Chapter 9 Understanding Alliances and Cooperative Strategies OBJECTIVES 1 Describe why strategic alliances are important strategy vehicles 2 Describe the motivations behind alliances and show how.
Download ReportTranscript Chapter 9 Understanding Alliances and Cooperative Strategies OBJECTIVES 1 Describe why strategic alliances are important strategy vehicles 2 Describe the motivations behind alliances and show how.
Chapter 9 Understanding Alliances and Cooperative Strategies OBJECTIVES 1 Describe why strategic alliances are important strategy vehicles 2 Describe the motivations behind alliances and show how they’ve changed over time 3 Explain the various forms and structures of strategic alliances 4 Explain alliances as both business-level and corporate-level strategy vehicles 5 Understand the characteristics of alliances in stable and dynamic competitive contexts 6 Summarize the criteria for successful alliances 1 AN ALLIANCE THAT FITS LIKE A GLOVE gloves Differentiate its product Extend the P&G Magla brand Expand into Mr. Clean European markets 2 THE WHITE WAVE-DEAN ALLIANCE $15 million White Wave 35% ownership Dean Foods Leverage over retailers (e.g., slotting fees) 3 BENEFITS OF STRATEGIC ALLIANCES Companies which participate most actively in alliances outperform the least active firms by 5 to 7 percent Why? • Share investments and rewards • Reduce risk • Reduce uncertainty • Focus resources on what each partner does best • Foster economics of scale and scope 4 ALLIANCES ARE NOT STRATEGIES IN THEMSELVES Arenas Staging Economic Logic Vehicles An alliance is one vehicle for realizing a strategy Differentiators 5 THE USE OF ALLIANCES AS STRATEGIC VEHICLE HAS BALLOONED Alliances as percent of revenues 16% As of 2007, large MNCs have over 20% of their total assets tied up in alliances 2% 1980 1995 6 ALLIANCES OFFER BENEFITS, CONTRACTS CANNOT Joint Investment Complementary Resources 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) 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 sharing Consistent informationsharing routines enhances learning (e.g., John Deere exchanges key employees with alliance partner Hitachi) Informal management Alliances may make it more cost effective to manage an activity than arm’s-length transactions or acquisitions 7 ALLIANCES MAY BUILD COMPETITIVE ADVANTAGE Alliances may serve to build a competitive advantage if Rivals cannot ascertain what generates the returns because of causal ambiguity surrounding the alliance Rivals can figure out what generates the returns but cannot quickly replicate 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 investments that 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 that make managing alliances possible 8 MOTIVATION FOR ALLIANCES HAS CHANGED OVER TIME Product performance focus 1970s Position focus 1980s Learning and capabilities focus Post 2000 Produce with latest technology Build industry stature Ensure constant stream of new prospects with advancing technology Market beyond national borders Consolidate position Proactively maximize delivered value Sell product stressing performance Gain economies of scale and scope Optimize total cost by product/customer segment Gain advantage in response to changing conditions and responsibilities Source: Adapted from J. Harbison and P. Pekar, Smart Alliances: A Practical Guide to Repeatable Success (San Francisco: JosseyBass, 1998) 9 THE WAL-MART – CIFRA ALLIANCE Knowledge of Wal-Mart’s business model Wal-Mart Cifra Knowledge of the market in Mexico 10 ALLIANCES CAN TAKE MANY FORMS Examples of cooperative arrangements in the continuum of organizational forms Keiretsu in Japan or Chaebols in South Korea Permanent Outsourcing Long-term Transactional Level of Commitment Many technology Examples include standards consortia technology collaborations like the PowerPC chip between Motorola, IBM, and Apple Purchase agreements Agreements to Cross-licensing like that that are renewable distribute products between Disney and Pixar annually or every or services or R&D partnerships like several years Millennium Pharmaceuticals and some of its smaller partners Simple purchase order Short-term agreements on functions like for commodities, someadvertising or manufacturing to achieve times called a spot efficiencies – for example, contract brewing of transaction Miller Beer by Anheuser Busch No Linkages Beyond Information Asset, Resource, and Transaction Sharing Capability Sharing Non-Equity Alliances Anheuser-Busch’s cross ownership with Kirin in Japan and Modelo in Mexico Cross-Equity (partners take ownership in one party or each other) Caltrex, which was jointly owned by Chevron and Texaco prior to their merger. Stand-alone joint ventures like DowCorning. Shared Equity Equity Alliances Source: Adapted from J. Harbison and P. Pekar, Smart Alliances: A Practical Guide to Repeatable Success (San Francisco: JosseyBass, 1998 11 MULTI-PARTY ALLIANCES 2 party alliances Multiparty alliances Example: SEMATECH, a consortium of semiconductor manufacturers 12 WHO MIGHT BECOME AN ALLIANCE PARTNER? Rivals New entrants Complementors Any other organization could become an alliance partner Firms Substitutes Suppliers Customers 13 2 TYPES OF BUSINESS STRATEGY ALLIANCES Examples 1 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 Timkin and suppliers 2 Horizontal Partner with a rival or potential competitor to gain access to multiple segments of the industry and reduce risk, improve efficiency, or foster learning Mondavi and top foreign wine producers 14 EXAMPLES OF NETWORKS OF BUSINESS ALLIANCES Coopetition is essentially the notion that companies are complementors when they make markets and competitors when they divide markets. This relationship is called a value net Timken Co. is getting its customers to think of them as more than simply a bearings supplier by employing sophisticated bundling processes to combine basic bearings with additional components in order to provide companies with exactly what they need. As a result, their bundled products are a source of reliability and cost reduction for their customers like Caterpillar. Also, Timken’s acquisitions don’t create value simply due to added product lines, but instead due to the greater value added by a more complex and tailored bundle Your Company Only recently are firms recognizing that working with suppliers is as important as listening to the customer…. Most often ignored source of value creation Suppliers 15 RISKS ARISING FROM ALLIANCES Poor contract management Failure to make complementary resources available Misrepresentation of resources and capabilities Being held hostage through specific investments Misappropriation of resources and capabilities Misunderstanding a partner’s strategic intent 16 RISKS ARISING FROM ALLIANCES Redhook Ale ? Was Redhook Ale held captive by its alliance with Anheuser Busch? 17 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 18 BENEFITS OF TRUST Trust and Competitive Advantage Dedicated Knowledge Asset Investments Sharing Routines 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 AND • Monitoring costs • Enforcement costs • Increases knowledge sharing • Increases investments in dedicated assets 19 FOUR KEY FACTORS AFFECT TRUST Initial conditions Negotiation process Trust Reciprocal experiences Outside behavior 20 COMPONENTS OF A DEDICATED ALLIANCE FUNCTION Alliance business case • Value-chain Partner assessment and selection • Partner analysis form screening form • Needs-analysis • Technology and checklist • Manufacturingvs.-partnering analysis patent-domain maps • Cultural-fit evaluation form • Due-diligence team Alliance negotiation and governance • Negotiations matrix Alliance management • Problem-tracking template • Needs-vs.-wants • Trust-building checklist work sheet • Alliance-contract • Alliance-contact template list • Alliance-structure • Allianceguidelines • Alliance-metrics communication infrastructure Assessment and termination • Relationshipevaluation form • Yearly status report • Termination checklist • Terminationplanning work sheet framework 21 WHEN DO PARTNERS FIT? Firms must address a number of issues to determine fit … Why? • Strategic fit? • Resource fit? • Cultural fit • Structural fit? • Other questions? 22