Diagrams of Power and Strategic Decision Making: the Case of Strategic Alliances in the Automotive Industry

Abstract

Research question: This paper, on the example of strategic alliances in the automotive industry, investigates how diagrams could be useful in studying complex power relationships. Motivation: The relative power of individuals and institutions is a crucial driving force of their interactions. It is however hard to evaluate because the interactions can take place simultaneously or sequentially in different markets or forums.  Diagrams of power, that this study introduces, help us abstract the relative power of agents. This enables us to use insights of decision and game theory, especially those from the literature, in strategic decision making under uncertainty (Courtney, Kirkland, & Viguerie, 1997), to arrive at successful and sustainable solutions. They enable us to view relationships between firms as security dilemmas (Posen, 1993), which can explain why emerging market multinationals (EMMs) treat the acquired companies as strategic partners (Kale, Singh, & Raman, 2009). Idea: Diagrams of power and security dilemma help us better understand strategic alliances in the automotive industry. Moreover, we believe that diagrams of power could both offer new insights to scholars and represent an intuitive tool for businessmen and policy makers less experienced with advanced mathematical methods. Data: To quantify the power of several automotive producers, we have used selected contemporary data items from their annual reports and the International Organization of Motor Vehicle Manufacturers. Tools: The tool we introduce to better understand power relationships between automotive producers are the diagrams of power. We then apply them to two cases from the industry to better understand the strategic interactions within alliances. Findings: We demonstrate that diagrams of power can help managers define the goals of strategic alliances, minimize the risks of their establishment and management, and recognize the problems and opportunities that arise in strategic partnerships due to security dilemmas, a concept that originated in the study of wars. Diagrams of power enrich the analytical toolkit of the existing literature, enabling faster understanding of the relationship between agents as well as decision making based on more complete information. Contribution: This paper introduces diagrams of power – a tool for study of strategic interactions – and applies the concept of security dilemma to the study of the automotive industry.