Chapter 9 Understanding Alliances and Cooperative Strategies

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Chapter 9Understanding Alliances and Cooperative
Strategies
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OBJECTIVES
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AN ALLIANCE THAT FITS LIKE A GLOVE
gloves
Differentiate its product
Extend the brand
Magla
PG
Expand into European markets
Mr. Clean
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THE WHITE WAVE-DEAN ALLIANCE
35 ownership
DeanFoods
WhiteWave
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BENEFITS OF STRATEGIC ALLIANCES
Companies which participate most actively in
alliances outperform the least active firms by 5
to 7 percent
Why?
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ALLIANCES ARE NOT STRATEGIES IN THEMSELVES
Arenas
An alliance is one vehicle for realizing a
strategy
Economic Logic
Vehicles
Staging
Differentiators
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THE USE OF ALLIANCES AS STRATEGIC VEHICLE HAS
BALLOONED
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Alliances as percent of revenues
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As of 2007,large MNCs have over 20of their
total assets tiedup in alliances
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1980
1995
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ALLIANCES OFFER BENEFITS, CONTRACTS CANNOT
Joint Investment
Increase returns by encouraging firms to make
investments that theyd be otherwise unwilling to
make (e.g., Wal-Mart supplier becomes willing to
invest in new equipment)
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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

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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)
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THE WAL-MART CIFRA ALLIANCE
Cifra
Wal-Mart
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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
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MULTI-PARTY ALLIANCES
2 party alliances
Example SEMATECH, a consortiumof semiconductor
manufacturers
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WHO MIGHT BECOME AN ALLIANCE PARTNER?
Complementors
Firms
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2 TYPES OF BUSINESS STRATEGY ALLIANCES
Examples
Timkin andsuppliers
Mondavi andtop foreign wineproducers
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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
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RISKS ARISING FROM ALLIANCES
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RISKS ARISING FROM ALLIANCES
?
Redhook Ale

• Was Redhook Ale held captive by
• its alliance with Anheuser Busch?

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FIVE LEVERS FOR INCREASING THE PROBABILITY OF
ALLIANCE SUCCESS
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BENEFITS OF TRUST
Trust and Competitive Advantage
Knowledge
Dedicated
SharingRoutines
AssetInvestments
Interfirm
Trust

• TRUST is one partys 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

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FOUR KEY FACTORS AFFECT TRUST
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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

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WHEN DO PARTNERS FIT?
Firms must address a number of issues to
determine fit
Why?

• Strategic fit?
• Resource fit?
• Cultural fit
• Structural fit?
• Other questions?