DEWEY
28
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MIT
Sloan School of Management
Sloan Working Paper 4178-01
September 2001
E-BUSINESS TRANSFORMATION
VIA ALLIANCE CLUSTERS
Fares A. Ghandour, Pauliina Girsen-Swartz,
Heidi
M. Grenek, and Edward
B. Roberts
This paper can be downloaded without charge from the
Social Science Research Network Electronic Paper Collection:
http://papers.ssm. com/abstract_id=288 1 29
MASSACHuSliTs INSTITUTE"
OF TECHNOLOGY
JUN
3 2002
LIBRARIES
E-Business Transformation via Alliance Clusters
Fares A. Ghandour*, Pauliina Girsen-Swartz^ Heidi M. Grenek**, and
Edward
B.
Roberts^
Abstract: The number of firms using alliances as part of their corporate venturing or market
entry strategies has surged over the past decade. Three
alliances are technology convergence, market access
common
and alliance partners' complementary
resources. This paper contrasts the alliance strategies of
electronic services
(i.e.,
attempt to establish
Internet,
IBM
its
reasons cited for pursuing
HP
and IBM, two major competitors
Internet-based "e-service") businesses.
Whereas
the
HP
strategy
is
in
to
technology infrastructure as the standard e-services infrastructure on the
aims to position
its
IBM
Global Services, rather than
its
technology,
at the center
of this ecosystem.
Keywords:
Packard,
alliances, corporate entrepreneurship, corporate venturing, e-business,
Hewlett
IBM
Biographical notes: Authors are
listed in alphabetical order. All
correspondence
in regard to
Professor Edward B. Roberts, Massachusetts Institute of
this article should be sent to
Technology, Sloan School of Management, 50 Memorial Drive (E52-535), Cambridge
Massachusetts 02142,
USA.
(eroberts@mit.edu).
Ghandour is currently an Alliance Manager at Lucent Billing and Customer Care,
Cambridge MA 02142, USA, focused on developing partnerships with system integrators and
companies in the 3G mobile space. Previously he worked as a strategy consultant with Arthur D.
Little in the Middle East. Ghandour received a Bachelor Degree from the American University
of Beirut and the MBA from the M.l.T. Sloan School of Management.
+ Pauliina Girsen-Swartz is an Associate at Analysis Group/Economics, Cambridge MA, USA.
Earlier she had served as a Senior Associate in Investment Banking at State Street Capital
*
Fares
Corporation in Boston. Girsen-Swartz received a Bachelor of Arts degree from Brandeis
University and the
** Heidi Grenek
Group
at
MBA from the M.l.T.
is
a
Sloan School of Management.
Manager of Strategy and Business Development for
Xerox Corporation, Webster
Master of Science degrees
the
MBA from the M.l.T.
++ Edward Roberts
is
the
in
NY
14850,
USA. Following
the Global Solutions
receipt of Bachelor
Sloan School of Management.
David Samoff Professor of Management of Technology
Massachusetts Institute of Technology, Sloan School of Management, Cambridge
USA, where he
has been a faculty
member
since 1961.
He
at the
MA 02142,
also Chairs the M.l.T.
Entrepreneurship Center. Roberts has four degrees from M.I.T., including the Ph.D. in
economics.
and
Mechanical Engineering from Cornell University, Grenek received
1
Introduction
Accompanying
the explosive growth of the Internet in recent years, one of the fastest
technology sectors
is
e-business solutions.
and newly emerging industry leaders. As a
Packard (HP) and
their place in the
IBM
Much
of this growth has been by innovative start-ups
result legacy
in order to secure
evolving market. Both large firms are leveraging their financial resources, their
so that they are attractive alliance partners for these
as well as the likely
and concepts
technology companies such as Hewlett
have quickly formed alliances with these innovators
and
technical expertise in platforms, hardware and software,
This paper
growing
first
outcomes of those
firms.
But
and service forces
their strategies are different
strategies.
reviews recent studies of alliances across industries, developing frameworks
for analysis.
alliance strategies.
new
their large sales
HP
and
We
then apply these concepts to analyze HP's and
IBM
were chosen
for
IBM's
e-services
comparison because they are both old-line
important companies in the traditional hardware-oriented computer industry. Both firms have
recently undertaken major efforts to broaden into software and services, especially in
relationship to the Internet. In focusing
activities
two firm's
we examined
and apply
a
strategies
major
web
their alliance
sites
and draw some conclusions as
strategic business
Overview: Recent studies of alliances
we compare
to the likelihood that these alliances will
to
development approach,
approach to very different ends.
and general
interviews at both companies
intentions and activities. Following our independent analyses,
The presentation demonstrates how major "head
succeed.
2
We complemented that data gathering with personal
company
to clarify
strategic
their alliance efforts,
over the past two years, utilizing various industry and company
data sources.
the
upon
head" competitors can both adopt
i.e.
alliances,
and yet employ
that
1
Trends
2.
in alliance activity
The number of firms using
past decade and
2,000
in
And
was estimated
1990 and 10,000
companies
is
alliances as part of their go-to-market strategies has surged over the
to
exceed 20,000 worldwide by the end of 2000 (from a base of
in 1995). [1]
More
than
20%
of all revenue earned by Fortune 1000
derived from alliance activity compared to less than
5% just
fifteen years ago. [1]
while different firms define "strategic alliance" differently, the upward trend
with joint ventures and alliances seen as second in importance only to internal
key development technology sources worldwide.
A study by Booz-Allen &
that alliances
a relatively steep learning effect
R&D in providing
have
in general
generated good
had an average return on
returns to the partners. During the 1988-1995 period alliances
\2%
clear,
[2]
Hamilton concludes
investment of 16%, compared to
is still
overall returns for Fortune
500 companies.
[1]
Moreover,
was observed. Companies with nine or more years of alliance
experience earned twice the return on investment (20%)) on their alliances compared to the return
earned by inexperienced firms (10%).
financially.
2.2
However, not
all
alliances succeed strategically or
Estimates from various sources indicate a success rate of only
50%
to
65%.
[3]
Why alliances?
Firms
•
[1]
cite three
common
reasons for pursuing alliances
Technology Convergence
.
have prompted companies
[4]:
Technology convergence and demand
to seek alliances in order to
gaps
fill
for "end-to-end solutions"
in their
product and service
offerings.
•
Market Access
partner
is
.
This
a desired
is
frequently the motivation for cross-border alliances because a local
and sometimes a required part of doing business
Republic of China, for example). However, market access
may
(as in the People's
also be critical in domestic
alliances,
when by
otherwise had
such as
•
HP
little
virtue of an alliance a finn
prior reputation. This
are seeking
when
Complementary Resources
.
becomes "known"
may
in
an industry
in
which
it
be the "ticket" that traditional hardware firms
they ally with partners in e-business.
Alliances provide instant access to top-tier talent, technologies,
capital, distribution channels,
and manufacturing
capabilities.
"Big bets", such as on
standards, encourage companies to cooperate with others to spread the risk and to strengthen
their position
Other
common
by securing "buy-in" of others
in the
market.
rationales for alliances are listed in Table
[INSERT Table
1:
1.
Other rationales for pursuing
alliances]
But alliances are fraught with problems as well as these potential benefits. Cultural
differences between the firms (sometimes called "impedance mismatch") are the source of most
frequently cited difficulties. Different levels of commitment between the partners, especially as
strategic objectives shift
autonomy
to
its
need resolution.
over the often long
partner due to
life
of an alliance, and loss of individual firm
complex interdependency agreements pose
critical issues that
[5]
Alliances can be "strategic" or "operational" in their goals. Those aimed
entry opportunity for the firm into a
new
at:
(1) creating
industry, or (2) targeted at possibly significant
an
growth
and/or diversification, or indeed (3) focused upon the very survival of the primary business are
seen as "strategic". Those alliances that are principally attempting to achieve improved
performance of the current business are seen as "operational". They might be aimed
out a present product line, or closing a technology gap, or opening
geographic markets.
And they may
new
but incremental
be "developmental" or "distributional"
developmental alliances seeking jointly
to create a
at filling
in
mode, the
product or business line that has not
previously existed, while the distributional alliances are intended to
move one
firm's existing
products or capabilities through another firm's existing channels to market. [5] All might be
important but they differ dramatically in their risk profiles and in their potential for individual
gain.
Given
the synergies that often exist
pursuing mergers and acquisitions
of alliances versus
to
M&A
is
between multiple alliance partners, why aren't firms
(M&A)
beyond
as an alternative to alliances?
A
detailed comparison
the scope of this paper, but briefiy, alliances are advantaged
M&A because they (usually) bypass antitrust or other restrictions, have lower capital
requirements, involve lower risk, can narrowly define the scope of the relationship, avoid talent
drain and are less accountable for shareholders. [6] Furthermore, companies choose alliances to
avoid sobering
M&A failure rates: 78% of mergers (compared to -50% of alliances) fall apart
within the
three years. [3]
3
first
E-services at Hewlett Packard
HewleU Packard
revenues
in fiscal
is
one of the world's
year 2000.
As
largest
part of
its
companies, achieving U.S. $48.8 billion in
efforts to redirect
aggressive e-services campaign in 1999. Since then,
services and technologies for e-services, including
its
HP has
its
energies
HP
launched an
introduced several
new
e-speak middleware, which
is
products,
designed to
help companies create and deliver services over the Internet via agent-based interactions. HP's
e-services business
is
currently focused on delivering e-services infrastructure solutions to
segments of the market
that are large
and have significant growth
potential, including application
service providers, next-generation portals, wireless e-services, digital imaging and electronic
publishing, and intelligent networked homes. [7]
Based on
its
fmancial results HP's e-services
campaign
is
starting to yield results:
revenue from
its
9%
focused on e-business opportunities, grew
Why
3. 1
is
HP in
this
its
services business,
1999 and
in
company
company and
its
"roots in the Garage" (referring to
like a start-up again. [8]
as
CEO
is
coming
new
"reinvent"
competitive advantage in the Net
return to
HP
based upon her
To accomplish
aggressively developing a presence in e-services while also leveraging
new Net
will
be successful.
at the
technological
and infrastructure
Economy by being
intersection of these three building blocks of e-business.
this positioning,
its
HP
is
existing market
customer relationships and installed base.
HP was
a late entrant to the e-services business,
alliances to gain quick access to the market.
It
it
elected to use partnerships and
focused on developing infrastructure technologies
hardware and software), and used partnerships to gain access
for e-services (both
service technologies and products (mainly e-service applications).
service players
HP
has been able to enter and ramp up
significant uncertainty as to the
like
itself, to
Rather, she believes that in the
to a close".
HP's goal
Since
[8]
has undergone a corporate-wide
corporate strategy for
that integrate appliances, e-services
position,
increasingly
founding place in Silicon Valley) and to begin acting
Economy, companies
to gain a
is
during fiscal year 2000.
HP has promised to
image.
its
HP
in 1999,
Fiorina has articulated a
vision that the "pure product era
is
15%
which
business?
Since Carly Fiorina joined the
effort to revitalize the
its
to diversify
number of e-services
services ecosystems with
HP
partnering with leading e-
e-business very rapidly. Given the
winning technologies and business models on the
most other firms, has chosen
entering into a large
its
By
its
"bets" across
alliances.
at the center". [9]
HP
to other e-
many
HP,
platforms and industries by
HP's long-term vision
wants
Internet,
is
to create "e-
to establish its e-services
infrastructure as the
dominant standard on the
alliances are seen as
key contributors.
Internet, clearly a strategic goal
toward which
4 HP's e-services alliances
We
studied seven different
the
HP
and
IBM
alliances
HP
and
e-service alliances for this paper. (The
their descriptions.)
"operational" in the sense that they
However, when analyzed
Due
perspective.
enabled
HP
gaps
to its late start
Common
new
HP's e-services technologies or product
and lack of previous experience
its
list
of
e-services business.
lines. [5]
from HP's corporate
in e-services, alliances
Through the
alliances
have
HP
has
products, services, technologies and customers.
characteristics
HP's e-services
in
a
individual alliances are
as a portfolio, the alliances are "strategic"
quickly to enter and develop
gained access to
4. 1
fill
Most of the
Appendix includes
among
alliances share
the
HP alliances
many common
characteristics.
First,
most of its partners
(excluding Nokia and Oracle) are relatively small companies that are focused on a specific e-
company
service technology, product or service. Furthermore, these smaller
almost exclusively "distributional" alliances. In contrast the Nokia and
"developmental" alliances, where the partners are seeking jointly
non-existing, technologies.
As shown
in
Table
2,
HP
infrastructure technology (as well as brand, capital
to
partnerships are
BEA partnerships are
develop new, previously
typically brings to
its
alliances
and distribution channels), and the alliance
partners typically bring in specific e-service applications.
HP
search
chose
has entered into numerous partnerships since
we found over twenty HP
to study are
it
launched
its
alliances in e-services since 1999.
non-exclusive (the Oracle alliance, which
is
e-services campaign. In our
Six of the seven alliances
more focused on
two companies' existing products than on developing new ones,
is
exclusive).
we
cross-selling the
Given
the
number
and non-exclusivity of the alliances,
it is
quite
with the partner's competitors. For example,
direct competitors in the vertical portal
number of alliances can be explained
a result the
major players are trying
HP
for the parties to
an alliance to also
has an alliance with both Ariba and
12,
ally
who
are
market (as well as alliance partners of IBM). The high
in part
to
common
cover
by the high uncertainty
all
in the e-services market.
the possible angles to
make
As
sure that their
technology will be part of the emerging industry standards.
Many of HP's
partnerships were set up to deliver to a specific customer a complete e-service
solution that integrates
complementary technologies from the alliance
participants.
Consequently, such partnerships are focused on specific customers and/or industry segments and
[INSERT Table
seem short-term and
the
2:
HP's
e-services alliances]
transactional in nature. For example,
two companies' complementary technologies and services
feature of
HP
"alliances" since in
many
HP
actually considers
cases
HP
gives
"partnership
Due
HP
and
infrastructure to the
management"
to its lack
raises issues as to
attention
between
HP
and
its
most of its e-services customer relationships
customer will build new e-service applications on the
revenue growth for
which firms are
customer for free with the hope
HP
platform. This both delays
truly partners that ought to receive
and which are purely customers.
of previous track record
positioning itself as an Internet innovator
HP
its
an e-procurement
highlights another interesting
partnerships. Increasingly the alliances blur the lines
customers and suppliers.
that the
to deliver
The Ariba example
solution for the catalog purchasing business.
for
HP's partnership with Ariba combines
in e-services
compared
to gain instant credibility in e-services.
to
HP
IBM
continues to have difficulties in
and others. Partnerships are a way
HP's strengths
in existing businesses (like
servers),
and access
to capital
and
sales channels
make
it
a desirable partner for
many
e-service
companies.
4.2 Familiarity Matrix analysis of
HP alliances
Several years ago Roberts and Berry [10] introduced the concept of the Familiarity Matrix as a
vehicle for assessing the appropriateness of various
internal
"new business
entry" alternatives such as
development, alliances, joint ventures, acquisitions, and minority equity investments.
The matrix focuses upon
the positioning of a proposed business
of technology and market familiarity
utilizes its
to the
development along the two axes
company. The firm's primary current business
"base technology" on behalf of its "base market"; any potential endeavor
may be
close to or distant from those bases.
[INSERT Figure
1:
Familiarity matrix for HP's e-servlce alliances]
We analyzed HP's e-services alliances using the
preparing the analysis
we assumed
that
Familiarity Matrix as
HP's current "base market"
shown
in Figure
1
.
In
in e-services includes
corporations developing e-services solutions either for internal use or for their customers. HP's
"base technologies" were seen as including
its
internally
developed e-services infrastructure
technologies (both hardware and software).
We
•
gained the following insights from the Familiarity Matrix analysis:
Four of the seven alliances that
or familiar market for HP.
we
studied
(BEA, Oracle, Ariba and Yahoo) involved a base
These alliances targeted mainly corporate customers. In terms of
technologies acquired via the alliances, these four alliances involved either
somewhat
familiar" or
"new and unfamiliar" technologies from HP's
"new but
perspective.
The
alliances appear to be mostly operational in nature, with the goal of filling a product or a
technology gap.
•
The
three alliances for
which the market
was new
factor
new
familiar or
unfamiliar to
HP
(Everypath, Nokia and 12) involved either individual or corporate mobile telecommunications
users or online trading communities. These three alliances also helped
deploy new familiar or new unfamiliar technologies. Although
partners, the ideal situation here
its
•
own
would have been
the case
we
HP
gain access to
did not analyze HP's
where the partner was engaged
in
base area of market competence.
As mentioned
earlier
HP
has used
its
alliances with other e-service providers to gain rapid
entry into the e-services market. Regardless of the level of familiarity with the market and/or
technologies involved, HP's preferred
seems
to
not force
that
be alliances, as opposed
HP to make
HP
is
new
markets/technologies
Alliances do
long-term more permanent commitments to partners or technologies
HP
in the future.
alliances involves
its
own
Finally, as
shown on
the Familiarity
current base technologies.
It is
clear that
positioning itself as the preferred provider of e-services infrastructure in these
alliances.
By
HP's goal
is
forging partnerships across
to
5 E-services at
IBM
many
applications and a large
number of players
speed the advancement and adoption of its infrastructure technology.
IBM
Unlike Hewlett Packard, which
services,
access to
to acquisitions or venture capital investments.
might end up being unsuccessful
Matrix, none of the
way of gaining
is
a relatively
new
entrant into Internet-based technologies and
has participated in the development of the e-business
economy from
its
inception.
Innovative technologies, hardware, software, services and global reach have firmly established
IBM
as a leader guiding the evolution of the e-business "ecosystem" that
business.
Today
IBM
is
involved
companies, tools development,
in all aspects
web
is
transforming
of e-business, including incubation of new
hosting, wireless e-services
and outsourcing.
10
Much
of what
IBM
has learned about e-business comes directly from the company's
experience in transforming
IBM
own
one of the world's largest e-businesses. In the year 2000
itself into
generated U.S. $23.3 billion in e-commerce revenue out of its total revenues of U.S. $88.4
billion. In addition
IBM
purchased $43 billion
in
goods and services over the Web, claiming
savings of $377 million through implementation of e-procurement processes with suppliers. [11]
Why
5. /
As
the
is
IBM in
this
business?
economy migrates away from
on the delivery of services,
Rather than simply
its
sell
IBM
the "pure product" era cited
by HP's Fiorina toward
has transformed itself heavily into a "solutions provider".
customers stand-alone products,
IBM
has instead focused on identifying
customers' "business issues" and then developing integrated solutions to those problems.
These "business issues" increasingly concern e-business and, hence,
its
broad range of capabilities (including
relationship
companies
its
business strategy, hardware, software, customer
pursuit to
become
price) customers place
a solutions provider.
computer technologies,
sales
its
and service network,
to
develop
on integrated
solutions,
IBM
is
not
Firms such as Hewlett Packard, Xerox and
others have also started to focus on solutions development.
its
has brought together
to realize the full potential of e-business.
Given the higher value (and higher
alone in
skills in
IBM
management, supply chain management, operations and other areas)
solutions that enable
in
a focus
However, IBM, with
its
rich history
unparalleled intellectual property portfolio, and the global reach of
is
increasingly global customers.
uniquely positioned to deliver integrated e-business solutions to
Much
of this e-business activity flows through the
Services organization, which signed U.S. $55 billion in
new
IBM
Global
services contracts worldwide in the
year 2000, the world's largest information technology services provider and the fastest growing
11
of IBM. [11] Continued development of e-business products and services
part
highest priority area of strategic focus for
As an
e-business solutions provider
meet customers' "end
lifecycle.
phase
ever>'
DB2
By
to
leveraging
its
in the lifecycle
in
must be able
to
provide products and services that
terms of their value chain and their business
core competency in "data handling",
of data, from input via a
database residing on an
IBM
clearly the
IBM.
IBM
end" needs, both
is
IBM would
like to "control"
PDA through management
mainframe. However,
IBM
of the data
in a
has neither the resources nor the
time to deliver every component of a complete solution in-house and therefore seeks industryleading alliance partners that can provide the parts that are missing. William Etherington, an
IBM
Senior Vice President, commented, "Our commitment to bring customers e-business
end
solutions does not
at
IBM's
software applications with
borders.
IBM technologies,
business issues to create powerful
part because
We're reaching out
new
services,
solutions that
to
and knowledge of our customers'
no other IT company can match." [12] In
of this reliance on partners for elements of its solutions,
development of cross-platform solutions. While
be deployed using
IBM products,
it
Consequently,
IBM
technology, to be
is
positioning
at the
IBM
has emphasized the
IBM would obviously prefer that
its
solutions
recognizes that for various reasons (including legacy
equipment and infrastructures) not every customer will migrate
A
combine the industry's best
its
to
IBM
equipment.
Global Services organization, not necessarily
its
center of the "e-services ecosystem".
second part of IBM's e-services strategy centers on the establishment of open technology
standards in the industry. Recognizing the advantage in helping to develop nascent technology
standards,
IBM
has been proactive in entering into alliances with the intent that
it
can influence
which standards emerge.
12
6
IBM's
e-services alliances
We studied eight different IBM
e-service alliances for this paper (Table 3), using
general business sources complemented by interviews with senior
In 1996
strategy office.
commitment
to
IBM
issued
its
Unlike some companies
the firm's alliances.
as the primary
IBM's revenues going through
IBM
members of IBM's
corporate
"Business Partner Charter" that signaled IBM's
work with "Business Partners"
1996, the percentage of
web and
way
to
alliances has
expand IBM's reach. Since
more than doubled.
does not have a central "alliance group" to
initiate
[13]
and coordinate
Instead alliances are initiated by both the corporate headquarters and in
individual divisions based on business need. For most alliances the initiating party has oversight
responsibility.
However,
strategic importance),
that partner (such as
model or hurdle
Nor does IBM
if
the alliance
is
"big enough" (in terms of future revenues or in
an alliance manager
is
assigned to coordinate multiple agreements with
with the IBM-Cisco partnership
rate, preferring instead to structure
we
studied).
each alliance
IBM
has no "generic" alliance
to best
meet the business need.
enter into alliances with the intent of "trying out" the
company
as a precursor to
an acquisition.
As was
true with our assessment
"operational" in that no one alliance
diversification, or
alliances
was
moved IBM
crucial to the survival
were undertaken
more complete
of HP, most of the
to
solutions to
new
we
studied were
industry, provided significant
existing product line
and enable
IBM
to deliver
customers. Also similar to HP, analysis of the portfolio of
alliances does in fact indicate that combined, their goal
a
new
alliances
of IBM as a going concern. Rather, most of the
complement IBM's
its
into a
IBM
type of business (namely, to
become
a services
is
clearly the transformation of IBM into
and solutions provider as opposed
to a
13
stand-alone product developer) and as such, the alliances as a whole are "strategic" from the
corporate perspective.
6. 1
Common
IBM's
studied
alliances in e-services
IBM
have many
alliances
common
characteristics.
In seven of the eight alliances
selected the industry-leading firm as a partner, regardless of firm size. (Mercer
the exception,
which while being a well-respected consulting firm
[INSERT Table
IBM
among IBM's
characteristics
3:
IBM's
is
not one of the "big three".)
e-services alliances]
has repeatedly stated that leaders in e-services, each with
its
unique offerings, must
collaborate in order to accelerate the adoption of e-business and Internet technologies.
alliances
conform
alliances
must suggest. Rather
to this philosophy
IBM
it
developed
Correspondingly,
technologies that
(e.g., its
it
its
IBM
own
Its
and do not appear as haphazard as the frequency of
appears to be careftilly placing
"winners", rather than ally with small players that
market once
it
bets
its
on
the
most
likely
could eventually take over or cut out of the
technology.
does not appear to be using alliances primarily as a window to
would eventually
relationship with Nokia)
is
and
like to
its
develop in house. Both
its
new
push for open standards
shedding of intellectual property
(e.g., the
Cisco
example) indicate that alliances will be a long-term strategy for IBM.
Further evidence of
IBM's commitment
to
its
alliances
is
that the firm will
customer for the output of two of the alliances (Qwest and Ariba/i2) and
$630M combined
equity stake in Ariba and
Consistent with
that
IBM's transformation
can complement
The IBM-customer
its
it
be the primary
has also taken a U.S.
12.
into a "solutions provider",
goal to be a company's preferred supplier of
IBM
all
has allied with firms
e-business services.
relationship begins at the inception of the firm (see the
Mercer
alliance)
and
14
carries through to all aspects
IBM
Similarly,
management
of a firm's infrastructure needs (see Qwest, Cisco, and Dell)
can participate
in a
customer's entire value chain from data entry (Nokia) to data
(Siebel, Ariba/i2).
Also consistent with IBM's role as
best classified as a
term
IBM
and
them together
a "solutions provider", five
of the alliances studied are
new form of integrated "Distribution/Development"
alliance.
In the short
partners are merely marrying their separate product offerings and bundling
its
for customers ("distributional"). Ultimately,
together to develop
new
integrated solutions that
however, the firms will work
would not
exist without the alliance
("developmental").
Many
as
of the alliances
breadth and geographic reach of
cite the
one of IBM's primary contributions
been successful
in leveraging
establishing alliances in the
Lastly,
none of the
IBM
willing to ally not only with
Nokia agreement
is
part of
IBM's Global Services group
to the partnership (Table 3).
one of its key assets to give
it
This indicates that
IBM
has
competitive advantage in
"new" economy.
alliances
its
we
studied appears to be an exclusive agreement.
partner's competitors but also with
IBM's
larger participation in the
its
IBM
is
own. For example, the
"Symbian"
alliance,
which includes
Motorola and Ericsson among others.
6.2 Familiarity Matrix analysis
We analyzed IBM's
analysis
we
of the
IBM alliances
e-services strategy using the Familiarity Matrix (see Figure 2). For the
considered IBM's "base technologies" to include
software, and
its
networking and
markets in which
IBM was
(INSERT Figure
2:
Web
its
services group,
hosting expertise. "Base market"
its
database
was defined
as the
currently participating (including e-business markets).
Familiarity matrix for
IBM's
e-service alliances]
15
From
the
IBM
alliances Familiarity Matrix,
Five of the eight alliances that
•
primarily extensions of
learned:
studied (Mercer, Qwest, Ariba/i2, Dell, and Cisco) were
existing technology base to
new
leveraging
existing technology portfolio and finding
its
According
technologies in existing markets,
new
markets. Unlike HP, which
objective seems to be focused on
IBM's
sought to use
new markets
•
IBM's
we
we
complementary products
that
open up
via complete solutions offerings.
to the Familiarity
Matrix IBM's alliance with Nokia might well be quite risky and
perhaps should have instead taken the form of a lower stakes venmre capital investment.
However, given
and
that
that wireless
IBM
is
committed
to
bemg
a player in the total e-services value chain
communications appears poised
not have the luxury of moving
industry has increasingly
to take off in the next
more conservatively
become "winner takes
few years,
in this market/technology.
all",
IBM
needed
to stake a
As
IBM
did
this
claim early to
its
position in wireless. Note, however, by selecting the industry leader as an alliance partner,
IBM
effectively mitigated
into the
7
some of the
and
IBM
solutions and
with
normally accompanies moving so quickly
"new/unfamiliar" market/technology sector.
Comparison of Hewlett Packard and
HP
risk that
IBM
alliance strategies
are both seeking to leverage alliances as a
become
way
part of the e-business "ecosystem".
some of the same
firms
(i.e.,
Nokia, Ariba and
12).
differences remain between the alliance strategies of the
•
Both firms want
differently.
HP
to
be
wants
at the
to
develop integrated e-service
Both companies have even partnered
But despite these
two
similarities significant
firms.
center of e-business, but they are approaching this objective
to establish its
technology infrastructure, e-speak, as the standard e-
16
services infrastructure
Services, rather than
on the
its
Conversely,
Internet.
technology,
IBM
wants
to position
As
center of this domain.
at the
its
a result
IBM
IBM
Global
is
more
proactive in entering alliances that are cross-platform and open standards-based.
•
While both firms are using alliances
to
gaps
fill
in its
product
IBM, on
services.
line,
to
develop "solutions",
speed acceptance of e-speak, and
the other hand,
is
using
its
(i.e.
•
whole e-business value chain, while
HP appears
reflect
to
using
make up
its
alliance strategy
for
its
late start in e-
IBM's
its
existing
desire to participate in
be concentrating on specific segments
e-commerce).
more temporary
HP
develops
Similarly,
HP's
offerings)
and "new technology" focused, while IBM's are clearly part of a permanent
alliances appear to be
development strategy and a means
•
may
is
enhance (not establish)
alliances to
offerings across the value chain. This difference
the
HP
IBM
to access
new
(effective until
its
own
markets.
seems more focused on partnering only with industry
leaders, while
HP
has alliances
with smaller firms that deliver only specific applications, not a portfolio of offerings.
Potential issues that
•
A
lack of focus, poor alliance
alliances
•
may undermine
may
the potential success of each firm's alliances include:
management and under-allocation of resources
resuU from the frequency with which
Coordination of alliance activities with the
difficult in e-services,
speed
at
which the
where the speed
rest
at
rest
IBM
and
HP
to specific
are pursuing alliances.
of the parent organization can be especially
which the market evolves
is
quite different from the
of the organization operates ("impedance matching" issues). This
affects the firms' abilities to leverage their existing businesses in the e-services space.
17
•
No
clear "exit strategies"
were identified
troublesome for HP, since
problem
it
for
any of the
tends to enter into
alliances.
more short-term
This
is
alliances.
particularly
A
corollary
surrounds appropriation rights to intellectual property following the
to this
dissolution of the alliance.
Our research suggests
that
IBM
and
HP
could improve their chances of alliance success by
assuring that each firm involved has a good cultural
fit,
clear alignment of business objectives,
and an organizational structure/work process that promotes information sharing, conflict
resolution,
and accountability.
8 Conclusions
As
the
"old
economy becomes
economy" high tech
competitors in the
new
increasingly focused on the Internet and the possibilities of e-business
firms have had to reinvent themselves in order to remain viable
Economy. As technological uncertainty has
solutions-based Net
increased and the pace of technological change has accelerated, these firms have increasingly
turned to alliances as a tool to remain in touch with the leading edge of technologies and to offer
customers complete e-service offerings.
economy"
firms, Hewlett Packard
have been able
•
The
to
By
studying the alliance strategies of two of these "old
and IBM, as well as recent research on alliances
in general,
conclude the following:
recent flurry of alliance activity in the e-services arena represents a strategic shift in
the business will operate in the future.
for "catching
has signaled
we
HP
has signaled that
it
will continue to use alliances
up" with more nimble competitors who are ahead
its
commitment
to
continued use of alliances via
how
in the
its
technology race.
IBM
"Business Partner Charter",
equity stakes in smaller partners, and intellectual property sharing and considers alliances not
18
as a
means of "catching up" but
rather as a necessary part of delivering total "solutions" to
customers.
•
Although different both firms are using deliberate and consistent alliance
core of HP's strategy
is
the use of alliances as a
on the Internet
as the standard
to facilitate
desire to be a solutions provider over
and to have a part
its
means of establishing
strategies.
At the
"e-speak" product
its
e-commerce. At the center of IBM's strategy
is its
customers' entire value chain (not just e-commerce)
in establishing the standards that will
govern the next wave of technology
development.
•
Note
that
succeed
the
even
if the alliances
at the strategic level
do not succeed individually
of repositioning
minds of customers and other industry
"e-business club"
may be even more
individual alliances, particularly for
IBM and HP
participants.
in their totality
they are likely to
as players in the
Net Economy
in
Getting this "invitation" to join the
important than the operational success of any of the
HP (IBM
is
already in the "club", but
is
not necessarily
viewed as the most proactive member).
•
While alliances
will deliver value to the firms, with
alliances will deliver lasting competitive advantage.
few exceptions,
Most of them
it is
unlikely that these
are "non-exclusive" and
therefore firms will not be able to fully appropriate any source of long term competitive
advantage. Competitive advantage in this market
•
speed and responsiveness to
shifts in
A
and
primary risk that both
HP
traditionally
is
and
will
remain a function of a firm's
customers' demand.
IBM
success of their alliance strategies
is
must address
in order to
enhance the probability of
"impedance matching" of the speed
do business versus the speed
at
which
their
at
which they
customers do business. Other issues
concern resource over-commitment and the lack of clearly defined exit
strategies.
19
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IBM
IBM
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to collaborate
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IBM
technology, networking and strategic
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(November
IBM
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initiatives
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.
IBM
Press Release (2000)
"IBM teams
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"IBM
IBM
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IBM
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Yahoo
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23
Appendix: Brief descriptions of tlie
HP
and
IBM
alliances studied
Al Hewlett Packard
Ariba Technologies, March 1999
Objective:
A
partnership for business-to-business
commerce where HP
a Web
will use Ariba's
and procurement service
for
procurement software, and the two will create and host
business suppliers and buyers called the Ariba.com Network. HP will provide hardware,
application hosting services, operations infrastructure, deployment support, and co-marketing for
the site. Partnership marks Ariba's first foray into services. Buyers can view suppliers' catalogs
online, but transactions will run
site
on Ariba's operating resource management system
(ORMS)
software.
BEA Systems, April 1999
Objective: Alliance will provide customers with a complete software infrastructure for
developing and integrating robust e-commerce applications that support e-services. The alliance
represents a $100 million commitment from HP and BEA over next three years for development,
and marketing support of integrated cross-platfonn products and solutions for enterprise
customers. Alliance provides for HP and BEA to jointly staff e-commerce solution centers
sales
throughout the world.
i2 Technologies,
July 1999
Objective: Alliance will provide an intelligent e-business portal solution for electronics
distributors that facilitates timely sharing of information within a trading
alliance extends
HP's e-services
RHYTHM exchange
to
supply chain management. The
community. This
portal leverages i2's
Services, a portfolio of applications that allow participants to share crucial
trading information, and
HP's e-speak technology.
Yahoo, August 1999
Agreement to help corporations set up portals (Corporate My Yahoo) that will
information and services from the Internet with corporate intranets. The
customized
combine
portals will provide corporate employees with a secure single point of access to internal
information - like customer records and order tracking - as well as external services such as
Objective:
customized financial news, stock tracking and travel reservations. Corporate My Yahoo
combines functionality of Yahoo interface and HP's Internet technology, including e-speak.
Nokia, September 1999
Objective: Joint development and promotion of business-critical mobile Internet solutions for
enterprises. This alliance will enable customers to access e-services over the Internet with
mobile
handheld devices, such as Nokia media phones. Under the agreement HP will resell the Nokia
WAP Server software for both HP-UX(l) and Windows NT operating systems worldwide. Also
Nokia and HP will work together to optimize the Nokia WAP Server on all HP 9000 and HP
NetServer platforms, allowing easier deployment of WAP-based e-service solutions
critical
in business-
environments.
24
Oracle, September 1999
Objective: Joint development and deployment of Oracle's
HP platform.
Oracle will
move
its
Web-based
core development platform for
all
enterprise software
on the
Internet software, including
customer relationship management (CRM) software suite, enterprise resource plarming, Ebusiness, Business OnLine and database software, to the HP-UX platform. Oracle also will
its
install
HP
servers to
power
its
Internet applications internally, with
to 50 percent of Oracle's installed base. For
Oracle's
CRM
software within
its
its
Enterprise
part
HP
HP
servers accounting for
will adopt the sales
Computing group, which has
up
component of
a sales force of
more
than 6,000 people. The companies will link their sales forces through Oracle's Field Sales
Automation software, allowing the two organizations
to collaborate
on
sales to
CRM customers.
Everypath, April 2000
Objective: Co-development and co-marketing of a
new
wireless Internet service that will
easy for companies to deliver personalized e-services to mobile-device users. The
will allow users of
at
any time
to their
new
mobile devices, such as smart phones and the Palm VII organizer,
make
it
service
to
connect
most important Web services, including e-banking, stock trading and online
e-commerce transactions directly from the device. HP will integrate
auctions, and to complete
Everypath technologies into a hosting environment, providing a turnkey wireless e-services
solution that features HP's network services, HP-UX(l) and NT computing systems, and firewall
and intrusion protection.
A2 IBM
(I), September 1998
development partnership that will bring Siebel's Enterprise Relationship
Management (ERM) solutions to IBM's DB2* Universal Database. Part of ongoing set of
initiatives between Siebel and IBM.
Siebel Systems, Inc.
Objective:
Cisco,
A
August 1999
Objective:
A
global alliance
relationship with
IBM
composed of a
$2-billion technology agreement, a strategic
Global Services, and the acquisition by Cisco of portions of IBM's
networking intellectual property. Because the firms had been competitors,
this alliance
was
by the U.S. Department of Justice for anti-competitive effects. Part
making IBM and Cisco better "corporate buddies" - approximately
one announcement per month.
investigated (and approved)
of ongoing alliance aimed
Dell,
September 1999
makes
Objective: Deal
at
IBM
Global Services a strategic provider of computer-related services
Expands the scope and formalizes existing services
agreement between the firms. Projected revenue - S6 billion over seven years. The firms are
also competitors - both firms manufacture and sell personal computers and servers. The finns
have also signed a $16 billion technology sharing agreement to give Dell access to IBM's
(installation, warranty) to Dell customers.
technology.
25
Nokia, October 1999
Objective: Accelerate the growth of the wireless Internet.
The companies
will
work
together to
WAP solutions to enable customers to immediately begin extending
eBusiness beyond the PC to a variety of mobile devices. Helps establish WAP as de facto
develop enterprise
Part of larger group of alliances with Symbian licensees. IBM has stated an
open standards and make speech a conmion interface for mobile devices.
standard.
to drive
Siebel Systems, Inc.
Objective:
A global
(II),
initiative
October 1999
strategic alliance to integrate Siebel Systems' multi-charmel
CRM software
applications with IBM's e-business capabilities. Part of ongoing set of initiatives between Siebel
and
IBM
Ariba/i2,
must be working
that indicate alliance
well.
March 2000
end open solutions for B2B eCommerce and
collaboration. The integrated solution is expected to automate all business interactions between
trading partners, delivering greater cost savings, efficiencies and competitive advantage to global
corporations and marketplaces. As part of this effort, IBM is taking a S630 million combined
Objective: Development of industry's
equity stake in Ariba and
main customer of the
Qwest,
12.
It
first
end
to
also includes a patent cross-licensing agreement.
IBM
is
the
first
alliance solution.
March 2000
A
and applications
tlirough the creation and deployment of new Qwest CyberCenters. Joint revenues of $5 billion
over seven years. IBM will be "anchor tenant", occupying up to 25% of the CyberCenters.
Objective:
3 -year initiative to deliver next generation e-business services
Mercer Management Consulting, April 2000
Objective:
build
new
A global
and small companies design, incubate, and
e-Corrmierce companies and assist
planning stage through financing, recruiting, and technology
alliance that will help both large
e-businesses. Goal
startup firms
from the
initial
implementation. Similar to a
is to
new
incubate 20-30
new
venture fund.
26
Figure
1:
Familiarity matrix for HP's e-service alliances
r
New
Venture
Joint
Venture Capital
Venture
Educational
Educational
Acquisition
Acquisition
Unfamiliar
Capital;'
EV
Market Factors
<
New
Familiar
Internal
Joint Venture,
Venture Capital
Development
Acquisition,
Educational
Acquisition/
License
Acquisition
Joint Venture
NO
V
Base
12
Interna!
Internal
Joint Venture/
Development
Development/
Strategic
Acquisition
Acquisition/
Alliance
-icense
BE
Base
OR
AR
YH
New
New
Familiar
Unfamiliar
y
Technologies and Services
AR - Ariba, BE - BEA, EV - Everypath,
YH - Yahoo
Explanation of symbols used:
NO - Nokia, OR - Oracle,
12
-
12
Technologies,
27
Figure
2:
Familiarity matrix for
IBM's
New
e-service alliances
Joint
Venture CapilaL
Venture Capital/
Venture
Educational
Educational
Acquisition
Unfamiliar
MR
SI
Market Factors
<
New
Familiar
andS2
Acquis ition
NO
Internal
Joint Venture/
Development/
Acquisition/
Venture Capital/
Educational
Acquisition/
License
Acquisition
Joint Venture
AR
Internal
Joint Venture/
Development/
Development/'
Strategic
Acquisit ion
Acquisition/'
Alliance
Intt
Base
maT
License
cs
Base
New
New
Familiar
Unfamiliar
Technologies and Services
Explanation of symbols used:
SI - Siebel
I,
S2 -
Siebel
II,
AR - Ariba/i2, CS - Cisco, DL - Dell, MR - Mercer, NO - Nokia,
QW - Qwest
28
Table
1:
Other rationales for pursuing
Reason
Follow the Herd
Description
There
where
is
so
much
the market
uncertainty and turbulence in high-tech markets that no one
is
heading.
trends seek alhances
Prestige
alliances |4]
Many
Companies
that
do not want
(many times conflicting ones)
firms, especially start-ups, use alliances as a
visibility in
today's cluttered market.
in
knows
miss out on market
order to hedge their bets.
way
to
to achieve recognition
/
Having a partnership with an industry leader
earns a firm credibility in the market.
Speed
Regulatory
Speed to market or "first-mover-advantage" is important in the new economy.
Companies with enough resources to develop capabilities in-house still choose
alliances as a means to accelerate development.
.Alliances
that pre\
can be used as a way to sidestep regulatory barriers, such as
a merger betw een firms that want to cooperate.
anti-t rust rules,
em
Barriers
"Trial
of high merger failure rates, companies sometimes pursue
more about the other party before committing for the longer term.
In light
alliances to learn
Marriages"
29
Development
Distribution
Alliance
Distribution/
s
H
2 §
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3
5
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c o
i/v
£ C
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a. "O
1^1
-Si
323
NOV
Ml
Date Due
OCT 2 7
2003
Lib-26-67
I
LioruAnico
3 9080 02246 1245