Slide of strategic management w9

Bma799 Strategic management Lecture Nine: Networks and Alliances 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 Introduction • 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 Call for partnerships in the new competitive landscape • 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 Strategic alliances as vehicles of strategy • Strategic alliances refer to inter-organisational cooperative activities to achieve one or more goals linked to their strategic objectives • The literature commonly uses the terms alliances and partnerships interchangeably • An alliance can mean any kind of cooperative activity between two or more independent organisations Why alliances? • Organizations enter into an alliance to get access to complementary resources that would enable each of the partners to increase economies of scale and gain greater market power • Alliance offer many advantages to participating organisations as demonstrated in subsequent slides Why alliances? • Advantages achieved through alliances: • Entry into new markets • Increased market power and economies of scale and scope • The acquisition and exchange of skills 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 Equity alliance • An equity alliance is an alliance in which one or more partners assume a greater • ownership interest in either the alliance or another partner For example, early in 2009, Italian car maker Fiat acquired a 35 per cent stake in Chrysler, a then financially troubled American company 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 nonequity alliances Success and failure of alliances • Alliances present a major paradox for organisations • This aspect has been researched in considerable details • Many interesting findings are worth consideration Why 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 jointventure partners Summary • 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 ... 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... 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 •... 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