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Tool Time: Strategic Alliance

Au | Chandra | Dahdoule |Kermeci| Ruparel

Key TakeawaysIf managed well, strategic alliances can lead to success

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Benefits

Draws upon complementary core competencies and

provides solutions beyond a single entity’s scope.

Relationships

Effective communication and understanding of roles

and responsibilities between parties

Risks

Does the partner make a suitable and an

appropriate alliance partner?

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What we see

What's the real problem

The Iceberg What is a strategic alliance?

An agreement between firms to do business together in ways that go beyond normal company-to- company dealings, but fall short of a merger or a full partnership

- Despite the rise of strategic alliances, we have limited definitive knowledge about how individual alliances develop over time

- Researchers have typically discussed distinct stages of alliance development: initiation, operation and evaluation

Alliances move through several phases as they develop and evolve, and are initiated to meet a variety of needs.

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The Iceberg

The Initiation Phase

- Informal crystallisation of issues and participants develop the purpose for the alliance.

- Characterised by partners bringing their own unique strengths to bear on a problem.

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The Operation Challenge2

The Evaluation Phase3

Lifecycle of a strategic alliance

- Formal meetings occur and an internal structure under which the alliance functions develops.

- The full range of impacts - both positive and negative - of the strategic alliance is realised.

- Summative evaluation is used to make overall judgment to determine if the a l l i a n c e s h o u l d b e c o n t i n u e d , restructured or terminated.

We can only visualise the immediate product of alliances, but the specifics of a successful strategic alliance lie deep below the surface

Strategic alliance organisation is put together, focussed on implementation of plans worked out in previous stages.

Formation

Most critical stage. Beginning informally, the discussions, details and agreements of the alliance are brought into written form and accepted by all parties.

Dialogue/Negotiation

Overall guiding principles are formed.

Strategy

Lifecycle of a Strategic AllianceThe process in moving towards a mutual outcome

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Taking direction provided the strategy stage, initial screening for potential partners is conducted.

Search

Strategic alliance carries out its intended actions. Longest stage, where benefits of actions in previous stages are realised.

Operation Final stage where the strategic alliance is taken over by one of the partners, spunoff, or liquidated.

Evaluation

It’s Been a Long JourneyHistorical Development of Strategic AlliancesPre-1970s: - Evidence of partnerships from the earliest traces

of business

- Little research in the strategic motives at this point

1970s: - Explanatory theories began to develop

- Transaction cost economics whereby cultivating

alliances minimises hidden costs

- Resource dependency theory where firm wants to

minimise uncertainty, this had major implications

for partnership with buyers and suppliers

- Economies of scope

PRE1970s

70s

Enterprise partnerships

Vertical integration alliance

Resource monopoly alliances

- Consolidation of research including an increased scope of

research from a variety of disciplines

- Focus on the resource (RBV) and how to leverage VRIO resources,

both tangible and intangible

- Economies of scale

90s

Alliances for competing in globalised sphere - Significant growth in the number of strategic

alliances between firms during this period

- Fall in trade barriers and emergence in technology

led to an internationally competitive marketplace

- This called for ‘alliances for survival’

80s

How the Phenomena has Changed Over Time

Innovation inspired alliances

- Model of the single, independent, autonomous firm no

longer practical

- Alliances with international firms allow entry into

developing markets with the benefit of local knowledge

but without financial and reputational risks

POST2000

Your task is to work with your ally to construct a visually attractive paper plane.

Your plane will be judged on quality of construction and branding.

You have 5 minutes. Your time starts now.

Activity

Organic growth

Strategic alliances

Mergers or acquisitions

Joint ventures

Greenfield investments

Franchising

Other 1.2%

7.8%

16.1%

33.1%

40%

60.9%

62.7%

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The Economist Intelligence Unit (2005) survey on the kinds of business models executives would rely on going forward, revealed most inclination towards Strategic Alliances, to increase market share.

MotivationWhy should we undertake strategic alliances?

The business landscape has moved beyond from the “make versus buy” decisions, and expanded to the “make versus buy versus partner” decisions. Firms turn to strategic alliances for: - Acquiring the critical skills, knowledge, capabilities and internalizing those

from external sources. - Pooling financial, technological, human and other resources. - Reducing uncertainty or sharing risky research and development. - Capitalise on growth withot risky equity stake. - Gaining market power and/or expansion to new markets, or overcoming

or creating barriers to entry . - Leveraging on the already established systems, expertise and skills.

Source: Global Business Model Survey EIU/KPMG International 2005

“Strategic  alliances  are  the  favored  method  of  enabling  organisations  to  penetrate  new  markets  quickly  and  there   is  subsequently  a  trend  towards   looser,  more  :lexible  and  shorter-­‐term  alliances,   in  some  

cases  with  competitors.”  Mike Rake, Chairman - KPMG International

Fluid alliance and the motivation behind it:

Such an alliance is mostly project based and amongst companies that were traditionally viewed as competitors, became partners in the pursuit of new markets and opportunities. More common in telecommunications, media and entertainment industries, where convergence around digital platforms is forcing companies to create and disband new alliances at a rapid pace.

How is this beneficial? - Product Expansion, where each firm has strong brand presence/reputation and/or especially when the project is complex requiring massive resources - Market expansion to gain competitive advantage. - Increased innovation within same industry, technical and commercial capital - Establishes institutional legitimacy: improves reputation, signals creditworthiness, increases attractiveness as worthy alliance partners

The Trend

While Alliances Seem LucrativeCareful research and scrutiny is imperative for success

What is the potential partner contributing to the arrangement?

Does the potential partner share the same strategic vision for the alliance?

Is the potential partner financial stable?

What is their industry experience?

What is their reputation among clients and vendors?

Is the company or individual ready for a commitment?

Do we trust the potential partner?

Would company gain access to new products, expertise and technology?

Would my company be able to enter related or new markets, particularly new

geographic markets?

A check-list: Some questions to consider, when choosing an alliance partner:

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““A  McKinsey  study  found  that  50%  of  alliance  failures  are  due  to  poor  management.”  An Overview of Strategic Alliances 2001

- Poorly received by the public (Public Perception Test) - Damaged reputation and brand image - Legal issues - Clash between corporate cultures - Lack of trust (Hidden agendas for e.g larger partner taking advantage of smaller partner) - Profit drop due to Costs increase/Hidden costs - Possible financial failure on partners behalf - Loss of control - Inefficient management

The RisksBoth parties share risks and rewards but risks can be critical!

What We’ve SeenCommon mistakes that undermine alliance success

- Weak alignment of objectives

- Low commitment (No champion and low support from

management)

- Poor understanding of ‘performance’ metrics

- Poor planning and integration

- Contract incompleteness

- Strategic weakness (Unclear strategies, underdeveloped

value add proposition)

- Rigid/fail to adapt

- Overdependence

- Non-realistic timeframes (Lack of preparation)

- Unrealistic or unclear expectations

- Internal alliance issues focused on more so than the

customer value

- Poor understanding

- Complexities are underestimated

- Reactive rather than proactive

- Poor choice of partner

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Microsoft and HP Global Strategic Alliance

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Do’s

Success factors within the organisation - Support from senior management

- Partner capabilities/compatibility

- Trust

- Clear objectives understood by both

parties

- Ability to meet ‘performance’ expectations

- Commitment to long-term success

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Develop and Nurture Relationship

- Effectively match capabilities of one party in effect filling the gap of the other

- Effective communication and understanding of roles and responsibilities between parties

Be Constructive and Proactive - Stakeholders effectively managed - Understand cultural differences - Benefits/trade-off are fully understood

by both parties and acceptable - Agree on an exit plan

Foster an Alliance mindset - Ensure both parties possess

alliance champions - Three way value proposition

(Partner, customer, own organisation)

Don’ts

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Rush into an Alliance - Poor choice of partner - Poor planning and integration - Contract incompleteness - Weak alignment of objectives

Have Unfeasible goals - Unrealistic or unclear expectations - Non-realistic timeframes (Lack of

preparation) - Complexities are underestimated

Lack of Flexibility - Rigid/fail to adapt - Overdependence

Allow Problems to Build Up - Strategic weakness (Unclear

strategies, underdeveloped value add proposition)

- Reactive rather than proactive - More focus on internal alliance

issues than the customer value

Use the right personnel - Low commitment (No champion

and low support from management)

Origins of Ambiguity

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- Partner opportunism - Cultural clashes - Inadequate managerial

mechanisms - Fairness - Presence or absence of prior

history

Alliance Developmental Stage: Initiation

- Top management support - Task partitioning - Relationship building - Use of external frameworks such

as structures, protocols

- Does the partner make a suitable and an appropriate alliance partner?

Alliance Developmental Stage: Operation

Managing Ambiguity

Interactional Ambiguity

- Information sharing - Cultural gap - Fairness - Governance mechanisms

- Detecting unfavourable process discrepancies in a timely way

- Emotional management - Collaborative problem solving

through the establishment of routines

- Is the alliance experiencing unfavourable process discrepancies; i.e. the alliance partners do not interact effectively with each other? What are the origins of unfavourable process discrepancies?

- Unresolved outcome discrepancies

- Unrealistic expectations for the alliance

- Environmental volatility

- Adopting multiple and flexible criteria for assessing alliance performance

- Changing the alliance’s time horizon

- Enhanced effort and/or shift in alliance governance

- Should the alliance decision makers persist with the alliance when it is experiencing an unfavourable outcome discrepancy; i.e. the alliance is not meeting its expected goals?

Alliance Developmental Stage: Evaluation

Want to Know More?Further Reading

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Rethinking the Business Model - KPMG International http://us.kpmg.com/microsite/FSLibraryDotCom/docs/Rethinking_the_business_model.pdf

The Collaboration Advantage: Customer: Focused Partnerships in a Global Market - The Economist http://graphics.eiu.com/upload/SAP_Collaboration%20advantage.pdf

5 Keys to Creating Successful Strategic Alliances - Forbes http://www.forbes.com/2002/07/01/0701alliances.html

Why Strategic Alliances Don’t Work - Forbes http://www.forbes.com/2002/07/01/0701alliances.html

Developing Strategic Alliances to Build Your Business - Big Bold Business Advice http://sempreavanti.org/wp-content/uploads/2013/05/BBBNJ_Ch_8_Imbriano_WP2012_REPRINT_12-6-13.pdf

Alliances Are Often Said to be Like Marriages - The Economist http://www.economist.com/node/14301470

A Marketplace Without Boundaries - PwC http://www.pwc.com/gx/en/ceo-survey/2015/assets/pwc-18th-annual-global-ceo-survey-jan-2015.pdf

Making Healthy Breakfasts Easier (Case) - Nestle http://www.nestle.com/asset-library/documents/media/news-and-features/2011-february/cpw-brochure.pdf

References

All images courtesy of: www.gettyimages.com.au

Cravens, D., & Piercy, N. F. (2008). Strategic marketing. McGraw-Hill Irwin.

Koza, M., & Lewin, A. (2000). Managing partnerships and strategic alliances: raising the odds of success. European Management Journal, 18(2), 146-151.

Garrette, B., Castañer, X., & Dussauge, P. (2009). Horizontal alliances as an alternative to autonomous production: Product expansion mode choice in the worldwide aircraft industry 1945–2000. Strategic Management Journal, 30(8), 885-894.

Garrette, B., Castaner, X., & Dussauge, P. (2008). A resource need and availability view of the make or ally choice: evidence from the worldwide aircraft industry 1945-2000 (No. 907). HEC Paris.

Judge, W. Q., & Dooley, R. (2006). Strategic alliance outcomes: a transaction-cost economics perspective. British Journal of Management, 17(1), 23-37.

Wohlstetter, P., Smith, J., & Malloy, C. L. (2005). Strategic alliances in action: Toward a theory of evolution. Policy Studies Journal, 33(3), 419-442.

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Thank you

MGMT90148 - Consulting Fundamentals

Tool Time Presentation: Strategic Alliances

Melbourne Business School

Semester One, 2015

Robert AU (329510)

Saakshi CHANDRA (667203)

Abrahim DAHDOULE (639008)

Jessica KERMECI (356045)

Vatsal RUPAREL (350372)

Designed by: Robert Au

For: Austin Chia

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