Private Sector Alliances


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BE0964: Partnership and Collaborative Working

Session 2: Private Sector Alliances

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Private Sector Alliances

  1. 1. Private Sector Alliances BE0964 Partnership & Collaborative Working
  2. 2. Introduction • Why Collaborate • A history of partnering • Key issues • Examples
  3. 3. Partnerships A partnership is an arrangement in which parties agree to cooperate to advance their mutual interests “Our success has really been based on partnerships from the very beginning” Bill Gates
  4. 4. Who Partners? Suppliers Customers Partnerships can be established among… Potential Competitors Employees
  5. 5. Increasing use of Alliances Between 1996 and 1999 large firms (those with $2 billion or more in revenues) developed an average of 138 alliances. In 2000 alone, firms formed over 10,000 alliances Particular firms such as General Electric and AT&T have set up several hundred Estimated that IBM established over 1,000 alliances in the 1990s Accenture says that Fortune 500 companies have an average of 50-70 alliances each
  6. 6. Types of Partnerships Linan Qiu (2011) Collaboration Strategic Partnership Joint Venture Strategic Alliance
  7. 7. Joint Ventures • ! • ! Business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and share revenues, expenses and assets. • There are other types of companies such as JV limited by guarantee, joint ventures limited by guarantee with partners holding shares. • The venture can be for one specific project only - when the JV is referred to more correctly as a consortium (as the building of the Channel Tunnel) - or a continuing business relationship. • The consortium JV is formed where one party seeks technological expertise or technical service arrangements, franchise and brand use agreements, management contracts, rental agreements, for one-time contracts. The JV is dissolved when that goal is reached.
  8. 8. Joint Venture Examples
  9. 9. Strategic Alliances • A co-operative arrangement between two or more companies in which; • a common strategy is developed in unison and a win-win attitude is adopted by all parties; • the relationship is reciprocal, with each partner prepared to share specific strengths with the other, thus lending power to the enterprise; • a pooling of resources, investment and risks occurs for mutual gain. • falls short of forming a legal partnership
  10. 10. Strategic Alliance Examples
  11. 11. Main Differences • In a joint venture, the companies start and invest in a new company that's jointly owned by both of the parent companies ! • • A strategic alliance is a legal agreement between two or more companies to share access to their technology, trademarks or other assets ! A strategic alliance does not create a new company.
  12. 12. Strategic Alliance THE FIVE CRITERIA OF A “STRATEGIC” ALLIANCE 1. Critical to the success of a core business goal or objective. ! 2. Critical to the development or maintenance of a core competency or other source of competitive advantage. ! 3. Blocks a competitive threat. ! 4. Creates or maintains strategic choices for the firm. ! 5. Mitigates a significant risk to the business.
  13. 13. The Paradox of Competition and Co-operation Competition Network Level Strategy Co-operation Discrete Organisation Embedded Organisation ‘clear/sharp boundaries’ ‘fuzzy boundaries’ Negative sum game ‘Altering the Boundary’ Positive sum game
  14. 14. What are the options for developing resources? • • • Alliances (ranging from formal to informal – gaining access to additional resources) Mergers & Acquisitions (formal – buying in resources) Internal development (core competence – unilaterally or helped by another) Advantages Internal development Mergers & Acquisitions Alliances Disadvantages Keep Control Retain all benefits Limited to own resources Take all risks Ready made products, markets, know-how, organisation Difficult to value Difficult to integrate Pool resources & know-how Spread risks, capital commitment Partners goals may conflict Organisational confusion Lose control of know-how & technology
  15. 15. Types of and Motives for Strategic Alliances Loose (market) relationships FORMS OF ALLIANCES Contractual relationships Formalised ownership Formal integration Networks Opportunistic alliances Subcontracting Licences and franchises Consortia, Joint ventures Acquisitions and mergers Speed of market change Fast Change Slow Change Asset Management Assets managed separately by each partner Assets managed together Partner s Assets Draws on Parent s Assets Dedicated Assets for alliance Risk of Losing Assets to Partner High risk Low Risk Spreading Financial Risk Maintains risk Dilutes Risk Political Climate Unfavourable Climate Favourable Climate PERMANENT ARRANGEMENT / TRANSACTION
  16. 16. Reasons for International Alliances Overcome government pressures Synergy Lower capital investment Joint R&D Neutralise competition Market access
  17. 17. Six Objectives of International Strategic Alliances Framework by Stephen Preece (1995) Learning Acquire needed know-how (e.g. markets, technology) Leaning Replace value-chain activities, fill in missing firm infrastructure Leveraging Fully integrate firm operations with partner Linking Closer links with suppliers and customers Leaping Pursue radically new area of endeavour Locking out Reduce competitive pressure from non-partners
  18. 18. Six Objectives of International Strategic Alliances Positive Aspects Negative Aspects Inexpensive and efficient acquisition Learning Specialisation advantages Leaning Partner dependency New portfolio of resources Leveraging Decision paralysis, evolving environment Closer co-ordination of vertical activities Expanding universe of market opportunity Temporary competitive disruption Linking Leaping Locking out Greater inflexibility in vertical relations Cultural incompatibility Static strategic position, short term advantage
  19. 19. Preece’s Six expanded to nine Lending • • • Similar to ‘leaning’ but more specific Related to technology, copyright & trademarks Licensing and leasing Lumping • • • Similar to ‘leveraging’ Related specifically to economies of scale Activities need to be the same – hence between ‘insiders’ Lobbying • • • Specific to co-operation to achieve stronger position in relation to contextual actors Related to political / industrial / regulatory actors Pressure groups
  20. 20. Ingredients of Successful Alliances Source: Hunt et al (2002)
  21. 21. Reasons for Failed Alliances Bad legal and financial terms and conditions 11% Poor strategy and business planning 37% 52% Source: Vantage Partners Poor and damaged relationships
  22. 22. Failed Alliances Poor choice of partner • • • Lack of understanding of firm’s resources, alliance synergies & integration costs Trust is given too much (or too little) emphasis Limited information ! Lack of collective strengths • Complementary resources (market power, technology, other key resources) ! Inter-partner conflicts (Preferences, interests, practices) • • • • • Strategic Fit, but organisational issues ignored (e.g. management style) Organisational routines, decision making styles Opportunistic behaviours and incompatible goals Appropriation of tacit knowledge and know how Competition in the same market (business interest clash) ! Inter-dependencies • Where “A” depends on “B” but “B” does not depend on “A”
  23. 23. Simple Rules for Making Alliances Work PLACING LESS EMPHASIS ON… …AND MORE EMPHASIS ON defining the right business arrangement developing the right working relationship creating creating eliminating embracing establishing formal alliance management systems and structures enabling collaborative behaviour managing the relationship with partners managing your own internal Source: Hughes & Weiss (2007)
  24. 24. Managing Alliance Relationships This can be seen as an organisational capability (can be developed) Partner selection • Considering relationship and strategic ‘fit’ ! Alliance structure • Building & Maintaining internal structures and alignment ! Dedicated alliance managers • Collaboration Skills • Corporate collaborative ‘mindset’ (embedded organisation) ! Auditing Alliances (Evaluation) • The manner in which the alliance is managed • Establishing ground rules • Governance Managing change
  25. 25. Alliances are like Marriages….. The partners have to; • understand each other's expectations • be sensitive to each other's changes of mood • not be too surprised if their partnership ends in divorce Many companies have a sort of prenuptial contract • an agreement as to what is to happen to their joint property in the event of a subsequent divorce • Typical of a formal alliance / joint venture
  26. 26. Further Reading Explaining Alliance Success: Competences, Resources, Relational factors and Resource Advantage Theory ! Hunt, S. D., Lambe, C. J., & Wittmann, C. M. (2002). A theory and model of business alliance success. Journal of Relationship Marketing, 1(1), 17-35. ! Putting The S-Word Back In Alliances ! Mitchell P. Koza and Arie Y. Lewin (Financial Times; Nov 1, 1999) ! Trust And Control In Strategic Alliances ! David Faulkner (Financial Times; Nov 29, 1999) ! How To Make Strategic Alliances Work ! Jeffrey H. Dyer, Prashant Kale and Harbir Singh (Mit Sloan Management Review Summer 2001) ! Incorporating International Strategic Alliances into Overall Firm Strategy: A Typology of Six Managerial Objectives ! Stephen B Preece, (The International Executive; Vol 37 (3) 261-277 (May / June 1995))
  27. 27. Seminar Anatomy of a failed alliance - Daewoo & GM Alliances Best Practice - Cisco Systems