c hapter 8 strategic alliances. historical vision partnership vision internal focus my economics

CHAPTER 8

Strategic Alliances

HISTORICAL VISION PARTNERSHIP VISION

INTERNAL FOCUS

TOTAL SYSTEM ECONOMICS

30%

20%

50%

0%

20%

40%

60%

80%

100%

CUSTOMERECONOMICS

MY ECONOMICS

SUPPLIERECONOMICS

MY ECONOMICS

CREATING VALUE BY FOCUSING

ON THE SYSTEM

VALUETO

CUSTOMERVALUE

TO CUSTOMER

VALUE TO SUPPLIER

VALUE TO SUPPLIER

TRADITIONAL RELATIONSHIP

STRATEGIC PARTNERSHIP

• Interdependence between partners is low (e.g., pooled)

• It is easy to measure the contributions of each partner and write it in a contract.

Contractual AllianceCooperation between firms is managed directly through contracts

Equity AllianceCooperative contracts are supplemented by equity investments by one or both partners into the other partner.

Joint VentureCooperating firms combine resources to form an independent firm in which they invest.

Preferred when:• Interdependence

between firms is moderate (e.g., sequential).

• Firms bring knowledge or difficult to measure contributions but each can perform their roles separately.

• Interdependence between firms is very high (e.g., reciprocal).

• Firms bring knowledge or difficult-to-measure contributions that must be combined into a single organization to coordinate effectively.

Types of Strategic Alliances

Pool Similar Resources

WAYS TO CREATE VALUE IN ALLIANCES

Combine Unique Resources1

2

Create New Alliance-specific Resources3

Lower Transaction Costs (Build Trust)4

COMBINE UNIQUE RESOURCES

• Pixar Animation Studios• Walt Disney Pictures



Combine Unique Resources

2

1

Create New Alliance-specific Resources3


POOL SIMILAR RESOURCES

• Disney• OLC Group• Tokyo Disneyland

DISNEY-ORIENTAL LAND CO. ALLIANCE

Disney Resources & Capabilities

• Disney brand• Disney theme park rides

and designs• Park management

processes• Ongoing stream of Disney

characters from movies• Disney consumer

products to sell at the park

OLC Resources & Capabilities

• Land for the park near Tokyo

• Financial resources to build the park

• Relationships with construction firms to build the park

• Knowledge of Japanese culture and how to manage Japanese workers




3

1

Create New Alliance-specific Resources

2


TOYOTA’S SUPPLIER - CUSTOMER INTERFACE

Surface Contact vs. Multiple-Point Contact(Correct)

Customer SupplierPoint Contact(Wrong)

TopExecu-tives

R & D

Manufacturing

TopExecu-tives

Quality AssuranceQuality Control

Purchasing

R & D

Manufacturing

Quality AssuranceQuality Control

Sales

TYPES OF ALLIANCE-SPECIFIC RESOURCES (DEDICATED ASSETS) THAT CREATE VALUE.

Dedicated Site Investments (locating plants in close proximity to economize on inventory, transportation, coordination costs).

Dedicated Physical/Process Investments (making relation-specific capital investments in machinery, tools, processes)

Dedicated Human Investments (dedicating personnel to develop relation-specific know-how and improve communication/ coordination)

TOYOTA PLANT CONFIGURATION IN JAPAN*

30 miles

6 miles

Motamachi, TC

Tahara, Nagoya

Affiliated Supplier Plants• Avg. distance of 30 miles vs 427 GM• 43.5 weekly deliveries vs 7.5 GM• 10,635 man days of face-to-face contact (1,107 GM)• 12.5 guest engineers vs .17 GM

Independent Supplier Plants• Avg. distance of 87 miles• 40.5 weekly deliveries• 3,764 man-days of face-to-

face contact

• 2.6 guest engineers

Tsutsumi, TC

3 miles

28 miles

1 mile

3 miles

Takaoka, TC

Honsha, TC

Headquarters & Technical Center

* Excludes more recently build Kyushu plant making small cars for export to Asia.

GM PLANT CONFIGURATION IN THE UNITED STATES

200 miles

Lansing, MI

External Supplier Plants•Avg. distance of 427 miles•7.5 Weekly deliveries•1,107 man days of face-to-face contact

•.17 guest engineers

Flint, MI

Hamtramck, MI

Ypsilanti, MI

Internal Supplier Plants• Avg. distance of 350 miles

North Tarrytown, NY

Linden, NJ

Wilmington, DE

Lordstown, OH

Bowling Green, KY

Spring Hill, TN

Arlington, TX

Wentzville, MOKansas City, KS

Van Nuys, CA

Fremont, CA(Nummi)

650 miles

900 miles

455 miles

1400 miles

387 miles

2400 miles

51 miles55 miles

85 miles

ALLIANCE LIFECYCLE

PartnerAssessment &Selection

PartnerAssessment &Selection

AllianceNegotiation &Governance

AllianceNegotiation &Governance

Assessment &Termination

Assessment &Termination

* Needs Analysis Checklist*Make vs. buy vs. ally analysis*List of possible alliance partners with resources to meet needs.

* Partner Screening Form* Technology and patent domain maps* Cultural Fit Evaluation Form* Due Diligence Team

* Negotiations guidelines* Needs v/s wants checklist* Alliance Contract Template* Alliance Structure Guidelines* Alliance Metrics Framework

* Decision making template* Trust-building worksheet* Work planning worksheet* Alliance Communication Infrastructure

* Relationship Evaluation Form* Yearly Status Report* Termination Checklist* Termination Planning Worksheet

AllianceBusinessCase

AllianceManagement

Building Alliance Capabilities:Tools to Use Across the Alliance

Lifecycle




4

1

Create New Alliance-specific Resources

2

Lower Transaction Costs (Build Trust)

3

THE PARADOX OF TRUST

• Alliances are fraught with risk even though they look good on paper

• Things often don’t work out because of the issue of trust and equity

BUILDING TRUST

• Formal Contractual Mechanisms – long term contracts (position as an “expectations”

document), – stock ownership (align incentives), – collateral bonds (signal credible long-term commitment).

• Processes and Information – Trust is often built on company processes and information, not

people. A partner is trustworthy if its interorganizational processes are understandable, predictable and stable and information flows freely.

• Informal Mechanisms (Affect) such as:– Reputation (give gifts as a signal of benevolence), – Personal trust

THE VALUE OF TRUST

• Increases learning (greater information sharing)

• Increases customized investments (willingness to risk tailored investments)

• Increases speed to quickly respond to market changes

• Lowers transaction costs

THE COST OF MISTRUST

0%

10%

20%

30%

40%

50%

GM Ford Chrysler Toyota

Percent of face- to-face contact time with suppliers

Negotiating price/contract

Assigning blame for problems47%

28%

21% 21%

Alliance Equity Alliance AcquireDegree of Resource Interdependence

Relative value of “soft” to “hard” resources

Proportion of synergies from redundant resources

Degree of market uncertainty

Importance of exclusive access to target firm’s resources

Low High

Low High

High Low

Low High

High Low

CHOOSING TO ALLY OR ACQUIRE:KEY FACTORS TO CONSIDER

Low

Low

High

High

Degree of resource/activity interdependence

Degree of mutual customization

Pooled/modularInterdependence

SequentialInterdependence

ReciprocalInterdependence

Low Investments in Customized Assets-Site (locations)-Physical (Plant & Equip.)-Human

High Investments in Customized Assets-Site (locations)-Physical (Plant & Equip.)-Human

Alliances Joint Ventures Acquisitions

CHOOSING BETWEEN ALLIANCES AND ACQUISITIONS

Human Resources

Physical Plant & Equipment

Technological Resources (e.g. Patents)

Intangible Resources (relationships; brands)

“Soft” Resources “Hard” Resources

Financial Resources

Difficult to Value Easy to Value

TYPES OF RESOURCES THAT GENERATE VALUE IN ALLIANCES/ACQUISITIONS

THE FUTURE….• Teams of companies (ecosystems) will increasingly

compete with other teams.

• Leveraging the full resources of the partners to create competitive advantage will be critical for success.

• Value is created through:– Combining unique resources– Pooling similar resources– Creating new alliance-specific resources– Lowering transaction costs

c hapter 8 strategic alliances. historical vision partnership vision internal focus my economics

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