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Business Strategy & Policy PSU MGMT #562

Business Strategy & Policy PSU MGMT #562. Strategic Alliances and Acquisitions. Dave Garten daveoutside@alum.mit.edu. ?. Planning Concepts : Gaps. “Basis of Competition”. External Analysis. Gap Planning “What we need”. Make Buy Ally. R & D. Supply Mftg. Sales Mktg. Strategy.

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Business Strategy & Policy PSU MGMT #562

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  1. Business Strategy & Policy PSU MGMT #562 Strategic Alliances and Acquisitions Dave Garten daveoutside@alum.mit.edu

  2. ? Planning Concepts: Gaps “Basis of Competition” External Analysis Gap Planning “What we need” Make Buy Ally R & D Supply Mftg Sales Mktg Strategy Mission Internal Analysis “What we have” Dave Garten - Business Strategy

  3. Joining Forces: Why? (the logic) • Driven by the gap  would like to achieve vs. what it can achieve NPV (A+B) > NPV (A) + NPV (B) Dave Garten - Business Strategy X

  4. Collaboration: Success & Failure • Success: ~30% acquisitions; ~ 50% alliances • Tend to be more successful • Acquisitions in core businesses, existing geographies • Alliances for related businesses, new geographies • Acquisitions between large & small companies [45%] • Alliances that evolve beyond initial objectives [79%] • JVs with even split of ownership [60%] • LBO & corporate buyers [~80%] Source: various including Bleeke and Ernst, McKinsey Dave Garten - Business Strategy

  5. Transaction Types Outsourcing Purchase Agreement Acquisition Joint Venture Joint Development Multiyear Purchase Agreement Commitment Licensing Purchase Order Joint Marketing “Strategic” “Transactional” Ownership Price Dave Garten - Business Strategy

  6. Acquisition overview • Type • Vertical (forward or backward) • Horizontal (FTC issues) • Related: product or market extension, consolidation • Not related: conglomerate • Valuation • Premium (P) = NPV (A+B) – NPV (A) – NPV (B) • Cash or stock • Synergy value -> Integration strategy • “Value drivers” the logic behind all deals • Bottom line savings and/or top line growth Dave Garten - Business Strategy

  7. Joint Venture • Clear governance; very focused • Share risk • Minimize “leakage” • Limited learning between companies • Used in product or market expansion, or consolidation Company A Company B Joint Venture A new legal entity Dave Garten - Business Strategy

  8. Why Ally (vs. JV/acquire)? Dave Garten - Business Strategy X

  9. Vertical vs Horizontal Alliances Dave Garten - Business Strategy

  10. Corporate Equity Investments Aligns interests Source of Commitment “Investor” Company A “Investee” Company B Try before buy (option) Less $$ vs acquire Gain insight into new developments (option) Capital infusion Get to know partner Limits exit options Dave Garten - Business Strategy

  11. Keystone Squeeze (vertical) • “Coopetition” • Increase proprietary advantage • Outperform in value chain • Aid partner’s competition • Keystone-Niche (tug of war) • Keystone expansion • Niche innovation Ecosystems (group alliances) Leaders Contenders • Substitution Effect (horizontal) • Devalue proprietary advantage • Head to head advantage Niche Keystone #1 Keystone Contenders Keystone #2 Keystone Contenders Niche Dave Garten - Business Strategy

  12. Shorter Discreet Arms-length Longer Value chain Common Strategy Soft Side of Alliances: Mindset Concept of alliance IQ… Dave Garten - Business Strategy X

  13. Value Capture • Acquisition integration and alliance execution • Not all synergies created equal • Eliminating redundancies and purchasing economies generally solid value drivers • New products and/or new channels more difficult to attain. • Details, details, details • Especially the people, bridging cultures. Dave Garten - Business Strategy

  14. Corning: Core Competency Siecor: Optical Fiber/Cable Samsung Corning: LCD & CRT glass Ciba Corning: medical instrumentation “An evolving network of wholly owned businesses and joint ventures” – Jaime Houghton, CEO Corning Dave Garten - Business Strategy

  15. Starbucks: Alliances Dave Garten - Business Strategy

  16. Daewoo Case Learnings Daewoo’s growth strategy was driven form opportunities and strengths Daewoo’s domestic experience with the Korea “miracle” became the leverage point for international growth in developing nations. Daewoo’s entrepreneurial culture particularly well suited for developing nation expansion. Alliance success generally requires high level commitment and a long time horizon. Dave Garten - Business Strategy X

  17. Closing Thoughts on Collaboration • Structure follows strategy – choose your path based on your destination. • Requirement for success: treat collaboration as anything but “business as usual” • Understand how your own core competencies relate to alliances. Enhance your competency - do not “hollow out”…. • Fit is critical. VRIO and culture. Dave Garten - Business Strategy

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