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The ABC Philosophy & Approach to Strategic Alliances


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The ABC Philosophy & Approach to Strategic Alliances

  1. 1. The ABC Philosophy & Approach to Strategic Alliances • A massive economic transformation has changed the way companies operate in business: the Internet Revolution--Mass Technology Adoption. • Today it is more important than ever to link up with the right partners in order… o to cope with complexity, o to create higher value to customers and o to deal with high-speed product developments. • Alliances nowadays play a strategic role in the Internet’s business environment. It is clear that the arena of alliances and networks is a very ambiguous, fluid one. Many companies struggle to find the right strategic position in the network economy. They discover that forging an alliance is far more than managing a bilateral relationship. • Alliances tend to deal with a multitude of projects, and companies co-operate with a multitude of partners. These partners can even be (potential) competitors or companies from very different industries. • Operating in today's network economy brings many new challenges. ABC believes that the profound developments in the last decade have overthrown traditional thinking about alliances. Successful partnering demands new concepts, not only for selection processes, but also on how to build effective relationships. • Traditional partner selection will be replaced by an ongoing management approach to (portfolios of) partnerships.
  2. 2. Traditional partner selection • The common mindset about partnering is characterized by striving for a strategic business fit between the partners involved. In teaming up with prospective partners, they focus on the issue: Does this potential partner provide a good strategic fit to enhance my performance in reaching my business objectives? • From a traditional perspective, this question is answered by assessing the complementarity of each partner's strengths and weaknesses. • This traditional perspective is true and at the same time it's not. It's true because there seems to be little sense in teaming up with partners while there is no shared goal for the alliance, or when there is no strategic fit between partners. It's not true because the partner selection process needs more than just a strategic assessment. Strategic fit may be one of the basic requirements, but ABC believes there is way more than that. • Both market research and experience with various companies reveals that many alliances are still based on simple recipes. Partners usually assess whether there are complementary skills, whether there are opportunities for them to gain access to new markets, and whether there are benefits to be obtained from an economy of scale. But, compared to this managerial focus on partner selection criteria, only little attention is given to the actual collaboration with your partner: the partnership. • This approach to partnering often leads to disappointing results. The failure rate of strategic alliances amounts to 60 to 70%. (BCG 1998)
  3. 3. Traditional approaches and their imperfections : Major Problem Areas • Unclear view of the partner's business attitude and methods of operation Alliances operate in a turbulent environment. Uncertainties arise when there is no clear idea about a partner's reaction to unexpected turbulence. Will he back away easily? Or will he go the extra mile to fuel the spirit of the partnership? • The difference between compliance and commitment Compliance with contracts does not necessarily mean commitment to the objectives of a partnership. Real commitment does not originate in contracts. It does originate in close co-operation between people with shared objectives, a clear understanding of the potential benefits and mutual respect. • Companies are unable to share and incorporate knowledge The ability to learn from others is determined by the characteristics of all partners. A company cannot use the information and knowledge from partners in their own innovative processes if its own knowledge management is non-existent. • Specific nature of alliances hampers the building of trust Partners often try to stick to their exclusive position. They're afraid of partners being a potential competitor and therefore act reserved in giving insight in their strategic intent and core capabilities. • No adequate balance of power Changes in strategic positions of partners - for instance due to being a member of multiple networks -will consequently have impact on the attractiveness of the alliance and therefore influence the power balance.
  4. 4. The evolution in ABC partnering: Balancing in a complex multitude Complexity requires change in ABC traditional partnering approach: increased complexity in business networks, increased complexity in technology, increased complexity in strategy. The scope: From peripheral activities towards strategic partnerships • For ABC, alliances have become more central to firm strategy. In the past, ABC often focused on mergers and acquisitions to harness and grow its own core business. • Strategic alliances were mainly used to strengthen or outsource non-core business activities. • Nowadays we see the use of strategic alliances (technology agreements, joint ventures) in the fields of creating fundamentally new technology or gaining access to new markets. • ABC puts alliance activities at the heart of its growth strategy: forming an excellent network of alliances being a cornerstone of its strategy. This shift in strategic focus requires a well-balanced alliance strategy, because these partnerships will define our future business performance.
  5. 5. The goals: From pre-set objectives towards innovating in dynamic uncertainties • ABC is faced with great external turbulence in the technology race, and it is preparing itself by partnering. • ICANSI reveals that the number of technology alliances is increasing dramatically. • ABC is committed to and prepared for innovation by sharing intellectual assets. • ABC recognizes that knowledge alliances can be of great use in cutting the leading edge of technology and shaping the marketplace. • The main goal of these knowledge-intensive alliances is to swap knowledge for tangible assets or to swap knowledge for other knowledge. • These alliances give Alliance Partners the opportunity of jointly develop innovative products/services by means of complementary competencies. • The typical aspect of this type of alliance is that it is hard to establish clear targets, to assess the real value of a partner's contribution, and to monitor the actual value creation. But, any thing worth doing is worth measuring, hence managing. • The major challenge is to build a solid network of relations that will enable ABC to reap quickly the fruits of new strategic opportunities.
  6. 6. The number: From bilateral co-operation to an ambiguous multiplicity • A paradigm shift is underway: One-to-one partnering has shifted towards managing a complex network of multiple alliances. • Bilateral Partnering made the aligning strategies, setting goals and controlling performance easier. • Nowadays, it's not unusual that alliances involve 2, 5 or maybe even 10 different partners. • Where multiple partners co-operate, setting a joint strategy is far more complex. • The risk of divergence is greater and the network is highly sensitive since there are many interdependencies between partners. • This web of other relationships influences the bilateral alliance. Any new alliance by partner A can trigger unforeseen operational or strategic interdependencies with partner B. • And a bilateral alliance does not necessarily mean that there's only one subject of the alliance. The interface between partners will evolve during time, which makes it complex to manage.
  7. 7. The competition: From one-to-one competition towards network competition • In today's networks of alliances, there is a clear field of tension between competition and co-operation. • Today's partners can turn out to be tomorrow's competitors. • Today, about half of all alliances are undertaken with competitors. • The profound shift is that competition between networks of alliances is emerging: in the past, companies were aware of their direct competitors; nowadays they start to shape networks with competitors that compete with other similar networks. • By joining forces in such clusters, they can bring higher value to their clients and preclude the entry of competitors.
  8. 8. The duration: From long term co-operation towards fit for use • In the ABC approach to partnering there's a need to distinguish between 'elephants' and ‘fruit flies'. • This means the need to clarify the difference between key strategic partners and partnerships that only serve narrow objectives for short-term results. • The elephant partnerships are relationships in which partners have earned respect and given trust in previous projects. • Having established a level of comfort between the partners, these relationships give partners the possibility to start new projects rapidly without extensive negotiations beforehand. • The partnering approach to elephants requires extensive communication about the business vision. The focus is on strategic objectives, the prospective evolution of the client needs and the matching of product or service offerings. • The objective of these types of relationships is to create a future marketplace and sustainable business success for all partners involved. • The fruit fly partnerships deliver specific parts or services needed, based on clear specifications. • There is no direct need for establishing a shared business vision with partners involved. • Relationship building will be focused on maintaining effective relationships to support current business transactions.
  9. 9. ABC’s Business Development Program goes beyond traditional approaches • Business Development focuses balanced attention on 1) strategic (re) positioning, 2) establishing adequate alliance capabilities, 3) building business communities with partners and 4) determining tight fitting partner profiles.