Discussion of Strategic Alliances, case studies.

1. Strategic Alliances: C5 Accelerator 15 Jul 2020
seb@batescainelli.com
@batescainelli
+1 703-608-4753

2. Mature markets: For your consideration
The more mature the market, the more
mature the market’s value chain, the
more entrenched value chain participants
become, the more specialized their
participation becomes, the more
important relationships within the value
chain become.
1

3. Conversely…on newer markets
The newer the market, the more
speculative investments become and the
more important relationships are within
the value chain become to share the risk
and reward of successful innovation.
2

4. 3
Strategy
Constellations
Joint Ventures
Legal Entities
Partnerships
Alliances
Mergers
Acquisitions
Entrepreneurship
Partner vs. Buy vs. Build
Term Sheets
Reverse Termination Fees
PIK Interest
Venture Capital
Valuation
Finance Models
Growth
Tradeoffs
Risk Management
Centralization vs. Decentralization
Control
Mezzanine Financing
Shareholder Value
Game Theory
Industrial Organization
Exit Strategies
Profitability
Comparative Advantage
Collusion
Transactions
Negotiation
Specialization Innovation
Partner Assessment
Value Creation
Value Capture
Convertible Note
SPACs and Blank Check Co

5. Discussion points
•Strategy: How alliances reshape competition
•Lifecycle of strategic alliances
•Sectors and Verticals:
– business partnerships
– strategic alliances
– joint ventures
– mergers and acquisitions
• Case Studies: Wins and Fails
• Success Factors
4

6. How Alliances Reshape Competition
One player Few players Many players
Structure of the market
Structure of
players in
the market
Single Firm
Multi-firm
constellations
Industry
Cartel
Traditional
Monopoly
Traditional
Oligopoly
Traditional
Perfect
Competition
Collective
Competition

7. How Alliances Reshape Competition
6
Traditional Competition Collective Competition
Competitive units Firms Constellations
Industry structure Oligopoly of firms Oligopoly of constellations
Source of competition Firm-based advantage Group-based advantage
Valuable resources Controlled by the firm Assembled by constellation
Governance of
resources
Corporate structure Constellation structure
Source of profit Rent in the value chain Rent in the constellation

8. How Alliances Reshape Competition
•Affiliations form as a result of the tradeoffs between
the ‘need for resources’ and ‘need for control’
•Traditional competitive research has focused on the
firm and the market
– Perfect competition, oligopoly, monopoly
•Recent findings are moving scholarship toward
researching pairs or groups of affiliated firms
* Prof Scott Galloway (NYU) doing yeoman’s work on researching
brands and competitive partnerships/rundles with T algorithm

9. How Alliances Reshape Competition
•An ‘alliance’ is any governance structure to manage
an incomplete contract between separate firms and
in which each partner has limited control… more or
less formal
•Constellation is a set of firms linked together through
such alliances and that competes in a competitive
domain, that is, is a particular business, market or
technology
– Constellations may be viewed as an alternative way to
govern a bundle of capabilities across firms

10. Why Cooperate?
9
Knowledge Markets
Efficiency
Value Gaps
Research & Development
Complementary Technology
Intellectual Property
Market Knowledge
Market Reach
Customer Base
Expressed Customer Needs
One-stop Solution
Specialization
Non-core Functions
Scalability

11. Where might you cooperate?
10
Design Purchasing Production Marketing Distribution
Research
Contract
Joint
Research
Procurement
Contract
Engineering
Contract
Subcontract/
Bundling
Manufacturing
Agreements
Expertise
Contract
Patent
License
Trademark
License
Joint
Marketing
Distribution
Agreements

12. Lifecycle of Strategic Alliances
Strategy
Partner
Selection
Value
Creation
Design/
Negotiation
Structure/
Governance
Implementation
Dissolution/
Enhancement
11

13. Sectors and verticals
•Political alliances
•Technology alliances
•Regional alliances
•Distributorship alliances
12

14. Wins and Fails
Wins
• Barnes & Noble/Starbucks
• Uber/Spotify
• Ford/Eddie Bauer
• Avanade: MSFT/Anderson
• Apple/ GoldmanSachs
• NATO/29 nations
Fails
• AOL/TimeWarner
• Staples/OfficeDepot
• Apple U2
13

15. Case study: Avanade
•Largest ERPs: SAP/Oracle/IBM-Sun/Cisco/EMC/EDS
•2000 MSFT – Anderson Consulting (now Accenture)
former Joint Venture
• Global delivery network for MSFT enterprise solutions
• Now wholly owned subsidiary of Accenture
• $2B in revenues (20% YoY growth), 30,000
employees, 1,200 current clients
14
Source: https://www.avanade.com/en-us/about-avanade/fast-facts

16. Case study: AOL/TimeWarner
• 2000: AOL “acquires” TimeWarner $164B
• 2002: AOL writes down $99B of ”goodwill”
• multiple spinoffs, divestitures (cable, music,
DirectTV)
• 2015: Verizon acquires AOL
• 2017: ATT acquires TimeWarner
which includes CNN, HBO
15
WSJ: https://www.wsj.com/articles/SB1043702683178461304

17. Case study: Apple
• 1997: Microsoft Office 5 years (win)
• 2003: iTunes Store: EMI, Universal, Warner, Sony,
and Bertelsmann (win)
• 2014: U2 Songs of Innocence (fail)
• 2019: GoldmanSachs Apple MasterCard (likely win)
16

18. Case study: NATO (political alliance)
• Most successful and complex
strategic alliance since 1949
• From 12 to 30 nations, formal
structure, French or English
• Negotiated commitments,
funding, regular Summits,
training exercises, embeds
17
Source: What is NATO https://www.youtube.com/watch?v=snXhtOpSXtI

19. Why Alliances Fail
• Small map, large hands – lack of meaningful metrics
• ”Down with OPP” (Other People’s Money) is no
substitute for the nug work of strategy analysis,
market research and COA development
• Lack of transparency, trust, time, personal chemistry
18
Source: 1991 https://www.songfacts.com/facts/naughty-by-nature/opp#
TECHNOLOGY NEWS
FEBRUARY 1, 2008 / 6:43 AM / 12 YEARS AGO

20. Why Alliances Succeed
• WACC: Cognizant acknowledgment of Make/Buy
• Subjective: culture fit -- personal rapport
• Treating Partners Like Customers: not an additional
duty
• SMART: Specific Measurable Attainable Relevant
Timebound
• Soft skills: Critical thinking, creativity, EQ,
negotiation, asynchronous communciations
19

21. PWC: Seven Factors For Success
20

22. Best Practices
•Alliance development and management first requires
a clear definition of organizational strategy
•Make/Buy or….Partner
– Alliances work best for geographic expansion and new
market entry
– Acquisitions are more effective in core business areas or
highly competitive markets
•What are the real (activity based) costs of Alliances?
•Are we (middle/upper management) Alliance friendly?
21

23. Sources:
• CMO Council: Strategic Value of Business Alliances
• PWC: 2019 CEO Survey
• Deloitte: CIO Journal
• CNAS: Forging An Alliance Innovation Base report
• Forbes, WSJ, Financial Times,
• World Economic Forum: Future of Jobs report
• MBA curriculums: HBS, Villanova, LSE, NYU
22

24. THANK YOU!!!
seb@batescainelli.com
@batescainelli (prof/finance) @batess (snark/politics)
+1 703-608-4753