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Building Alliances

Building Alliances. Firm A. Firm B. Key Functional Areas R&D Marketing Production Logistics Service. Cooperative Modes Joint Coordinated Complementary Independent. Structure and Control Org. Structure Centralization Formalization. Complementary Alliances.

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Building Alliances

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  1. Building Alliances Firm A Firm B • Key Functional Areas • R&D • Marketing • Production • Logistics • Service • Cooperative Modes • Joint • Coordinated • Complementary • Independent • Structure and Control • Org. Structure • Centralization • Formalization

  2. Complementary Alliances Competition Reduction Alliances Business-Level Competition Response Alliances Uncertainty Reduction Alliances Types of Strategic Alliances

  3. Complementary Alliances Competition Reduction Alliances Business-Level Competition Response Alliances Uncertainty Reduction Alliances Types of Strategic Alliances Complementary Alliances Competition Reduction Alliances Business-Level Competition Response Alliances Uncertainty Reduction Alliances Diversification Alliances Corporate-Level Synergistic Alliances Franchising

  4. Business-Level Strategic Alliances Complementary Strategic Alliances Supplier Value Chain Partnerships that build on the complementarities among firms that make each more competitive Vertical Alliance Buyer Value Chain

  5. Business-Level Strategic Alliances Complementary Strategic Alliances Firm A’s Value Chain Complementary Alliance Firm B’s Value Chain FedEx and Laura Ashley: “outsourcing” outbound logistics

  6. Business-Level Strategic Alliances Complementary Strategic Alliances Used to increase the strategic competitiveness of the partners Other Firm’s Value Chain Horizontal Alliance Your Firm’s Value Chain

  7. Business-Level Strategic Alliances Pooling Strategic Alliances Used to increase the strategic competitiveness of the partners Horizontal Alliance Your Firm’s Value Chain Other Firm’s Value Chain Marketing agreements between Delta and SwissAir

  8. Business-Level Strategic Alliances Competition Reduction Strategies Avoiding competition by using tacit collusion such as price fixing OPEC

  9. Business-Level Strategic Alliances Competition Reduction Strategies Avoiding competition by using tacit collusion such as price fixing OPEC petroleum cartel Competition Response Strategies Firms join forces to respond to a strategic action of another competitor DirecTV & Time Warner for exclusive programming PowerPC: IBM, Apple, & Motorola

  10. Business-Level Strategic Alliances Competition Reduction Strategies Avoiding competition by using tacit collusion such as price fixing OPEC petroleum cartel Competition Response Strategies Firms join forces to respond to a strategic action of another competitor DirecTV has agreement with Time Warner for exclusive programming Uncertainty Reduction Strategies Alliances can be used to hedge against risk and uncertainty Biotechnology--pharmaceutical partnerships

  11. From Options Theory In high-tech industries, innovation is uncertain. Alliance partners want a “way out” if alliance is not profitable After a specified time period, equity or contractual alliance is formed (or, partners walk away). Equity and Non-equity Alliance Options

  12. Corporate-Level Strategic Alliances Diversifying Alliances Allows a firm to expand into a new product or market area without an acquisition Samsung Group joins with Nissan to build new autos

  13. Corporate-Level Strategic Alliances Diversifying Alliances Allows a firm to expand into a new product or market area with an acquisition Samsung Group joins with Nissan to build new autos Synergistic Strategic Alliances Create economies of scope between two or more firms, creating synergy across multiple businesses between firms Sony shares development with many small firms

  14. Corporate-Level Strategic Alliances Diversifying Alliances Allows a firm to expand into a new product or market area with an acquisition Samsung Group joins with Nissan to build new autos Synergistic Strategic Alliances Create economies of scope between two or more firms, creating synergy across multiple businesses between firms Sony shares development with many small firms Franchising Allows firms to grow and relatively strong centralized control without significant capital investments McDonald’s or Century 21

  15. Types of Strategic Alliances Joint Venture Independent firm is created by the joining assets from two other firms where each firm contributes at least 20-25 % NUMMI

  16. Types of Strategic Alliances Joint Venture Independent firm is created by the joining assets from two other firms where each firm contributes at least 15-20 % Equity Strategic Alliance Partnership where one partner owns less than 15-20% Ford and Mazda Automotive

  17. Types of Strategic Alliances Joint Venture Independent firm is created by the joining assets from two other firms where each contributes 50% of the total Dow Corning from Dow Chemical and Corning Inc. Equity Strategic Alliance Partnership where the two partners do not own equal shares Chrysler and Mitsubishi Automotive Non-Equity Strategic Alliance Contract is given to supply, produce or distribute a firm’s goods or services (without equity sharing) Chrysler’s supplier network

  18. Purpose Motivations Goals Value Chain activities involved Contributions of Partners Cash Technology Brand name Other Assets Developing Alliances

  19. Structure Contributions % Organizational structure Leadership Strategic direction Partner Roles and Responsibilities Value chain activities Integration of activities Termination Dissolution vs. Acquisition vs. Spin-off? Developing Alliances

  20. Managing the Boundary Managing Knowledge Flows Strategic Direction Managing Cooperative Ventures Co-Managed by Parents Independent Legal Org. Firm A Firm B Alliance Firm A Firm B Alliance

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