by peter mackinnon, wisense project manager school of electrical engineering and computer science
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Strategic Alliances as Strategic Alliances as a Small a Small Business Growth StrategyBusiness Growth Strategy
A Contribution to the 2012 WiSense A Contribution to the 2012 WiSense Entrepreneurship SeriesEntrepreneurship Series
ByBy
Peter MacKinnon, WiSense Project ManagerPeter MacKinnon, WiSense Project Manager
School of Electrical Engineering and Computer School of Electrical Engineering and Computer ScienceScience
uOttawa, CanadauOttawa, Canadapmackinn@site.uottawa.ca
613.562.5800 x 2177613.562.5800 x 2177
WiSense Seminar # WiSense Seminar # 7373 April 5, 2012April 5, 2012
AgendaAgenda
Learning ObjectivesLearning Objectives A Context for Strategic AlliancesA Context for Strategic Alliances Managing InnovationManaging Innovation Partnerships/AlliancesPartnerships/Alliances Partnership OptionsPartnership Options Understanding Strategic AlliancesUnderstanding Strategic Alliances Tools to Aid in Structuring & Managing Tools to Aid in Structuring & Managing
Strategic AlliancesStrategic Alliances Lessons Learned & SummaryLessons Learned & Summary
Learning ObjectivesLearning Objectives
To gain an understanding of the range To gain an understanding of the range of partnerships & the differences of partnerships & the differences between tactical & strategic alliances between tactical & strategic alliances and how they relate to fulfilling a and how they relate to fulfilling a business strategybusiness strategy
To appreciate the role of tacit To appreciate the role of tacit knowledge associated with practical knowledge associated with practical experience gleaned from creating & experience gleaned from creating & managing strategic alliancesmanaging strategic alliances
A Few Questions to Get StartedA Few Questions to Get Started
So, who has started a company?So, who has started a company? Who wants to start a company?Who wants to start a company? Who wants to be part of the management team?Who wants to be part of the management team? Has anyone had an opportunity to work within a Has anyone had an opportunity to work within a
partnership such as a strategic alliance?partnership such as a strategic alliance? What do you think are the main reasons to make What do you think are the main reasons to make
use of partnerships in general & strategic use of partnerships in general & strategic alliances in particular?alliances in particular?
Basically, to tell stories based Basically, to tell stories based on . . . ?on . . . ?
So Why am I here?So Why am I here?
So Why am I hereSo Why am I here??
Basically, to tell stories based on . . . ?
SHARING EXPERIENCESHARING EXPERIENCE
---> that intangible ingredient that parallels formal learning and is so essential in the workplace (i.e., tacit knowledge)
Two Kinds of KnowledgeTwo Kinds of Knowledge
Explicit Knowledge Explicit Knowledge (e.g., codified knowledge)
Tacit Knowledge Tacit Knowledge (e.g., know-how contained in people’s heads, experience)
My task is to share with you tacit knowledge based on my experience and know-how
Explicit knowledge makes up many other aspects of this seminar
Knowledge inKnowledge inBusiness TermsBusiness Terms
Explicit Knowledge Explicit Knowledge - Subject domain (e.g., marketing, finance, sales,
‘territory’ knowledge)
Tacit Knowledge Tacit Knowledge - Relationships
- Customs/traditions/conventions
- The way a ‘system’ actually works despite rules, regulations & documentation
A Context for Strategic A Context for Strategic AlliancesAlliances
Changing ViewsChanging Views
Old ViewOld View Tariff Walls Regional Competition Industrial
Development Multiple Supplier
Chains Basic Production Investment in Market
Access
New ViewNew View Leveling the Playing
Field Global Competition Wealth Creation Strategic Supply Chains Value-added Production Investment in
Innovation
Components of the Globalizing Components of the Globalizing EconomyEconomy
The Globalizing Economy
New Competitors
PrivatisationInformation &
Communications Technologies
Changing Pattern of Borders
Rise of Global Standards
Global Products & Customers
Growing Trade & Investment
Change Policy EnvironmentsChange Policy Environments
Business Policy
Trade Policy
Science & Technology
Policy
Innovation & Competitivene
ss Policy Environments
Threats & UncertaintiesThreats & Uncertainties
New technologies are transforming the means to create wealth through accelerated technology penetration & shortened product life-cycles
Common technologies are globalizing products & services
Changing policy environments cause confusion & uncertainty
Rising cost & risk in R&D & timely market entry Scarcity of highly qualified people Increasing competition among firms Erosion of traditional trade barriers
The New DynamicThe New Dynamic
Technology, trade & investment are intertwined
They represent different ‘inter-related states’ of global activity
Regional & global imperatives are eroding national roles
Investment in all its forms is a response to this new global dynamic
ManagingManaging InnovationInnovation
Business Approaches: Business Approaches: Organic versus SystematicOrganic versus Systematic
OrganicOrganic Why bother? Who knows what will Why bother? Who knows what will
happen tomorrow?happen tomorrow? Decisions evolveDecisions evolve Authority is based on trustAuthority is based on trust Procedures are traditionalProcedures are traditional Jobs are vaguely definedJobs are vaguely defined Communication is informal as in the Communication is informal as in the
‘grapevine’‘grapevine’ The right connections earn promotionThe right connections earn promotion ‘‘Honour calls’Honour calls’ Title describes your statusTitle describes your status
SystematicSystematic Planning influences what happens Planning influences what happens
tomorrowtomorrow Decisions are madeDecisions are made Authority is based on competenceAuthority is based on competence Procedures are rationalProcedures are rational Goals are preciseGoals are precise Communication through ‘official Communication through ‘official
channels’channels’ Competence earns promotionCompetence earns promotion ‘‘Duty calls’Duty calls’ title describes your jobtitle describes your job
Source: Adapted from When in Rome, by J. Mole, American Management Association, 1991 ISBN 0-8144-7769-0
Different National Different National Approaches to BusinessApproaches to Business
LE
AD
ER
SH
IP
ORGANISATION STYLEOrganic Systematic
Group
Individual
UK
Ireland
PortugalBelgium
Denmark
The Netherlands
GermanyCANADA
Switzerland
Spain France USA
China
Australia
Japan
Managing Innovation from a Managing Innovation from a Technology-driven PerspectiveTechnology-driven Perspective
Production
Development
Research
Marketing
DistributionSales
Customers
World Pool of Knowledge
Arrows represent direction of flow and relative intensity of
information exchanges
Managing Innovation from a Managing Innovation from a Market-driven Perspective (2)Market-driven Perspective (2)
Production
Development
Research
Marketing
DistributionSales
Customers
World Pool of Knowledge
Future Markets
Partners
Arrows represent direction of flow and relative intensity of
information exchanges
Partnerships/AlliancesPartnerships/Alliances
Common Kinds of AlliancesCommon Kinds of Alliances
State-to-StateState-to-State Defensive Defensive
(e.g., Peloponnesian League)(e.g., Peloponnesian League)
Offensive Offensive (e.g., Axis Powers of WW II)(e.g., Axis Powers of WW II)
Economic Economic (e.g., Hanseatic League)(e.g., Hanseatic League)
Common Kinds of Common Kinds of AlliancesAlliances
State-to-StateState-to-State Defensive Defensive
(e.g., Peloponnesian League)(e.g., Peloponnesian League)
Offensive Offensive (e.g., Axis Powers of WW II)(e.g., Axis Powers of WW II)
Economic Economic (e.g., Hanseatic League)(e.g., Hanseatic League)
State-to-CorpState-to-Corp Service Delivery Service Delivery
(e.g. Iqaluit Airport as a (e.g. Iqaluit Airport as a Public Private Partnership) Public Private Partnership)
Financial Assistance Financial Assistance (e.g., Technology Partnerships (e.g., Technology Partnerships Canada)Canada)
First Mover First Mover RelationshipRelationship(e.g., government as an (e.g., government as an early adopter – CDN early adopter – CDN Innovation Innovation Commercialization Program)Commercialization Program)
Common Kinds of AlliancesCommon Kinds of Alliances
CommunitiesCommunities Public-Private Public-Private
Partnerships Partnerships (e.g., waste management)(e.g., waste management)
City Twinning City Twinning (e.g., create/share cultural, social, (e.g., create/share cultural, social, economic ties)economic ties)
Innovation ClustersInnovation Clusters(e.g., wireless sensor cluster for (e.g., wireless sensor cluster for Ottawa)Ottawa)
Common Kinds of Common Kinds of Alliances (2)Alliances (2)
CommunitiesCommunities Public-Private Public-Private
Partnerships Partnerships (e.g., waste management)(e.g., waste management)
City Twinning City Twinning (e.g., create/share cultural, (e.g., create/share cultural, social, economic ties)social, economic ties)
Innovation ClustersInnovation Clusters(e.g., wireless sensor cluster (e.g., wireless sensor cluster for Ottawa)for Ottawa)
Corp-to-CorpCorp-to-Corp Defensive Defensive
(e.g., protect a market)(e.g., protect a market)
Offensive Offensive (e.g., create/grow a market)(e.g., create/grow a market)
Access/Economic Access/Economic (e.g., know-how, intellectual (e.g., know-how, intellectual property, channels)property, channels)
Business Partnerships: Business Partnerships: The OptionsThe Options
Strategic
Strategic
Tactical
Tactical
• Agents
• Distributors
• Original Equipment Manufacturers
• Value-added Resellers
• Strategic Alliances
• Joint Ventures
• Acquisitions
• Mergers
Value to Business Future
Value to Marketing & Sales
• Suppliers
Business Partnership Options: Complexity Business Partnership Options: Complexity of Relationships vrs Convergence of the of Relationships vrs Convergence of the
‘Whole’‘Whole’C
om
ple
xit
y
Convergence
Suppliers
Channel Partners
Strategic Alliances
Joint Ventures
Acquisitions
Mergers
Identifying Partners: What Firms Identifying Partners: What Firms Look ForLook For
Complementary skills– e.g., resources & skills needed
Organisational Complementarity– e.g., group size
Complementary strategies– e.g., willing to share in a growing market
Willingness to co-operate– e.g., management & staff commitment
Willingness to share plans & problems– e.g., trust, belief & commitment to shared goals
Choosing Partners: Where to Choosing Partners: Where to LookLook
Choosing
Partners
Customers
Competition
Government
Suppliers
Universities
Cross Border Issues for AlliancesCross Border Issues for Alliances
Ease & approach to establishing Ease & approach to establishing businessbusiness
Protection of Intellectual PropertyProtection of Intellectual Property Tax TreatmentTax Treatment Technological infrastructureTechnological infrastructure Market size & sophistication of demandMarket size & sophistication of demand Attitude towards alliancesAttitude towards alliances Availability of suitable partnersAvailability of suitable partners
Assessing a Partnership/AllianceAssessing a Partnership/AllianceDecide on link in the value chain
Select a Potential PartnerBegin Over
AssessPartner
AssessPerformance
TerminateRelationship
Assess Meeting Strategic Objectives
Continue/EnhanceRelationship
TerminateRelationshipTerminate
Relationship No Yes
NegotiateAgreement
Define Type ofAlliance
Build/SupportNew Alliance
Build Trust & Commitment
TerminateRelationship No
Assess Meeting Strategic Objectives Yes
TerminateRelationship No
No
Watch Out for ‘Dirty Tricks’Watch Out for ‘Dirty Tricks’
Deliberate deceptionDeliberate deception StallingStalling Escalating authorityEscalating authority ‘‘Good guy versus bad guy’Good guy versus bad guy’ ‘‘You are wealthy & we are poor’You are wealthy & we are poor’ Old friends/unsavoury political Old friends/unsavoury political
connectionsconnections
Understanding Strategic Understanding Strategic AlliancesAlliances
What Drives the Need for Strategic Alliances?What Drives the Need for Strategic Alliances?
Companies seek global alliances Companies seek global alliances because of pervasive, unremitting & because of pervasive, unremitting & mutually reinforcing effects of:mutually reinforcing effects of:
Globalization of businessGlobalization of business Increasing complexity of technologyIncreasing complexity of technology Speed of technical changeSpeed of technical change
– These often combine to make the risk These often combine to make the risk too high to create ‘value-add’ without too high to create ‘value-add’ without partnerspartners
What Drives Need for Strategic Alliances? What Drives Need for Strategic Alliances? (2)(2)
Uncertain & changing policy Uncertain & changing policy environmentsenvironments
Desire to reduce riskDesire to reduce risk Means to add valueMeans to add value Expand capabilities & capacityExpand capabilities & capacity Access to know-how & ‘intellectual Access to know-how & ‘intellectual
property’property’
Strategic Alliances in OverviewStrategic Alliances in Overview
Improve strategic advantage & increase market Improve strategic advantage & increase market shareshare
Offensive & defensive strategiesOffensive & defensive strategies Support planned growthSupport planned growth Develop first-mover advantageDevelop first-mover advantage
Strategic alliances should be driven by Business Strategic alliances should be driven by Business needsneeds
OBJECTIVE:OBJECTIVE:
USES:USES:
GUIDING PRINCIPLE:GUIDING PRINCIPLE:
What Firms Seek in a Strategic What Firms Seek in a Strategic AllianceAlliance
• Technologies
• Products
• Channels
• Financing
• Know-How
• Services
Strategic Alliance Entry PointsStrategic Alliance Entry Points
• Research
• Development
• Manufacturing
• Distribution
Strategic Alliance: A General Strategic Alliance: A General DefinitionDefinition
A Strategic Alliance is a formal & mutually A Strategic Alliance is a formal & mutually agreed collaboration in which partners agreed collaboration in which partners pool, exchange & integrate specific pool, exchange & integrate specific resources with a view to achieving mutual resources with a view to achieving mutual gain while remaining separate entitiesgain while remaining separate entities
Strategic Alliance DownsidesStrategic Alliance Downsides
Strategic Alliances are not for every firmStrategic Alliances are not for every firm They are difficult to manage & can They are difficult to manage & can
easily fail due to misunderstandingseasily fail due to misunderstandings Partnering too close to the core of a Partnering too close to the core of a
business could erode core competitive business could erode core competitive advantageadvantage
Tools to Aid in Structuring & Tools to Aid in Structuring & Managing Strategic AlliancesManaging Strategic Alliances
The Partnership MatrixThe Partnership Matrix
TECHNOLOGY
PRODUCT
CHANNEL
SERVICES
KNOW-HOW
FINANCING
PARTNER A CONTRIBUTION
PARTNER B CONTRIBUTION
SHARED MANAGEMENT
TE
CH
NO
LO
GY
PR
OD
UC
T
CH
AN
NE
L
SE
RV
ICE
S
KN
OW
-HO
W
FIN
AN
CIN
G
The Partnership Matrix (2)The Partnership Matrix (2)
TECHNOLOGY
PRODUCT
CHANNEL
SERVICES
KNOW-HOW
FINANCING
PARTNER A CONTRIBUTION
PARTNER B CONTRIBUTION
SHARED MANAGEMENT
TE
CH
NO
LO
GY
PR
OD
UC
T
CH
AN
NE
L
SE
RV
ICE
S
KN
OW
-HO
W
FIN
AN
CIN
G
Assumption: B - Small venture backed R&D firm
Assumption: A - Medium sized R&D firm with
global channels transforming into a market driven company
The Partnership Matrix (3)The Partnership Matrix (3)
TECHNOLOGY
PRODUCT
CHANNEL
SERVICES
KNOW-HOW
FINANCING
PARTNER A CONTRIBUTION
PARTNER B CONTRIBUTION
SHARED MANAGEMENT
TE
CH
NO
LO
GY
PR
OD
UC
T
CH
AN
NE
L
SE
RV
ICE
S
KN
OW
-HO
W
FIN
AN
CIN
G
Assumption: B - Small venture backed R&D firm
Assumption: A - Large firm with diverse
products & global channels
The Partnership Matrix (4)The Partnership Matrix (4)
TECHNOLOGY
PRODUCT
CHANNEL
SERVICES
KNOW-HOW
FINANCING
PARTNER A CONTRIBUTION
PARTNER B CONTRIBUTION
SHARED MANAGEMENT
TE
CH
NO
LO
GY
PR
OD
UC
T
CH
AN
NE
L
SE
RV
ICE
S
KN
OW
-HO
W
FIN
AN
CIN
G
Assumption: B - Medium sizedfirm with product & global channel
Assumption: A - Large firm with diverse
products & global channels
SummarySummary
Summary of Lessons LearnedSummary of Lessons Learned
Alliances have evolved over a long period of timeAlliances have evolved over a long period of time There are a variety of types of allianceThere are a variety of types of alliance Partnerships may be tactical or strategicPartnerships may be tactical or strategic There are numerous drivers for strategic There are numerous drivers for strategic
alliances with value-add as a key componentalliances with value-add as a key component Large firms often develop portfolios of strategic Large firms often develop portfolios of strategic
alliances whereas SMEs optimally tend to mange alliances whereas SMEs optimally tend to mange only a few alliances at a timeonly a few alliances at a time
Strategic partnering is not for every firmStrategic partnering is not for every firm
Summary of Lessons Learned (2)Summary of Lessons Learned (2)
Managing innovation is a key to fostering Managing innovation is a key to fostering strategic alliancesstrategic alliances
There are multiple entry points in There are multiple entry points in structuring a strategic alliancestructuring a strategic alliance
The ‘Partnership Matrix’ can assist in The ‘Partnership Matrix’ can assist in formulating the value-chain & managing formulating the value-chain & managing alliance negotiations & ongoing operationsalliance negotiations & ongoing operations
Understanding ‘national traits’ in the Understanding ‘national traits’ in the conduct of business is essentialconduct of business is essential
Summary of Lessons Learned (3)Summary of Lessons Learned (3)
Explicit Knowledge isExplicit Knowledge is necessary but is not necessary but is not sufficientsufficient
Tacit Knowledge is key to building strategic Tacit Knowledge is key to building strategic alliances & business relationshipsalliances & business relationships
Negotiation success requires an appropriate Negotiation success requires an appropriate combination of explicit & tacit knowledgecombination of explicit & tacit knowledge
Simple cultural & business Simple cultural & business misunderstandings can derail a truly misunderstandings can derail a truly valuable business relationvaluable business relation
A Bit about My BackgroundA Bit about My Background
What Kinds of stories Can I Tell?What Kinds of stories Can I Tell?
Career spans a series of experiences as a:Career spans a series of experiences as a:– ScientistScientist– Technical & Business ManagerTechnical & Business Manager– EntrepreneurEntrepreneur– BureaucratBureaucrat– ExecutiveExecutive– DiplomatDiplomat– AcademicAcademic– Management AdvisorManagement Advisor
A Bit about My BackgroundA Bit about My Background
As a ScientistAs a Scientist– participated in international expeditions to participated in international expeditions to
polar regionspolar regions((e.g., American, Australian, British, French, Danish, e.g., American, Australian, British, French, Danish, Norwegian, Russian & Swiss participantsNorwegian, Russian & Swiss participants))
As an International BureaucratAs an International Bureaucrat– co-ordinated gathering of global climate co-ordinated gathering of global climate
change data from ice cores & radar change data from ice cores & radar soundings of continental ice sheetssoundings of continental ice sheets
((e.g., worldwidee.g., worldwide))
A Bit about My Background (2)A Bit about My Background (2)
As an Entrepreneur & Business ExecutiveAs an Entrepreneur & Business Executive– participated in strategic & tactical alliances, participated in strategic & tactical alliances,
mergers & acquisitions, technology transfer & mergers & acquisitions, technology transfer & remote R&Dremote R&D
((e.g., Australia, China, Hong Kong, Japan, USA, Western e.g., Australia, China, Hong Kong, Japan, USA, Western EuropeEurope))
As a DiplomatAs a Diplomat– participated in international foreign direct participated in international foreign direct
investment, strategic alliances & technology investment, strategic alliances & technology partnershipspartnerships
((i.e., Western Europe - London-basedi.e., Western Europe - London-based))
A Bit about My Background (3)A Bit about My Background (3)
As an International Management As an International Management AdvisorAdvisor– Participate in providing advice, reports & Participate in providing advice, reports &
presentations to business, government, presentations to business, government, universities & international institutional universities & international institutional clients throughout the worldclients throughout the world
(e.g., Australia, Bahamas, Belgium, Brazil, China, France, (e.g., Australia, Bahamas, Belgium, Brazil, China, France, Hong Kong, India, Japan, Pakistan, Spain, United Kingdom Hong Kong, India, Japan, Pakistan, Spain, United Kingdom & United States)& United States)
Why So Much Background Why So Much Background You Might Ask?You Might Ask?
First, to illustrate that international business experience can be First, to illustrate that international business experience can be gained by many routesgained by many routes
Second, you can do these things ifSecond, you can do these things if: :
(i) You have an attitude & willingness to adapt(i) You have an attitude & willingness to adapt
(ii) You are adequately prepared with both relevant codified & tacit knowledge(ii) You are adequately prepared with both relevant codified & tacit knowledge
(iii) You know what you want in terms of the(iii) You know what you want in terms of the ‘deal’ ‘deal’
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