Chapter 9 Understanding Alliances and Cooperative Strategies

1. Chapter 9Understanding Alliances and Cooperative Strategies

2. 1 • Describe why strategic alliances are important strategy vehicles 2 • Explain the various forms and structures of strategic alliances 3 • Describe the motivations behind alliances and show how they’ve changed over time 4 • Explain alliances as both business‑level and corporate‑level strategy vehicles 5 • Understand the characteristics of alliances in stable and dynamic competitive contexts 6 • Summarize the criteria for successful alliances OBJECTIVES

3. WHITE WAVE’S STRATEGY • Traditional • Silk brand • Packaging • Small boxes • Milk cartons • Health and naturalfood stores • Distribution • Grocery stores • Un-refrigeratedhealth section • Refrigerated dairy/milk section • Display

4. $15 million • Leverage over retailers(e.g., slotting fees) THE WHITE WAVE-DEAN ALLIANCE • 35% ownership • WhiteWave • DeanFoods

5. THE WHITE WAVE-DEAN ALLIANCE • $15 million • We’ll buy you for our pre-arranged price • 35% ownership • Too lowa price • WhiteWave • DeanFoods • We’ll pay more thanour agreement requires • Leverage over retailers(e.g., slotting fees)

6. Share investments and rewards • Reduce risk • Reduce uncertainty • Focus resources on what eachpartner does best • Foster economics of scale and scope BENEFITS OF STRATEGIC ALLIANCES • Companies which participate most actively in alliances outperform the least active firms by 5 to 7 percent • Why?

7. ALLIANCES ARE NOT STRATEGIES IN THEMSELVES Arenas • An alliance is one vehicle for realizing a strategy Economic Logic Vehicles Staging Differentiators

8. Company A Company B R&D R&D R&D Input Input Logistics Logistics Supply/ Production Operations Operations Operations Production/ Marketing Marketing Marketing Marketing and Sales and Sales Output Output Delivery Logistics Logistics ALLIANCES INVOLVE MANY ACTIVITIES Product or Service Product or Service

9. 2 THE USE OF ALLIANCES AS STRATEGIC VEHICLE HAS BALLOONED Alliances as percent of revenues 16% • As of 2005,large MNCs have over 20%of their total assets tiedup in alliances 2% 1980 1995

10. ALLIANCES CAN TAKE MANY FORMS • Examples of cooperative arrangements in the continuum of organizational forms Non-Equity Alliances Equity Alliances Source: Adapted from J. Harbison and P. Pekar, Smart Alliances: A Practical Guide to Repeatable Success (San Francisco: Jossey-Bass, 1998

11. Multiparty alliances MULTI-PARTY ALLIANCES • 2 party alliances • Example: SEMATECH, a consortiumof semiconductor manufacturers

12. Geographicexpansion partners Alsea (Mexico) Sazaby (Japan) Westin Hotels and Resorts (Coffee served throughout hotel) Dreyer’s (premium coffee ice cream) Channel partners (corporate sales) New products, marketing and sales partners Pepsico (Bottled coffee beverages) United Airlines (In-flight coffee) Barnes & Noble(in store stores) Host Marriott Services (worldwide airport kiosks) Retail format partners CREATING VALUE THROUGH A SET OF ALLIANCES Starbucks Coffee Source: Adapted from J.D. Bamford, B. Gomes-Casseves, and M.S. Robinson (2003). Mastering Alliance Strategy, Strategy: A comprehensive guide to design, management, and organization (San Francisco, John Wiley & Sons, p.22)

13. Knowledge sharing • Opportunity to create a stock of resources that is unavailable to competitors. This may create a shared advantage (e.g., Nestlé and Coke combined resources to offer canned tea and coffee products • Knowledge sharing • Effective management • Consistent information-sharing routines enhances learning (e.g., John Deere exchanges key employees with alliance partner Hitachi) • Alliances may make it more cost effective to manage an activity than arm’s-length transactions or acquisitions ALLIANCES OFFER BENEFITS, CONTRACTS CANNOT • Joint Investment • Increase returns by encouraging firms to make investments that they’d be otherwise unwilling to make (e.g., Wal-Mart supplier becomes willing to invest in new equipment)

14. ALLIANCES MAY BUILD COMPETITIVE ADVANTAGE • Alliances may serve to build a competitive advantage if • Rivals cannot ascertain what generates the returns because of causalambiguity surrounding the alliance • Rivals can figure out what generates the returns but cannot quicklyreplicate the resources owing to time decompression diseconomies • Rivals cannot imitate practices or investments because they are missing complementary resources (they have not made the previous investmentsthat make subsequent investments economically viable) and because the current costs associated with prior investments are now prohibitive • Rivals cannot find a partner with the necessary complementary strategic resources • Rivals cannot access potential partners’ resources because they are indivisible • Rivals cannot replicate a distinctive and socially complex institutional environment that has the necessary formal and informal controls thatmake managing alliances possible

15. Learning andcapabilities focus • Position focus • 1980s • Post 2000 • Ensure constant streamof new prospects withadvancing technology • Build industry stature • Proactively maximize delivered value • Consolidate position • Gain economies of scaleand scope • Optimize total cost by pro-duct/customer segment • Gain advantage in res-ponse to changing condi-tions and responsibilities MOTIVATION FOR ALLIANCES HAS CHANGED OVER TIME • Product performancefocus • 1970s • Produce with latesttechnology • Market beyond nationalborders • Sell product stressingperformance Source: Adapted from J. Harbison and P. Pekar, Smart Alliances: A Practical Guide to Repeatable Success (San Francisco: Jossey-Bass, 1998)

16. Rivals • Newentrants • Any otherorganization couldbecome an alliancepartner • Substitutes • Suppliers • Customers WHO MIGHT BECOME AN ALLIANCE PARTNER? Complementors Firms

17. Partner with one or more suppliers or customers. Typically done to create more value for the end customer and to lower total production costs along the value chain • 1 • Vertical • Partner with a rival or potential competitor to gain access to multiple segments of the industry and reduce risk, improve efficiency, or foster learning • 2 • Horizontal • Partner with a complementary product or service’s producer to gain access to new customers to meet new needs • Comple-mentary • 3 3 TYPES OF BUSINESS STRATEGY ALLIANCES • Examples • Timkin andsuppliers • Mondavi andtop foreign wineproducers • Kraft andStarbucks

18. THE “VALUE NET” CAN HELP IDENTIFY OPPORTUNITIES FOR COOPERATION Customers Competitors Your Company Complementors Suppliers Source: Adapted from A. Brandendburger & B. Nalebuff. Co-opetition. NY: Doubleday (1996).

19. Network • Firm • Firm ALLIANCES ARE INCREASING TAKING FORM OF NETWORKS • Alliances

20. Timken Co. is getting its cus-tomers to think of them as morethan simply a bearings supplier by employing sophisticated bundling processes to combine basic bearings with additional components in order to provide companies with exactly what they need. As a result, their bundled products are a source of reliability and cost reduction for their customers like Caterpillar. Also, Timken’s acquisitions don’t create value simply due to added product lines, but instead due to the greater value added by a more complex and tailored bundle Only recently are firms recognizing that workingwith suppliers is as important as listening tothe customer…. YourCompany Most often ignoredsource of value creation Suppliers EXAMPLES OF NETWORKS OF BUSINESS ALLIANCES Coopetition is essentially the notion that companies are com-plementors when they make markets and competitors when they divide markets. This relationship is called a value net

21. Failure to make complementaryresources available • Poor contract management • Misrepresentation of resourcesand capabilities • Being held hostage throughspecific investments • Misappropriation of resourcesand capabilities • Misunderstanding a partner’sstrategic intent RISKS ARISING FROM ALLIANCES

22. DYNAMIC CONTEXTS INTRODUCE NEW CHALLENGES • Stable contexts • Dynamic contexts • Forgiving of mistakes • Ease of maintenanceand management • Time to regroupafter mistakes

23. Understand the determinants of trust • Be able to manage knowledge and learning • Understand alliance evolution • Know how to measure alliance performance • Create a dedicated alliance function FIVE LEVERS FOR INCREASING THE PROBABILITY OF ALLIANCE SUCCESS

24. BENEFITS OF TRUST Trust and Competitive Advantage Dedicated Knowledge • Site specialization • Physical assetspecialization • Human Specialization AssetInvestments SharingRoutines Interfirm Trust

25. BENEFITS OF TRUST Trust and Competitive Advantage • Learning curve? • Consulting teams? • Voluntary study groups? • Problem-solving teams? • Interfirm employee transfer? • Performance feedback and?monitoring … Dedicated Knowledge AssetInvestments SharingRoutines Interfirm Trust ’ BUT

26. BUT Trust lowers transaction costs • Increases knowledge sharing • Increases investments in dedicatedassets • Search costs • Contracting costs • Monitoring costs • Enforcement costs AND BENEFITS OF TRUST Trust and Competitive Advantage Dedicated Knowledge AssetInvestments SharingRoutines Interfirm Trust ’ • TRUST is one party’s confidence that the other party in the exchange relationship will fulfill its promises and commitments and will not exploit its vulnerabilities • Trust and alliances are a conundrum from a classical economics perspective – assumption of opportunism means firms must choose market or hierarchy, make or buy, not an alliance

27. Initialconditions • Negotiationprocess • Trust • Reciprocalexperiences • Outsidebehavior FOUR KEY FACTORS AFFECT TRUST

28. MANAGING KNOWLEDGE AND LEARNING • Outcome • How? • Toyota US suppliers achieve greater incremental perfor-mance gains than suppliers for GM or Ford, in fact they outperformed GM and Ford on absolute performance despite being newer andat an earlier stage of learn-ing curve • Toyota created the Toyota Supplier Support Center (TSSC) • 20 consultants • Each works with 6-12 suppliers • Plant visits every 4-month period • Offer improvement suggestions • Annual meeting to report each group’s learning activities

29. FUJI-XEROX ALLIANCE – MANAGING CO-EVOLUTION • Fuji-Xeroxalliance • Xerox • Fuji • R&D and technologyreimbursements • Adopt Japanesequality improvement techniques • Develops own R&D • Provides platformto sell Xerox in Japan • Market outside Japan • Photo manufacturing plants

30. COMPONENTS OF A DEDICATED ALLIANCE FUNCTION • Partnerassessmentand selection • Alliance negotiation andgovernance • Alliancebusiness case • Alliancemanagement • Assessmentand termination • Value-chain analysis form • Needs-analysis checklist • Manufacturing-vs.-partnering analysis • Partner screening form • Technology and patent-domain maps • Cultural-fit evaluation form • Due-diligence team • Negotiations matrix • Needs-vs.-wants checklist • Alliance-contract template • Alliance-structureguidelines • Alliance-metrics framework • Problem-tracking template • Trust-building work sheet • Alliance-contact list • Alliance-communication infrastructure • Relationship-evaluation form • Yearly status report • Termination checklist • Termination-planning work sheet

31. HOW WOULD YOU DO THAT? • Millennium Pharmaceuticals faced huge alliance opportunity but turned it down … • Why? • Strategic fit? • Resource fit? • Cultural fit • Structural fit? • Other questions?

32. 1 • Describe why strategic alliances are important strategy vehicles 2 • Explain the various forms and structures of strategic alliances 3 • Describe the motivations behind alliances and show how they’ve changed over time 4 • Explain alliances as both business‑level and corporate‑level strategy vehicles 5 • Understand the characteristics of alliances in stable and dynamic competitive contexts 6 • Summarize the criteria for successful alliances SUMMARY

33. ENTER CHART TITLE HERE Use this slide to create own chart