Strategic Alliances:
Effectively Crossing
Organizational Boundaries
Paul Olk
December 5, 2008
National Yunlin University of Science
and Technology, Taiwan
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Analysis Overview
Vision &
Mission
Resources &
Capabilities
Industry
Environment
3 sources
of Profit
Value
Network
Positioning &
Competitive
Moves
Fit with
Corporate
Strategy
Performance
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Horizontal and Vertical Alliances
Partner 1:
Partner 2:
Horizontal alliance
Vertical alliance
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Examples of Alliances
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Alliance Challenges
The Alliance
Investment Challenge



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Choosing between an
alliance and other forms
of investment
Choosing between
different types of
alliances
Designing alliances
The Alliance
Implementation Challenge



Managing cultural
differences in alliances
Building trust among
partners
Adapting alliances over
time
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The Alliance
Institutionalization
Challenge



Building alliance
capabilities
Learning from own and
others’ experiences
Developing
organizational and
managerial competence
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Preparing for Partnerships
1. Strategic Issues
Does the firm have a clear vision and strategy?
Does the firm understand where to form alliances, and where not to?
Are partner selection criteria clear?
Are potential partners being monitored?
Are the alliance activities of rivals being benchmarked?
2. Organizational Issues
Does the firm have a culture of cooperation?
Is there strong teamwork in the firm?
Does communication flow freely?
Is responsibility decentralized in the firm?
3. Managerial Issues
Are employees comfortable in situations requiring responsibility without control?
Do employees work well with others from different cultural backgrounds?
Do employees possess general management skills?
Do top managers display commitment to new initiatives?
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Connection to a Company’s Strategy:
Does your company have an “Alliance Strategy”?
Goals, partner
selection,
structure Alliance
Alliance
Management
Design
Design and
management
of alliance
portfolio
Relationship
management,
alliance
evolution
Alliance
Capability
Alliance
Portfolio
Internal
organization,
knowledge
management
Business
Strategy
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Competitive environment
and company context
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Business
Organization
Adapted from Bamford, GomesCasseres, Robinson,
Mastering Alliance Strategy 2003
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Four types of Alliance Partners Motives
1. Co-option/Economies of Scale



Potential rivals join together
Reduces costs, increases market share
Useful for building critical mass quickly (e.g.,
technical standards)
• R&D Consortia – Eureka
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2. Cospecialization
 Combining
unique skills to create a new
opportunity or reach a new market.

Millennium Pharmaceuticals knowledge of
drug development with partners’ expertise
in specific drugs
 Ideal

for international expansion –
Star alliance
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 Also

good for technological markets
Dell – with various supplier partners
 Easier
to terminate than internal
operations
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3. Learning
 Learn
skills from partners or jointly
create new ones.

General Motors & Toyota – NUMMI.
• GM learned Toyota’s production operations.
• Toyota learned how to work with U.S. workers.
 Emphasis
 Best
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on internalizing the skills.
when both partners learn.
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4. Risk Sharing

Hedging bets on new technology



Spreading risk across several partners



An ‘options’ approach
Transition to an acquisition
Multiple sourcing
Reducing political risk of a particular country
Cannot afford to ‘bet the company’ on each
new technology
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Alliance Boundaries
 With
your partner
 With
the alliance, if a separate entity
 Why
set up strong boundaries?
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Signs of Rigid External
Boundaries
 Strategies
and plans are developed
independently
 Information sharing and joint problem
solving are limited
 Accounting, measurement and reward
systems are separate and unsynchronized
 Sales forces push products on their terms
 Resources are utilized inefficiently
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Alternative Model:
Value Network
 Business
and operational planning are
coordinated – a supraorganizational
coordination
 Information is widely shared, and
problems are solved jointly
 Accounting, measurement, and reward
systems are consistent
 Selling is a consultative process
 Resources are shared
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Examples

Singapore Airlines and the Star Alliance


Code sharing and Frequent Flyer programs among 20
airlines
PT Unilever Indonesia

Supplier relationship program
•
•
•
•




Production system enhancement
Training
Technical assistance
Supervisory support
Suppliers Quality Management and Assessment
Programme (SQMP), 33 are preferred suppliers
84% of goods and services from local supply chain
Top 10 suppliers are Indonesian
Supports 8000 direct and 24000 indirect suppliers
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Barriers
 Legal
and regulatory tradition
 Competitive confusion
 Lack of trust
 Difficulty in letting go of control
 Slowness in learning new managerial skills
 Complexity
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Creating Boundaryless
External Relationships
 Getting
started
 Building momentum
 Sustaining progress
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Stages of Formation Process
Managerial Activity
Key Issues on the Managerial Agenda
Developing an awareness of
environmental
interdependence.
Are there new entries or increased competition in the markets in which the firms participate;
are markets deregulating/ privatizing; is there a new technological standard that threatens their
competitive positions?
Triggering collaboration.
A firm, individual, governmental agency, etc. sees a need for collaboration and orchestrates,
and guides the evolution of the alliance, helping to develop its vision/mission/ time line, etc.
Discovering converging
interests.
How compatible are motives with respect to new product development, need for new resources.
How similar are potential members’ industry or firm characteristics. Do they have prior or
existing ties? Are they strategic or social in nature?
Selecting partners.
Who is contacted, by what processes, with what logic? When is membership closed?
Searching for consensus on vision and
missions, goals, objectives, etc.
How similar are the potential members’ views on the goals of the alliance, its structure, its
operations, on information sharing?
Defining expectations of continuity.
How active are the members in the alliance, what are their alternatives, what commitments of
additional resources do they make, is membership for a specific period of time?
Outcomes
Designing formal structure.
What is the size of the alliance, are there boundaries on membership, is there a board of
directors, where is the alliance located?
Broadening and deepening
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collaboration.
What changes are made in workers assigned to the alliance, its budgets, its membership? Are
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new inter-organizational relationships created? How satisfied are managers with the alliance?
Figure 1
Paths to Successful Collaboration
Managerial Activities
Activity
Path Type
Developing
awareness of
environmental
interdependen
ce.
Triggering
Collaboration.
Discovering
converging
interests.
Selecting
partners.
Alliance Outcomes
Searching for
consensus on
visions and
missions.
Defining
expectations
of continuity.
Designing
formal
structure.
Broadening and deepening
collaboration.
EMERGENT
1
3
5
6
1
6
1
6
1
2
ENGINEERED
1
EMBEDDED
2
4
1
2
2
The numbers in the ovals reflect either managerial activities or alliance outcomes
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c
The Emergent Process
The Engineered Process
The Embedded Process
Social
Relationships
Social
Relationships
Social
Relationships
Strategic
Relationships
Convergent
Interests
Convergent
Interests
Strategic
Relationships
Convergent
Interests
Typical starting position
© Yves Doz, INSEAD, 2003
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Study of U.S., Israel and
Taiwanese Small Firms using
Alliances
 High
technology (broadly defined)
 Age and Size: < 2 years or
< 100 employees
 Alliance partners: local, national,
international
 Alliances – required co-adaptation (e.g.,
not website sharing; not co-marketing)
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leads to the following samples’
characteristics.
US
Israel
Taiwan
Age*
5 years
18 years
9 years
Company Size
33 employees
53 employees
25 employees
Number of alliances
8
7
5
Importance of alliances
4.7 out of 5
4.4 out of 5
4.8 out of 5
4.4 out of 5
3.7 out of 5
4.6 out of 5
Leverage
Resources
Generate Sales
Leverage
Resources
Generate Sales
Leverage Resources
Generate Sales
Comfort with alliances*
Use of alliances
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* Significant Difference Between Samples
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Important Findings

Both Personal Ties and prior Organizational Ties
positively affect Performance of the alliance




S. Jones and the Bootstrapped model
Friendship not as important as prior work ties
Work included professional associations
Trust

Complex relationship between types of Prior Ties and
both Personal and Organizational Trust
• Organizational Tie related to Personal Trust
• Organizational and Personal Trust are separate but related

Open Book Policy – Swiss Company
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
Implications for Performance


Personal Trust directly leads to better Performance
Economies of Scale alliances lead to better
Performance
• For the small company, it was better to work with a similar
competitor
• Dominant impact of Partner Size differential


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Speed in decision making
Importance of the relationship
Ability to make additional investments
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Getting Started – Focused on Emergent
and Engineered Formations
 Arrange
customer and supplier cameos
 Take customer and supplier field trips
 Hold open-agenda dialogues between
senior management teams
 Map customer and supplier needs
 Collect customer/supplier data
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
Customer needs mapping



Helps to ally company’s core processes with
suppliers’ and customers’ needs, while still
maintaining internal needs.
Helps manage necessary tradeoffs
Process
• A grid of customer/busniess needs and company processes
• Rate the importance of each need (e.g., 1-5)
• Evaluate the importance of each process to a specific need
(e.g., 1-9)
• Multiply the importance score by the process score
• Summing up for each process reveals its relative importance
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Building Momentum – for Established or
Embedded relationships
 Hold
customer and supplier town meetings
 Organize cross-value-chain task forces

Eli Lilly ‘Spider Web Performance Model’
 Share
technical services
 Teach salespeople to be consultants
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Sustaining Progress
 Integrate
information systems
 Reconfigure roles and responsibilities
 The
goal is to develop alliance capability
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Alliance Capability
Presence of a strategic alliance unit is associated
with better performance
What do they do?
From J. Bell (2004)
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Levels of Competence
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Key Alliance Success Factors








Develop a clear strategic purpose for the alliance.
Choose partners with complementary capabilities
and compatible goals.
Choose the right alliance structure.
Negotiate a thorough, yet flexible, contract.
Enhance incentives to cooperate and minimize
conflicts.
Improve trust, communication, and teamwork.
Develop and implement performance metrics.
Plan for evolution and termination.
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Lessons from Toyota
1.
Carefully select enterprise members: Strategically
segment suppliers
a)
Toyota took stock in strategic partners (not in the non-strategic
ones);

b)
More likely to have partnerships, rather than quasi-arms length
or traditional arm’s length agreements when:



2.
These affiliated suppliers received more assistance and
information from Toyota
Complex-product industries
Long-term economic expansion
Long-term expansion is the goal
Create an identity for the extended enterprise
a)
Create a mental identity
The Toyota Group – openly promoted as “co-existence and coprosperity”

Co-locate engineers
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
Built a center commemorating
its supplier associations

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Toyota (cont.)
3. Be Patient: The enterprise needs time to merge and
evolve. Phases of its over 50 years of development
1.
Developing relationships and an enterprise identity
•
•
2.
Developing strong ties with Toyota
•
•
3.
Toyota in the US created a supplier association in 1989 – 13
members, by 1998, over 100
Designed to share information among the suppliers
Toyota made well-trained consultants available for free to transfer
valuable knowledge about the Toyota Production System
Helps to create norms of reciprocity; indebtedness and open
communication
Developing strong ties among suppliers
•
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Create subnetworks
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