By Peter MacKinnon, WiSense Project Manager School of Electrical Engineering and Computer Science

1. Strategic Alliances as a Small Business Growth StrategyA Contribution to the 2012 WiSense Entrepreneurship Series By Peter MacKinnon, WiSense Project Manager School of Electrical Engineering and Computer Science uOttawa, Canada pmackinn@site.uottawa.ca 613.562.5800 x 2177 WiSense Seminar # 73 April 5, 2012

2. Agenda • Learning Objectives • A Context for Strategic Alliances • Managing Innovation • Partnerships/Alliances • Partnership Options • Understanding Strategic Alliances • Tools to Aid in Structuring & Managing Strategic Alliances • Lessons Learned & Summary

3. Learning Objectives • To gain an understanding of the range of partnerships & the differences between tactical & strategic alliances and how they relate to fulfilling a business strategy • To appreciate the role of tacit knowledge associated with practical experience gleaned from creating & managing strategic alliances

4. A Few Questions to Get Started • So, who has started a company? • Who wants to start a company? • Who wants to be part of the management team? • Has anyone had an opportunity to work within a partnership such as a strategic alliance? • What do you think are the main reasons to make use of partnerships in general & strategic alliances in particular?

5. So Why am I here? • Basically, to tell stories based on . . . ?

6. So Why am I here? • Basically, to tell stories based on . . . ? SHARING EXPERIENCE ---> that intangible ingredient that parallels formal learning and is so essential in the workplace (i.e., tacit knowledge)

7. Two Kinds of Knowledge • Explicit Knowledge • (e.g., codified knowledge) • Tacit Knowledge • (e.g., know-how contained in people’s heads, experience) •  My task is to share with you tacit knowledge based on my experience and know-how  Explicit knowledge makes up many other aspects of this seminar

8. Knowledge inBusiness Terms • Explicit Knowledge - Subject domain (e.g., marketing, finance, sales, ‘territory’ knowledge) • Tacit Knowledge - Relationships - Customs/traditions/conventions - The way a ‘system’ actually works despite rules, regulations & documentation

9. A Context for Strategic Alliances

10. Old View Tariff Walls Regional Competition Industrial Development Multiple Supplier Chains Basic Production Investment in Market Access New View Leveling the Playing Field Global Competition Wealth Creation Strategic Supply Chains Value-added Production Investment in Innovation Changing Views

11. Components of the Globalizing Economy New Competitors Rise of Global Standards Changing Pattern of Borders The Globalizing Economy Information & Communications Technologies Privatisation Global Products & Customers Growing Trade & Investment

12. Change Policy Environments Science & Technology Policy Innovation & Competitiveness Policy Environments Business Policy Trade Policy

13. Threats & Uncertainties • New technologies are transforming the means to create wealth through accelerated technology penetration & shortened product life-cycles • Common technologies are globalizing products & services • Changing policy environments cause confusion & uncertainty • Rising cost & risk in R&D & timely market entry • Scarcity of highly qualified people • Increasing competition among firms • Erosion of traditional trade barriers

14. The New Dynamic • Technology, trade & investment are intertwined • They represent different ‘inter-related states’ of global activity • Regional & global imperatives are eroding national roles • Investment in all its forms is a response to this new global dynamic

15. ManagingInnovation

16. Business Approaches: Organic versus Systematic Organic • Why bother? Who knows what will happen tomorrow? • Decisions evolve • Authority is based on trust • Procedures are traditional • Jobs are vaguely defined • Communication is informal as in the ‘grapevine’ • The right connections earn promotion • ‘Honour calls’ • Title describes your status Systematic • Planning influences what happens tomorrow • Decisions are made • Authority is based on competence • Procedures are rational • Goals are precise • Communication through ‘official channels’ • Competence earns promotion • ‘Duty calls’ • title describes your job Source: Adapted from When in Rome, by J. Mole, American Management Association, 1991 ISBN 0-8144-7769-0

17. Different National Approaches to Business Individual France Spain USA Portugal Belgium Germany CANADA Switzerland LEADERSHIP Australia Ireland China UK Denmark Japan The Netherlands Group Organic Systematic ORGANISATION STYLE

18. Managing Innovation from a Technology-driven Perspective Arrows represent direction of flow and relative intensity of information exchanges World Pool of Knowledge Research Development Marketing Production Sales Distribution Customers

19. Managing Innovation from a Market-driven Perspective (2) Arrows represent direction of flow and relative intensity of information exchanges World Pool of Knowledge Research Development Partners Future Markets Marketing Production Sales Distribution Customers

20. Partnerships/Alliances

21. State-to-State Defensive (e.g., Peloponnesian League) Offensive (e.g., Axis Powers of WW II) Economic (e.g., Hanseatic League) Common Kinds of Alliances

22. Common Kinds of Alliances State-to-State • Defensive (e.g., Peloponnesian League) • Offensive (e.g., Axis Powers of WW II) • Economic (e.g., Hanseatic League) State-to-Corp • Service Delivery (e.g. Iqaluit Airport as a Public Private Partnership) • Financial Assistance (e.g., Technology Partnerships Canada) • First Mover Relationship (e.g., government as an early adopter – CDN Innovation Commercialization Program)

23. Communities Public-Private Partnerships (e.g., waste management) City Twinning (e.g., create/share cultural, social, economic ties) Innovation Clusters (e.g., wireless sensor cluster for Ottawa) Common Kinds of Alliances

24. Common Kinds of Alliances (2) Communities • Public-Private Partnerships (e.g., waste management) • City Twinning (e.g., create/share cultural, social, economic ties) • Innovation Clusters (e.g., wireless sensor cluster for Ottawa) Corp-to-Corp • Defensive (e.g., protect a market) • Offensive (e.g., create/grow a market) • Access/Economic (e.g., know-how, intellectual property, channels)

25. Business Partnerships: The Options • Mergers Strategic • Acquisitions • Joint Ventures • Strategic Alliances Value to Business Future • Value-added Resellers • Original Equipment Manufacturers • Distributors • Agents • Suppliers Tactical Strategic Tactical Value to Marketing & Sales

26. Business Partnership Options: Complexity of Relationships vrs Convergence of the ‘Whole’ Mergers Acquisitions Joint Ventures Complexity Strategic Alliances Channel Partners Suppliers Convergence

27. Identifying Partners: What Firms Look For • Complementary skills • e.g., resources & skills needed • OrganisationalComplementarity • e.g., group size • Complementary strategies • e.g., willing to share in a growing market • Willingness to co-operate • e.g., management & staff commitment • Willingness to share plans & problems • e.g., trust, belief & commitment to shared goals

28. Choosing Partners: Where to Look Customers Competition Suppliers ChoosingPartners Government Universities

29. Cross Border Issues for Alliances • Ease & approach to establishing business • Protection of Intellectual Property • Tax Treatment • Technological infrastructure • Market size & sophistication of demand • Attitude towards alliances • Availability of suitable partners

30. Assessing a Partnership/Alliance Decide on link in the value chain Select a Potential Partner Begin Over No Assess Partner Define Type of Alliance Negotiate Agreement Build/Support New Alliance Build Trust & Commitment Assess Performance Terminate Relationship Terminate Relationship Terminate Relationship Terminate Relationship Terminate Relationship Continue/Enhance Relationship Assess Meeting Strategic Objectives Assess Meeting Strategic Objectives No No No Yes Yes

31. Watch Out for ‘Dirty Tricks’ • Deliberate deception • Stalling • Escalating authority • ‘Good guy versus bad guy’ • ‘You are wealthy & we are poor’ • Old friends/unsavoury political connections

32. Understanding Strategic Alliances

33. What Drives the Need for Strategic Alliances? Companies seek global alliances because of pervasive, unremitting & mutually reinforcing effects of: • Globalization of business • Increasing complexity of technology • Speed of technical change • These often combine to make the risk too high to create ‘value-add’ without partners

34. What Drives Need for Strategic Alliances? (2) • Uncertain & changing policy environments • Desire to reduce risk • Means to add value • Expand capabilities & capacity • Access to know-how & ‘intellectual property’

35. Strategic Alliances in Overview OBJECTIVE: • Improve strategic advantage & increase market share • Offensive & defensive strategies • Support planned growth • Develop first-mover advantage • Strategic alliances should be driven by Business needs USES: GUIDING PRINCIPLE:

36. What Firms Seek in a Strategic Alliance • Technologies • Products • Channels • Services • Know-How • Financing

37. Strategic Alliance Entry Points • Research • Development • Manufacturing • Distribution

38. Strategic Alliance: A General Definition A Strategic Alliance is a formal & mutually agreed collaboration in which partners pool, exchange & integrate specific resources with a view to achieving mutual gain while remaining separate entities

39. Strategic Alliance Downsides • Strategic Alliances are not for every firm • They are difficult to manage & can easily fail due to misunderstandings • Partnering too close to the core of a business could erode core competitive advantage

40. Tools to Aid in Structuring & Managing Strategic Alliances

41. The Partnership Matrix PARTNER B CONTRIBUTION TECHNOLOGY KNOW-HOW FINANCING PRODUCT SERVICES CHANNEL PARTNER A CONTRIBUTION TECHNOLOGY PRODUCT CHANNEL SERVICES KNOW-HOW FINANCING SHARED MANAGEMENT

42. The Partnership Matrix (2) PARTNER B CONTRIBUTION Assumption: B - Small venture backed R&D firm TECHNOLOGY KNOW-HOW FINANCING PRODUCT SERVICES CHANNEL PARTNER A CONTRIBUTION TECHNOLOGY PRODUCT CHANNEL SERVICES KNOW-HOW FINANCING Assumption: A - Medium sized R&D firm with global channels transforming into a market driven company SHARED MANAGEMENT

43. The Partnership Matrix (3) PARTNER B CONTRIBUTION Assumption: B - Small venture backed R&D firm TECHNOLOGY KNOW-HOW FINANCING PRODUCT SERVICES CHANNEL PARTNER A CONTRIBUTION TECHNOLOGY PRODUCT CHANNEL SERVICES KNOW-HOW FINANCING Assumption: A - Large firm with diverse products & global channels SHARED MANAGEMENT

44. The Partnership Matrix (4) PARTNER B CONTRIBUTION TECHNOLOGY KNOW-HOW FINANCING Assumption: B - Medium sized firm with product & global channel PRODUCT SERVICES CHANNEL PARTNER A CONTRIBUTION TECHNOLOGY PRODUCT CHANNEL SERVICES KNOW-HOW FINANCING Assumption: A - Large firm with diverse products & global channels SHARED MANAGEMENT

45. Summary

46. Summary of Lessons Learned • Alliances have evolved over a long period of time • There are a variety of types of alliance • Partnerships may be tactical or strategic • There are numerous drivers for strategic alliances with value-add as a key component • Large firms often develop portfolios of strategic alliances whereas SMEs optimally tend to mange only a few alliances at a time • Strategic partnering is not for every firm

47. Summary of Lessons Learned (2) • Managing innovation is a key to fostering strategic alliances • There are multiple entry points in structuring a strategic alliance • The ‘Partnership Matrix’ can assist in formulating the value-chain & managing alliance negotiations & ongoing operations • Understanding ‘national traits’ in the conduct of business is essential

48. Summary of Lessons Learned (3) • Explicit Knowledge isnecessary but is not sufficient • Tacit Knowledge is key to building strategic alliances & business relationships • Negotiation success requires an appropriate combination of explicit & tacit knowledge • Simple cultural & business misunderstandings can derail a truly valuable business relation

49. A Bit about My Background

50. What Kinds of stories Can I Tell? • Career spans a series of experiences as a: • Scientist • Technical & Business Manager • Entrepreneur • Bureaucrat • Executive • Diplomat • Academic • Management Advisor