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Private Sector Alliances
This document discusses private sector alliances and partnerships. It begins by explaining why companies collaborate and providing examples of partnerships. It then distinguishes between different types of partnerships like strategic partnerships, joint ventures, and strategic alliances. Joint ventures involve establishing a new jointly-owned entity, while strategic alliances involve a legal agreement to share resources without creating a new company. The document also notes that alliances have increased significantly in recent decades. Successful alliances require compatible goals, complementary resources, and effective relationship management, while failed alliances can result from issues like incompatible cultures or power imbalances between partners.
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Private Sector Alliances
- 1. Private Sector Alliances BE0964Partnership & Collaborative Working
- 2. Introduction • Why Collaborate • A historyof partnering • Key issues • Examples
- 3. Partnerships A partnership isan 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
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- 5. Increasing use ofAlliances 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. Types of Partnerships LinanQiu (2011) Collaboration Strategic Partnership Joint Venture Strategic Alliance
- 7. Joint Ventures • ! • ! Business agreementin 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.
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- 9. Strategic Alliances • A co-operativearrangement 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
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- 11. Main Differences • In ajoint 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. Strategic Alliance THE FIVECRITERIA 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. The Paradox ofCompetition 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. What are theoptions 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. Types of andMotives 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. Reasons for International Alliances Overcomegovernment pressures Synergy Lower capital investment Joint R&D Neutralise competition Market access
- 17. Six Objectives ofInternational 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. Six Objectives ofInternational 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. Preece’s Six expandedto 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. Ingredients of Successful Alliances Source:Hunt et al (2002)
- 21. Reasons for FailedAlliances Bad legal and financial terms and conditions 11% Poor strategy and business planning 37% 52% Source: Vantage Partners Poor and damaged relationships
- 22. Failed Alliances Poor choiceof 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. Simple Rules forMaking 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. Managing Alliance Relationships Thiscan 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. Alliances are like Marriages….. Thepartners 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. Further Reading Explaining AllianceSuccess: 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. Seminar Anatomy of afailed alliance - Daewoo & GM Alliances Best Practice - Cisco Systems