Launching a World-Class Joint Venture James Bamford, David Ernst, and David G. Fubini 11EX-013 : Bishnu Kumar HBR, 2004
JVs and alliances can delivermore shareholder value than anM&A can, but getting them off the ground can trip you up in unpredictable ways.
Joint Venture A joint venture is a business agreement in which parties agrees to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets. Basic traits of a Joint Venture: Specific Purpose Limited Time
Advantages of Joint Venture Ideal for managing risk in uncertain market Sharing the cost of large-scale capital investments Injecting newfound entrepreneurial spirit into maturing businesses
Performance of Joint Venture Wrong Strategy Incompatible Partners Inequitable or unrealistic deals Weak Management
Joint Venture Challenges • Parent companies may hold different strategic interest, which Strategy may affect the nature and degree of integration • Parents share control of the JV, which complicates the decisionGovernance making • Parents have separate reporting systems, processes and metrics • Parents provide on-going services, staffing and resources to the JVEconomics • The JV’s performance is less transparent compared to parent’s • Parents must manage the cultural differences, as well as conflictingOrganization incentives and career paths
Joint Venture Challenges Resolving Strategic Conflicts Up Front Develop a VC-quality business plan Act quickly to manage inevitable setbacks
Joint Venture ChallengesLoose-Tight Governance Approach The partners identify the venture’s most important governance processes like setting strategy, allocating resources etc. and designate the appropriate degree of parental involvement.
Joint Venture ChallengesActive roles of JV Board : Capital Allocation Risk Management Performance Management
Joint Venture ChallengesManaging the Interdependency Dedicate resource to resolve interdependencies up-front Challenge and limit interdependencies
Keys to Successful Launch • Align the parent’s interests around the JVs objectives up-front Strategy • Specify first year goals for the JV • Apply loose tight governanceGovernance • Create clear protocols for decision making • Specify the services that parents will provide, and its transfer pricingEconomics • Establish good risk and performance management system • Secure commitment from key staffs. Especially from parent companyOrganization • Create a compelling value proposition for JV employees
Building the Organization • Independent Organizational • Dependent Model • Interdependent Commitment from parent company • Skill transfer from parent companies staff Make people join • Compelling Value Proposition the team • Motivational Leader
Thank You !!! “If you get launch right, the rest almost takes care of itself.”