STRATEGIC ALLIANCING
CRITICAL SUCCESS FACTORS
CE 726 Term Assignment
Prepared by(in alphabetical order):
Gianni Kubin – Levend Kalaç – Ovic Mbi Mabiala
OUTLINE
1. What is strategic alliance?
2. Characteristics of Strategic Alliance
3. Why Strategic Alliances are Formed?
4. Types of Strategic Alliances
5. Stages of Alliance Formation
6. Advantages and Disadvantages
7. The Critical Success Factors
1. What is strategic alliance?
• A strategic alliance is an
agreement between two
companies which join their
resources and activities in
the expectation of higher
benefit than if they were
operating alone.
• Companies who enter
strategic alliances remain
independent organizations
Definition
• A strategic alliance involves at least two
partner firms that:
• (1) remain legally independent after the
alliance is formed;
• (2) share benefits and managerial control over
the performance of assigned tasks; and
• (3) make continuing contributions in one or
more strategic areas, such as technology or
products
Evolution of Strategic Alliances
2. Characteristics of Strategic Alliances
1. Duration longer than the project
That characteristic is the one that makes the
distinction between project alliance and
strategic alliance.
Characteristics of Strategic Alliances
2. Heterogenic partners
Even though two
companies can never be
identical it is important
that companies find
partners which are
strategically as well as
culturally fit for
themselves
Characteristics of Strategic Alliances
3. Sharing rewards and
risks
When the risks are shared,
the cost of the losses
resulting from the actions of
one of the partners will be
shared equally with all the
other partners.
Characteristics of Strategic Alliances
4.
Interdependence
Characteristics of Strategic Alliances
5. Management plan
The management plan should address the
followings






Responsibilities
Decision-making
Technology
Processes
Control
Dispute resolutiın
Characteristics of Strategic Alliances
6. Leadership and Trust
The partners within the alliance should be
considered as equals and none of them should feel
in a lower level in the hierarchy or undermined in
its possibility to take initiatives.
Leadership by key individuals among the partners is
essential in order to find common values and
satisfaction in the work performed by the alliance.
Characteristics of Strategic Alliances
7. Roles and responsibilities
Roles and responsibilities should
be well detailed and the work
division as well.
Characteristics of Strategic Alliances
8. Process
 Incentives to partners who
perform better than the others
should be put into place.
 It is not always easy to define
milestones in the development
phase
3. Why Strategic Alliances are Formed?
1. Providing higher value to clients
 Strategic alliances allow companies to provide higher value
to clients since it is not common to find companies in the
construction sector which possess the qualities to meet all
the clients’ needs.
 A complex project is best
performed by a strategic alliance
of companies.
Why Strategic Alliances are formed
2. Decrease competition
 Strategic alliance is one form of competitive advantage a
contracting firm can use to be differentiated from its
competitors.
 Strategic alliances can sometimes be the only way for small
companies to stay competitive and even to survive since
the business world nowadays is technologically advanced
and constantly changing
Why Strategic Alliances are formed
3. Acquire resources
By partnering up with other companies, a firm makes
intangible investments.
Why Strategic Alliances are formed
4. Penetrating new markets
The key to a fast and successful entry to a new market for a
construction company is to partner up with another company
which is already well implemented in that market.
Why Strategic Alliances are formed
5. Access to new technologies and/or the best
quality or the lowest cost
 By forming alliances with firms which possess these
resources or technologies they are able to keep their
position in the market.
 Outsourcing is another reason for creating alliances
Why Strategic Alliances are formed
6. Reduce Risks
 Some companies may find it
very risky for them to venture
into a new market they know
little about. In such cases, two
or more companies can come
together and decide to share
the risks among all of them.
RISKS AND PROBLEMS IN STRATEGIC
ALLIANCES
1. Clash of cultures and “incompatible
personal chemistry”
 Language
 Work culture
RISKS AND PROBLEMS IN STRATEGIC
ALLIANCES
2. Lack of Trust
 Strategic alliances should be
formed in order to enhance trust
between individuals.
 It is important that in case of any
failure in the project, one party
doesn’t point his finger at another
RISKS AND PROBLEMS IN STRATEGIC
ALLIANCES
3. Lack of clear goals and objectives
 Some companies will form alliances
as a mean to tackle competitors.
 It is necessary that partners
cooperate at every level of the
operations and that managers are
familiar with the principles of
cooperation
RISKS AND PROBLEMS IN STRATEGIC
ALLIANCES
4. Lack of coordination between management
teams
 Top level management should be aware of the actions
taken by the subordinates and these actions should be
in accordance with the spirit of the top management.
 Partners should comply with the rules established
while forming the alliance and shouldn’t in any
circumstance operate on their own in a manner that
could be detrimental to the alliance.
RISKS AND PROBLEMS IN STRATEGIC
ALLIANCES
5. Differences in operating procedures and
attitudes among partners
When one company’s operating procedures impact
negatively the performance of another partner, problems
may arise
RISKS AND PROBLEMS IN STRATEGIC
ALLIANCES
6.
Relational risk
Relational risk is the risk that partners may not fully be
committed to the alliance or that they put their own
interests before the ones of the group.
RISKS AND PROBLEMS IN STRATEGIC
ALLIANCES
7. Performance risk
 Performance risk is the risk that an alliance may fail,
even though the members are fully committed to the
alliance.
 Sources of performance risk are:
• Environmental factors
• Market factors
• Internal factors
RISKS AND PROBLEMS IN STRATEGIC
ALLIANCES
8. Strategic alliances may create a future
competitor
 When companies enter into alliance, they learn from
each other
 Some partners use the alliance only to test the market
and prepare to venture into a new sector or to launch a
new subsidiary. ,
 Each company takes the risk to possibly be threatened
in its area of business in the future.
RISKS AND PROBLEMS IN STRATEGIC
ALLIANCES
8.
Other problems
 Breakdown in trust
 Change in strategy
 Value not materialized
 Cultures that did not mesh
 Systems not integrated
4. Types of Strategic Alliances
Alliances can be classified according to:
1. Their market position
2. Their organizational structure
Types of Strategic Alliances
The market position can
1. Vertical Alliances
2. Horizontal Alliances
3. Inter-sectoral Alliances
1. Vertical Alliances
• formed between organizations in different
industries
• collaboration of expertise
• offering complete solutions
2. Horizontal Alliances
• formed between organizations in same
industries
• especially common in the construction
industry
• to achieve scale, share risk, use
combination of power
3. Inter-sectoral Alliances
• formed between organizations neither in
the same industry nor related through the
vertical chain
• aim is usually to use the distribution links
or to reach the client portfolio
Types of Strategic Alliances
The organizational structure can
1.
2.
3.
4.
5.
Joint ventures
Consortia
Networks
Franchising
Licensing
1. Joint Ventures
• A legally distinct new organization is
created while partner companies remain
independent
• Shares may vary
• Aim is to have a powerful independent
body for a certain type of work
1. Joint Ventures
• Joint ventures are grouped in two types:
a. Project-based Joint Venture
b. Full-blown Joint Venture
1. Joint Ventures
a. Project-based Joint Venture
• For to carry out a specific project
• May last longer after the project if
successful and similar projects are ahead
1. Joint Ventures
b. Full-Blown Joint Venture
• expected to remain a viable entity
• requires significant resource input and
effort
2. Consortia
• Partner companies do not form a
separate entity
• Partner companies do not share the
complete responsibility of the whole
project
• Each company is responsible of what they
undertake
3. Networks
• Loose partnership without formal
agreements
• Usually appear as collaborations that
make mutual advantage
• Not common in construction sector
Other types of Strategic Alliance
• Franchising
- Using a brand name, its reputation,
its delivery channels, manufacturing
capabilities etc.
• Licensing
- Taking a right to produce a certain
product
5. Stages of Alliance Formation
1.
2.
3.
4.
5.
Strategy Development
Partner Assessment
Contract Negotiation
Alliance Operation
Alliance Termination
1. Strategy Development
• Defining scope, tasks and vision
• Deciding if an alliance is necessary
• studying the alliance’s feasibility,
objectives and rationale
• Obstacles and challenges
2. Partner Assessment
• analyzing a potential partner’s strengths
and weaknesses
• Defining how to manage an alliance with
a certain partner
• preparing appropriate partner selection
criteria
• Understanding partner’s motives for
entering to alliance
3. Contract Negotiation
• Arranging negotiation meetings
• forming capable negotiating teams
• Defining responsibilities, equities,
partnership type, penalties
• Defining how to solve possible problems
4. Alliance Operation
• A senior management team to be
established to monitor, assess and control
the operations
• linking of budgets and resources with
strategic priorities
• measuring and rewarding performance
5. Alliance Termination
• termination according to the rules
defined on the contract
• Partnership may be terminated before the
project ends if disputes can not resolve
• Sometimes alliance may continue if it is
successful
6. Advantages and Disadvantages
PARTNERSHIP
• A long term agreement
• Debts and profits shared between
partners
• Partners are responsible for the
company’s actions
• Partnership agreements cover the
termination policy of the agreement
Joint Venture
• Temporarily partnership that two companies
form to gain mutual benefits
• Companies use joint ventures to;
 speed up the expansion of the company
 to share costs, risks and rewards
gain experience from bigger and experienced
firms
• Companies enter into several different
markets
The Difference Between Partnership
and Joint Venture
Partnerships are;
Long term
agreements
Agreement
covers the
distribution of
shares,
responsibilities of
each partner
Joint Ventures are;
Short Term
agreements
Joint Venture
Agreement
outlines the
purpose of the
joint venture
Advantages of Joint Ventures
• Access to greater resources, including staff
• Allow companies to enter new geographical
markets and related businesses
• Sharing of risks with a partner firm
• Allow companies to gain new technological
knowledge
• Allow companies to gain experience
Disadvantages of Joint Ventures
• Limited timeframe: the temporary partnership
between firms is a short term agreement
therefore, there is a limited time to finish the
project and there are usually some penalties
when the project isn’t finished on time.
• Liability: partners in a joint venture have
unlimited liability for company debts and
obligations. This may cause some troubles such
as pursuing the other partner’s automobile,
home or bank account.
Disadvantages of Joint Ventures
• Profit and loss sharing: The profits earned are
shared between the partners. In other words,
the partners are equally accountable in
success and the failure of the business.
• Different objectives: It is possible that the
partners of the joint venture will have a
different goal through the joint venture.
Disadvantages of Joint Ventures
• Different cultures
and management
styles: different
cultures or
different set of
values will result
in poor
integration and
weak team spirit.
Advantages of Partnerships
• Partnerships are relatively easy to
establish
• Partnerships provide moral support
and the brainstorming among the
partners bring several different ideas
and thoughts about the upcoming
projects. Decision making may be
much easier.
Advantages of Partnerships
• Combination of complementary skills and
perspectives can be beneficial and will result
in a wider pool of knowledge, skills and
network.
• Partnerships provide greater borrowing
capacity. The expenses and debts are shared
between the partners of the firm
• The ability to raise funds may be increased
with the partnership.
Disadvantages of Partnerships
• There is also unlimited liability. All the
partners are responsible for the debts of the
company. All the partners are responsible to
clear the debts.
• There is a risk of disagreements among the
partners about the management of the firms.
Disadvantages of Partnerships
• Unexpected things can happen such as the
death of a partner. Partners are liable to one
another and the death of a partner may
terminate the company.
• Inflexibility of decisions. It is not possible to
make decisions without consulting to the
other partners.
7. Critical Success Factors
Success Rates of Strategic Alliances
• Top 500 firms in US
participated in this survey
• Not all the firms are
completely successful
• Some firms that are
completely unsuccessful
• There are trends, ways,
measurements to increase
the success rates of joint
venture firms
Success Factors of Strategic Alliances
1. Partner relationship:
how the partners get along
Respect and synergy
between partners are
important
Effective communication,
commitment and
cooperation between
partners
The degree of trust
Success Factors of Strategic Alliances
2. Host Country Factors
 Host country conditions (political risk)
 Cultural differences
 Language barriers
 Operational differences between partners
Success Factors of Strategic Alliances
3. Structural characteristic of the partner
companies
 Management control
 Ownership distributions
 Completeness of the project
4. Project related factors:




Payments by the client
Availability of resources
Technical complexity of the project
Effectiveness of the project management functions
Other Success Factors
• Management of the firm is crucial
• Employees must be motivated in order to
perform fully.
• There are several motivational factors such as;
Salary increases of the employees
Promotions
Creating the neccessary team spirit
Awarding employees will help motivate them and
the other employees
Other Success Factors
 Project manager should not favor the
employees of his or her own firm
over those of the other companies
involved in the project
 Favoritism is a very common mistake
made by managers of Joint Venture
firms.
Risk Measurement Tools
• It is important to identify the potential risks
before partnering with a firm
• Tools can be used to minimize IJV’s failure
chances by evaluating the upcoming overall
risks
Risk Measurement Tools
• Risk measurement tools are important because;
Increase the effectiveness of IJV project scheduling
Decrease the amount of uncertainty of IJV partners
about the environmental risk factors.
Break down the risks in a more systematic ways in
order to have a more effective risk assessment
Help the decision maker to minimize the chances of
failure and lead partners to meet the construction
project objectives
Factors Preventing The Success Of
Strategic Alliances
Lack of understanding between
the partners
 Cultural differences
 Language barriers
 Different structural charactiristics
of partner firms
Factors Preventing The Success Of
Strategic Alliances
 Operational difficulties due
to geographical locations
of the partner firms
 Lack of motivation and
patience among the
partners and the
employees
 Benefits lower than the
goals and the expectations
of partners
THANK YOU!
any questions?