Chapter 9 Understanding Alliances and Cooperative Strategies.
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Transcript of Chapter 9 Understanding Alliances and Cooperative Strategies.
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Chapter 9Understanding Alliances and Cooperative Strategies
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OBJECTIVES
Describe why strategic alliances are important strategy vehicles
1
Describe the motivations behind alliances and show how they’ve changed over time
2
Explain the various forms and structures of strategic alliances
3
Explain alliances as both business‑level and corporate‑level strategy vehicles
4
Understand the characteristics of alliances in stable and dynamic competitive contexts
5
Summarize the criteria for successful alliances 6
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AN ALLIANCE THAT FITS LIKE A GLOVE
gloves
Magla
Mr. Clean
Expand into
European markets
Differentiate its
product
P&GExtend the
brand
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THE WHITE WAVE-DEAN ALLIANCE
35% ownership DeanFoods
$15 million
Leverage over retailers(e.g., slotting fees)
WhiteWave
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BENEFITS OF STRATEGIC ALLIANCES
• Share investments and rewards
• Reduce risk
• Reduce uncertainty
• Focus resources on what eachpartner does best
• Foster economics of scale and scope
Companies which participate most actively in alliances outperform the least active firms by 5 to 7 percent
Why?
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ALLIANCES ARE NOT STRATEGIES IN THEMSELVES
An alliance is one vehicle for realizing a strategy
Arenas
Differentiators
Economic Logic
Staging Vehicles
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THE USE OF ALLIANCES AS STRATEGIC VEHICLE HAS BALLOONED
1980 1995
2%
16%
Alliances as percent of revenues
As of 2007,large MNCs have over 20%
of their total assets tiedup in alliances
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ALLIANCES OFFER BENEFITS, CONTRACTS CANNOT
Joint Investment
Increase returns by encouraging firms to make investments that they’d be otherwise unwilling to make (e.g., Wal-Mart supplier becomes willing to invest in new equipment)
Complementary Resources
Opportunity to create a stock of resources that is unavailable to competitors. This may create a shared advantage (e.g., Nestlé and Coke combined resources to offer canned tea and coffee products
Knowledge sharingConsistent information-sharing routines enhances learning (e.g., John Deere exchanges key employees with alliance partner Hitachi)
Informal managementAlliances may make it more cost effective to manage an activity than arm’s-length transactions or acquisitions
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ALLIANCES MAY BUILD COMPETITIVE ADVANTAGE
Alliances may serve to build a competitive advantage if
Rivals cannot ascertain what generates the returns because of causalambiguity surrounding the alliance
Rivals can figure out what generates the returns but cannot quicklyreplicate the resources owing to time decompression diseconomies
Rivals cannot imitate practices or investments because they are missing complementary resources (they have not made the previous investmentsthat make subsequent investments economically viable) and because the current costs associated with prior investments are now prohibitive
Rivals cannot find a partner with the necessary complementary strategic resources
Rivals cannot access potential partners’ resources because they are indivisible
Rivals cannot replicate a distinctive and socially complex institutional environment that has the necessary formal and informal controls thatmake managing alliances possible
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MOTIVATION FOR ALLIANCES HAS CHANGED OVER TIME
Source: Adapted from J. Harbison and P. Pekar, Smart Alliances: A Practical Guide to Repeatable Success (San Francisco: Jossey-Bass, 1998)
Product performancefocus
1970s
Produce with latesttechnology
Market beyond nationalborders
Sell product stressingperformance
Position focus
1980s
Build industry stature
Consolidate position
Gain economies of scaleand scope
Learning andcapabilities focus
Post 2000
Ensure constant streamof new prospects withadvancing technology
Proactively maximize delivered value
Optimize total cost by pro-duct/customer segment
Gain advantage in res-ponse to changing condi-tions and responsibilities
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THE WAL-MART – CIFRA ALLIANCE
Cifra
Knowledge of Wal-Mart’s business model
Knowledge of the
market in Mexico
Wal-Mart
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ALLIANCES CAN TAKE MANY FORMS
Examples of cooperative arrangements in the continuum of organizational forms
Permanent
Keiretsu in Japan or Chaebols in South Korea
Caltrex, which was jointly owned by Chevron and Texaco prior to their merger.
Long-term
Outsourcing Many technology standards consortia
Examples include technology collaborations like the PowerPC chip between Motorola, IBM, and Apple
Anheuser-Busch’s cross ownership with Kirin in Japan and Modelo in Mexico
Stand-alone joint ventures like Dow-Corning.
Transactional
Purchase agreements that are renewable annually or every several years
Agreements to distribute productsor services
Cross-licensing like that between Disney and Pixar or R&D partnerships like Millennium Pharma-ceuticals and some of its smaller partners
Simple purchase order for commodities, some-times called a spot transaction
Short-term agreements on functions like advertising or manufacturing to achieve
efficiencies – for example, contract brewing of Miller Beer by Anheuser Busch
Level of Commitment
No Linkages Beyond Transaction
Information Sharing
Asset, Resource, and Capability Sharing
Cross-Equity(partners take
ownership in one party or each other)
Shared Equity
Source:Adapted from J. Harbison and P. Pekar, Smart Alliances: A Practical Guide to Repeatable Success (San Francisco: Jossey-Bass, 1998
Non-Equity Alliances Equity Alliances
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MULTI-PARTY ALLIANCES
2 party alliances Multiparty alliances
Example: SEMATECH, a consortiumof semiconductor manufacturers
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WHO MIGHT BECOME AN ALLIANCE PARTNER?
Newentrants
Suppliers
Rivals
Customers
Substitutes
Any otherorganization couldbecome an alliance
partner
Firms
Complementors
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2 TYPES OF BUSINESS STRATEGY ALLIANCES
Examples
Timkin andsuppliers
Mondavi andtop foreign wineproducers
Vertical
Partner with one or more suppliers or customers. Typically done to create more value for the end customer and to lower total production costs along the value chain
1
Partner with a rival or potential competitor to gain access to multiple segments of the industry and reduce risk, improve efficiency, or foster learning
Horizontal2
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EXAMPLES OF NETWORKS OF BUSINESS ALLIANCES
Coopetition is essentially the notion that companies are com-plementors when they make markets and competitors whenthey divide markets. This relationship is called a value net
Timken Co. is getting its cus-tomers to think of them as morethan simply a bearings supplier byemploying sophisticated bundlingprocesses to combine basicbearings with additionalcomponents in order to providecompanies with exactly what theyneed. As a result, their bundledproducts are a source of reliabilityand cost reduction for theircustomers like Caterpillar. Also,Timken’s acquisitions don’t createvalue simply due to added productlines, but instead due to the greatervalue added by a more complexand tailored bundle
YourCompany
Suppliers
Most often ignoredsource of value creation
Only recently are firms recognizing that workingwith suppliers is as important as listening tothe customer….
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RISKS ARISING FROM ALLIANCES
Poor contract managementFailure to make complementaryresources available
Misrepresentation of resourcesand capabilities
Being held hostage throughspecific investments
Misappropriation of resourcesand capabilities
Misunderstanding a partner’sstrategic intent
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RISKS ARISING FROM ALLIANCES
? Redhook Ale
Was Redhook Ale held captive by
its alliance with Anheuser Busch?
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FIVE LEVERS FOR INCREASING THE PROBABILITY OF ALLIANCE SUCCESS
Understand the determinants of trust
Be able to manage knowledge and learning
Understand alliance evolution
Know how to measure alliance performance
Create a dedicated alliance function
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BENEFITS OF TRUST
KnowledgeSharing
Routines
DedicatedAsset
Investments
Interfirm
Trust
• TRUST is one party’s confidence that the other party in the exchange relationship will fulfill its promises and commitments and will not exploit its vulnerabilities
• Trust and alliances are a conundrum from a classical economics perspective – assumption of opportunism means firms must choose market or hierarchy, make or buy, not an alliance
’
BUT
Trust lowers transaction costs• Search costs• Contracting costs• Monitoring costs• Enforcement costs
AND
• Increases knowledge sharing• Increases investments in dedicated
assets
Trust and Competitive Advantage
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FOUR KEY FACTORS AFFECT TRUST
Initialconditions
Negotiationprocess
Reciprocalexperiences
Outsidebehavior
Trust
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COMPONENTS OF A DEDICATED ALLIANCE FUNCTION
Alliancebusiness case
Partnerassessmentand selection
Alliance negotiation andgovernance
Alliancemanagement
Assessmentand termination
• Value-chain analysis form
• Needs-analysis checklist
• Manufacturing-vs.-partnering analysis
• Partner screening form
• Technology and patent-domain maps
• Cultural-fit evaluation form
• Due-diligence team
• Negotiations matrix
• Needs-vs.-wants checklist
• Alliance-contract template
• Alliance-structureguidelines
• Alliance-metrics framework
• Problem-tracking template
• Trust-building work sheet
• Alliance-contact list
• Alliance-communication infrastructure
• Relationship-evaluation form
• Yearly status report
• Termination checklist
• Termination-planning work sheet
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• Strategic fit?
• Resource fit?
• Cultural fit
• Structural fit?
• Other questions?
Why?
WHEN DO PARTNERS FIT?
Firms must address a number of issues to determine fit …