Slide of strategic management w9

Learning Objectives• Explain the need for intercompany cooperation, partnerships and alliances in the new competitive landscape • Understand how strategic alliances can serve as tools f

Learning Objectives

• Explain the need for intercompany cooperation, partnerships and alliances

in the new competitive landscape

• Understand how strategic alliances can serve as tools for market entry and achievement of operational goals

• Describe the advantages that companies can achieve through strategic alliances

• Describe different types of strategic alliances and how they can enable companies to create value

• Discuss some of the reasons for success or failure of strategic alliances

• Explain the role of formal governance mechanisms and relational governance in managing strategic alliances

• Many successful companies prefer to pursue innovations in a collaborative

• Alliances allow companies to develop new capabilities and competencies

• Alliances may involve formal agreements or they may be entirely informal — they may or may not involve ownership links

• Strategic alliances are viewed as an alternative to diversification

• Contemporary development in the field of strategy acknowledges that the resources residing outside the company’s boundary are also available for companies

• To benefit from resources external to the organisation, it is crucial to establish,

develop and maintain lasting business relationships with customers, suppliers and other important actors

Call for partnerships in the new competitive

landscape

Strategic alliances as vehicles of strategy

achieve one or more goals linked to their strategic objectives

interchangeably

independent organisations

Why alliances?

resources that would enable each of the partners to increase economies of scale and gain greater market power

demonstrated in subsequent slides

Why alliances?

Why alliances?

• Advantages achieved through alliances:

• Strategic renewal

• Risk and investment sharing

• Reductions in liabilities of foreignness

Choice between alliances, international development and acquisitions

• Choice between the three options should consider factors including:

• Knowledge of new investment risk

• Availability of organisational resources to implement the desired activities

• Resource portfolio of potential alliance partner and the cost

The types and structure of alliances

Table 9.1

Joint venture

• Joint venture refers to strategic alliance in which two or more cooperating companies (the ‘parents’) create a legally independent company in which they invest and from which they share any profits created

• Joint ventures allow companies to establish long-term relationships and transfer tacit knowledge

Non-equity alliances

• Non-equity alliances refer to agreements under which companies collaborate in order

to supply, produce, market or distribute products of the joint- venture partner over an extended period of time but without substantial ownership investment in the alliance

• Arrangements such as licensing, franchising, supply contracts are examples of equity alliances

non-Success and failure of alliances

Why do alliances fail?

• Studies have shown that alliances neither achieve the objectives of their parent

companies nor deliver on the operational or strategic benefits they were expected to provide

• Alliance termination rates are reportedly over 50 per cent, and in many cases forming such relationships has resulted in shareholder value destruction for the companies that engage in them

What makes alliances successful?

• The success of any single alliance is determined by some key factors that are

relevant at each stage of alliance evolution including:

• the phase of formation: companies select of a partner or partners

• the phase of design: the alliance governance mechanism is being established

• the post formation phase: the company manages the alliance on an ongoing basis and creates value

What makes alliances successful?

Table 9.2

Trust in alliances

• Partners have to develop trust in their alliance relationships

• The development of trust between partners leads outcomes such as:

• limits transaction costs

• facilitates long-term relationships

• stimulates collaboration

• simplifies knowledge transfer

• long-term competitive advantage

The factors of success and failure of

alliances

Table 9.3

Governance of alliances

• Successful alliances must accomplish two goals: coordination of the optimal

combination of productive resources across parties and mitigation of the risks of

opportunistic behaviour

• Governance mechanisms are concrete managerial and control activities that describe

in detail how the required behaviour of the partner will become motivated, influenced, and established, or in which ways the desirable or predetermined gains are to be fulfilled

How to make alliances successful

• Companies with greater alliance success are presumed to possess superior alliance capability — the ability of companies to effectively manage intercompany alliances and create value through them

• Alliance capability refers to the ability of companies to effectively manage

intercompany alliance and create value through them

Role of alliance function

• Alliance function refer to a structural mechanism in the form of a separate

organisational unit or team of managers, who are responsible for managing and

coordinating a company’s alliance activities

• Researchers have argued that a dedicated alliance function, which is responsible for supervising and managing a company’s overall alliance activity, positively contributes

to greater alliance success

How to collaborate with competitors

and win

• Organisations that benefit most from competitive collaboration adhere to a set of principles including:

• Collaboration is competition in a different form

• Harmony is not the most important

measure of success

• Cooperation has limits

• Learning from partners is paramount

The role of a strategic centre

• It is important for a company to act as a strategic centre for its partners

• The role of a strategic centre includes:

• Strategic outsourcing

• Capability

• Technology

• Competition

Exit from alliances

• Exit strategies should be a part of any alliance agreement

• Lacking an exit strategy is viewed as a common mistake that partners have when starting an alliance

• Exit strategies should meet the test of fairness while protecting key resources of venture partners

• This session has covered the following issues:

• Strategic alliances

• Types of alliances

• Success and failure of alliances

• Exit strategy is just as key as entry