examine the impact of software product to thedifferentiation regarding competitive advantage
 Examine using other mechanisms – e.g. first mover’s
advantage, network externality , brand powers, etc.
 To generalize, examine the framework in other businesses /industries
 Quantitative approach26

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References
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Burt, R.S., (1992), Structural Holes: The Social Structure of Competition, Harvard University Press
Granovetter,M., (1985), Economic action and social structure: The problem of embeddedness,
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