Chapter 9
Understanding Alliances and
Cooperative Strategies
OBJECTIVES
1 Describe why strategic alliances are important
strategy vehicles
2 Describe the motivations behind alliances and
show how they’ve changed over time
3 Explain the various forms and structures of
strategic alliances
4 Explain alliances as both business-level and
corporate-level strategy vehicles
5 Understand the characteristics of alliances in
stable and dynamic competitive contexts
6 Summarize the criteria for successful alliances
1
AN ALLIANCE THAT FITS LIKE A GLOVE
gloves
Differentiate its
product
Extend the
P&G
Magla
brand
Expand into
Mr. Clean
European markets
2
THE WHITE WAVE-DEAN ALLIANCE
$15 million
White
Wave
35% ownership
Dean
Foods
Leverage over retailers
(e.g., slotting fees)
3
BENEFITS OF STRATEGIC ALLIANCES
Companies which participate most
actively in alliances outperform the
least active firms by 5 to 7 percent
Why?
• Share investments and rewards
• Reduce risk
• Reduce uncertainty
• Focus resources on what each
partner does best
• Foster economics of scale and scope
4
ALLIANCES ARE NOT STRATEGIES IN THEMSELVES
Arenas
Staging
Economic
Logic
Vehicles
An alliance is one vehicle
for realizing a strategy
Differentiators
5
THE USE OF ALLIANCES AS STRATEGIC VEHICLE HAS BALLOONED
Alliances as percent of revenues
16%
As of 2007,
large MNCs have over 20%
of their total assets tied
up in alliances
2%
1980
1995
6
ALLIANCES OFFER BENEFITS, CONTRACTS CANNOT
Joint Investment
Complementary Resources
Increase returns by
encouraging firms to make
investments that they’d be
otherwise unwilling to make
(e.g., Wal-Mart supplier
becomes willing to invest in
new equipment)
Opportunity to create a
stock of resources that is
unavailable to competitors.
This may create a shared
advantage (e.g., Nestlé and
Coke combined resources
to offer canned tea and
coffee products
Knowledge sharing
Consistent informationsharing routines enhances
learning (e.g., John Deere
exchanges key employees
with alliance partner Hitachi)
Informal management
Alliances may make it
more cost effective to
manage an activity than
arm’s-length transactions
or acquisitions
7
ALLIANCES MAY BUILD COMPETITIVE ADVANTAGE
Alliances may serve to build a competitive advantage if
 Rivals cannot ascertain what generates the returns because of causal
ambiguity surrounding the alliance
 Rivals can figure out what generates the returns but cannot quickly
replicate 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 investments
that 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 that
make managing alliances possible
8
MOTIVATION FOR ALLIANCES HAS CHANGED OVER TIME
Product performance
focus
1970s
Position focus
1980s
Learning and
capabilities focus
Post 2000
Produce with latest
technology
Build industry stature
Ensure constant stream
of new prospects with
advancing technology
Market beyond national
borders
Consolidate position
Proactively maximize
delivered value
Sell product stressing
performance
Gain economies of scale
and scope
Optimize total cost by product/customer segment
Gain advantage in response to changing conditions and responsibilities
Source: Adapted from J. Harbison and P. Pekar, Smart Alliances: A Practical Guide to Repeatable Success (San Francisco: JosseyBass, 1998)
9
THE WAL-MART – CIFRA ALLIANCE
Knowledge of Wal-Mart’s business model
Wal-Mart
Cifra
Knowledge of the
market in Mexico
10
ALLIANCES CAN TAKE MANY FORMS
Examples of cooperative arrangements in the continuum of organizational forms
Keiretsu in Japan or
Chaebols in South
Korea
Permanent
Outsourcing
Long-term
Transactional
Level of
Commitment
Many technology
Examples include
standards consortia technology collaborations
like the PowerPC chip
between Motorola, IBM,
and Apple
Purchase agreements Agreements to
Cross-licensing like that
that are renewable
distribute products between Disney and Pixar
annually or every
or services
or R&D partnerships like
several years
Millennium Pharmaceuticals and some of its
smaller partners
Simple purchase order
Short-term agreements on functions like
for commodities, someadvertising or manufacturing to achieve
times called a spot
efficiencies – for example, contract brewing of
transaction
Miller Beer by Anheuser Busch
No Linkages Beyond
Information
Asset, Resource, and
Transaction
Sharing
Capability Sharing
Non-Equity Alliances
Anheuser-Busch’s
cross ownership with
Kirin in Japan and
Modelo in Mexico
Cross-Equity
(partners take
ownership in one
party or each other)
Caltrex, which was
jointly owned by
Chevron and
Texaco prior to their
merger.
Stand-alone joint
ventures like DowCorning.
Shared Equity
Equity Alliances
Source: Adapted from J. Harbison and P. Pekar, Smart Alliances: A Practical Guide to Repeatable Success (San Francisco: JosseyBass, 1998
11
MULTI-PARTY ALLIANCES
2 party alliances
Multiparty alliances
Example: SEMATECH, a consortium
of semiconductor manufacturers
12
WHO MIGHT BECOME AN ALLIANCE PARTNER?
Rivals
New
entrants
Complementors
Any other
organization could
become an alliance
partner
Firms
Substitutes
Suppliers
Customers
13
2 TYPES OF BUSINESS STRATEGY ALLIANCES
Examples
1 Vertical
Partner with one or more suppliers or
customers. Typically done to create more
value for the end customer and to lower total
production costs along the value chain
Timkin and
suppliers
2 Horizontal
Partner with a rival or potential competitor to
gain access to multiple segments of the
industry and reduce risk, improve efficiency,
or foster learning
Mondavi and
top foreign wine
producers
14
EXAMPLES OF NETWORKS OF BUSINESS ALLIANCES
Coopetition is essentially the notion that companies are complementors when they make markets and competitors when
they divide markets. This relationship is called a value net
Timken Co. is getting its customers to think of them as more
than simply a bearings supplier by
employing sophisticated bundling
processes to combine basic
bearings with additional
components in order to provide
companies with exactly what they
need. As a result, their bundled
products are a source of reliability
and cost reduction for their
customers like Caterpillar. Also,
Timken’s acquisitions don’t create
value simply due to added product
lines, but instead due to the greater
value added by a more complex
and tailored bundle
Your
Company
Only recently are firms
recognizing that
working
with suppliers is as
important as listening to
the customer….
Most often ignored
source of value creation
Suppliers
15
RISKS ARISING FROM ALLIANCES
Poor contract management
Failure to make complementary
resources available
Misrepresentation of resources
and capabilities
Being held hostage through
specific investments
Misappropriation of resources
and capabilities
Misunderstanding a partner’s
strategic intent
16
RISKS ARISING FROM ALLIANCES
Redhook Ale
?
Was Redhook Ale held captive by
its alliance with Anheuser Busch?
17
FIVE LEVERS FOR INCREASING THE PROBABILITY OF ALLIANCE SUCCESS
Understand the determinants of trust
Be able to manage knowledge and learning
Understand alliance evolution
Know how to measure alliance performance
Create a dedicated alliance function
18
BENEFITS OF TRUST
Trust and Competitive Advantage
Dedicated
Knowledge
Asset
Investments
Sharing
Routines
Interfirm
Trust
’
• TRUST is one party’s 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
BUT
Trust lowers transaction costs
• Search costs
• Contracting costs
AND
• Monitoring costs
• Enforcement costs
• Increases knowledge sharing
• Increases investments in dedicated
assets
19
FOUR KEY FACTORS AFFECT TRUST
Initial
conditions
Negotiation
process
Trust
Reciprocal
experiences
Outside
behavior
20
COMPONENTS OF A DEDICATED ALLIANCE FUNCTION
Alliance
business case
• Value-chain
Partner
assessment
and selection
• Partner
analysis form
screening form
• Needs-analysis
• Technology and
checklist
• Manufacturingvs.-partnering
analysis
patent-domain
maps
• Cultural-fit
evaluation form
• Due-diligence
team
Alliance
negotiation and
governance
• Negotiations
matrix
Alliance
management
• Problem-tracking
template
• Needs-vs.-wants • Trust-building
checklist
work sheet
• Alliance-contract • Alliance-contact
template
list
• Alliance-structure • Allianceguidelines
• Alliance-metrics
communication
infrastructure
Assessment
and termination
• Relationshipevaluation form
• Yearly status
report
• Termination
checklist
• Terminationplanning work
sheet
framework
21
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?
22