Chapter 11 Alliances as Vehicles

1. Chapter 11Alliances as Vehicles 0

2. LEARNING OBJECTIVES 1. Explain why strategic alliances are important and their main features. 2. Describe the process of building and managing alliances. 3. Identify the various forms of strategic alliances. 4. Summarize the considerations when negotiating the alliance. 5. Compare and contrast cooperatives and franchising as strategic vehicles. 6. Understand the characteristics of alliances in stable and dynamic competitive contexts.

3. Strategic Alliances • This is an agreement between two or more individuals or companies that they will act together to achieve common goals.

4. Strategic Alliance Defined • An alliance is strategic when it has three distinguishing characteristics: • 1. The exchange of knowledge associated with • technology, skills, or products takes place. • 2. Trust plays a key role in the management of the • alliance. • 3. Success of the alliance depends on the • collaborative efforts among the companies • forming the alliance.

5. Strategic Alliance Defined • Various Alliances • 1. Consortium • 2. Cooperative • 3. Countertrade • 4. Distribution Alliance • 5. Franchising • 6. Joint Venture • 7. Licensing • 8. Cross-licensing

6. Strategic Alliance Defined • Various Alliances (cont’d) • 9. Minority Investment • 10. Network • 11. Outsourcing • 12. Purchasing Alliance • 13. Sales Alliance • 14. Solution Alliance • 15. Supplier Alliance

7. Use of Alliances • Increasingly companies engage in strategic alliances as they • seek to improve their competitiveness as markets become global • and trade barriers drop. • Moreover, innovations, such as digital communications, • entertainment, and online services, create the need to include • new performance attributes in value curves so that they appeal • to customers. • Everywhere, companies are discovering that they cannot “go it • alone” as they seek to create such curves, so they are looking • to collaborate with other companies by using strategic alliances.

8. Building and Managing an Alliance • A Five-Stage Process: • Stage 1: Building the Case for an Alliance • Stage 2 : Identifying and Screening Potential Partners • Stage 3: Negotiating and Setting Up the Alliance • Stage 4: Managing the Alliance • Stage 5: Assessing Strategic Performance of the Alliance

9. Building and Managing an Alliance • Stage 1: Building the Case for an Alliance • Enhancing Competitive Advantage • 1. Improving Operations • 2. Enhancing Competitive Conditions • 3. Facilitating Entry and Exit

10. Building and Managing an Alliance • Sustaining Competitive Advantage • 1. Rare • 2. Costly to Imitate

11. Building and Managing an Alliance • Stage 2 : Identifying and Screening Potential Partners • Identifying Potential Partners • Screening Potential Partners

12. Rivals • Newentrants • Any otherorganization couldbecome an alliancepartner • Substitutes • Suppliers • Customers Building and Managing an Alliance – IDENTIFYING POTENTIAL PARTNERS Complementors Firms

13. Building and Managing an Alliance • Screening Potential Partners • Five Questions: • Strategic fit: Are the partners’ objectives compatible? For how long? • Resource and financial fit: Are the partners willing and able to contribute the resources and competencies? • Cultural fit: Can the partners understand each other? Do they share the same business logic and commitment? • Structure, systems, and processes fit: Can the decision-making and control mechanisms be aligned? • Additional fit criteria: What other key questions should be on the table, such as timing, other alliances, alliance alternatives, environmental context, and competitive pressures?

14. Building and Managing an Alliance • Stage 3: Negotiating and Setting Up the Alliance • Stewardship • Resource Commitments • A Governance Structure

15. Building and Managing an Alliance • Stage 4: Managing the Alliance • Leadership • Staffing • Culture • Collaboration

16. Building and Managing an Alliance • Stage 5: Assessing Strategic Performance of the Alliance • Periodically, the alliance needs to be reviewed to see whether it is still the best way of doing things and whether the partner in the alliance is the best partner. • If an alliance is the best solution and the partner has worked out well, the company may want to consider buying the partner. • If the alliance is still the best solution but the partner has proven less satisfactory than anticipated, it is time to start looking for a new partner. • If the alliance is no longer the best solution, then it is time to terminate it.

17. Specific Forms of Alliance • Cooperatives • Challenges Managing Cooperatives: 1. Multiple Sources of Power 2. Personal Interests 3. Personal Styles 4. Broad Membership

18. Specific Forms of Alliance • Franchising • Franchising involves a franchisor and franchisees. • The franchisor has something to sell and the franchisee is • willing to sell it. • Contractual agreements specify what the franchisor • provides to the franchisee and how much control the • franchisor has.

19. Alliances and Corporate Strategy • Dedicated Alliance Function • Recent research indicates that corporations are more likely to succeed • with alliances when they have a dedicated alliance function. • Those with an institutionalizing approach typically have more experience • doing alliances so have developed organizational mechanisms that • improve efficiency by formalizing decision making and enforcing • standardized practices such as how to select partners. • Those without an integrating approach have less experience so seek to • learn from their successes and mistakes as companies integrate alliances.

20. Alliances and International Strategy • Many alliances are international as companies become bigger and their • competition becomes global: either they involve partners from different • countries or the alliance itself is headquartered in a country different • from those of the partners. • The reasons that a domestic company allies with a foreign company • are the same as those for alliances among domestic companies—it • builds competitive advantage by pursuing the company’s business or • corporate strategy.

21. Strategic Alliances in Stable and Dynamic Environments • Stable Environments • Stable environments are characterized by mature industries that are • populated with well-established companies and stable demand for their • products and services. • This influences the objectives that partners set for their alliances. • Typically they seek to consolidate market positions and generate • economies of scope and scale using alliances that provide production • technologies and market access.

22. Strategic Alliances in Stable and Dynamic Environments • Dynamic Environments • In dynamic environments, strategic opportunities and needs are much • less certain. • In this environment, alliances are used to close resource gaps, create • options, and influence environmental developments. • The dynamic environment also creates an incentive for quickly • forming alliances that amass the resources needed to rapidly pursue • opportunities that open up and address competitive threats