Chapter 9 Understanding Alliances and Cooperative Strategies OBJECTIVES 1 Describe why strategic alliances are important strategy vehicles 2 Explain the various forms and structures of strategic alliances 3 Describe the motivations behind alliances and show how they ve changed over time 4 Explain alliances as both business level and corporate level strategy vehicles 5 Understand the characteristics of alliances in stable and dynamic competitive contexts 6 Summarize the criteria for successful alliances 2 WHITE WAVE S STRATEGY Traditional Silk brand Packaging Small boxes Milk cartons Distribution Health and natural food stores Grocery stores Display Un refrigerated health section Refrigerated dairy milk section 3 THE WHITE WAVE DEAN ALLIANCE 15 million White Wave 35 ownership Dean Foods Leverage over retailers e g slotting fees 4 THE WHITE WAVE DEAN ALLIANCE 15 million Too low a price White Wave 35 ownership Leverage over retailers e g slotting fees We ll buy you for our pre arranged price Dean Foods We ll pay more than our agreement requires 5 BENEFITS OF STRATEGIC ALLIANCES Companies which participate most actively in alliances outperform the least active firms by 5 to 7 percent Why Share investments and rewards Reduce risk Reduce uncertainty Focus resources on what each partner does best Foster economics of scale and scope 6 ALLIANCES ARE NOT STRATEGIES IN THEMSELVES Arenas Staging Economic Logic Vehicles An alliance is one vehicle for realizing a strategy Differentiators 7 ALLIANCES INVOLVE MANY ACTIVITIES Company A R D Input Logistics Operations Company B R D Supply Production Operations R D Input Logistics Operations Production Marketing Marketing and Sales Marketing Marketing and Sales Output Logistics Delivery Output Logistics Product or Service Product or Service 8 THE USE OF ALLIANCES AS STRATEGIC VEHICLE HAS BALLOONED Alliances as percent of revenues 16 As of 2005 large MNCs have over 20 of their total assets tied up in alliances 2 1980 1995 9 ALLIANCES CAN TAKE MANY FORMS Examples of cooperative arrangements in the continuum of organizational forms Keiretsu in Japan or Chaebols in South Korea Caltrex which was jointly owned by Chevron and Texaco prior to their merger Anheuser Busch s cross ownership with Kirin in Japan and Modelo in Mexico Stand alone joint ventures like DowCorning Cross Equity partners take ownership in one party or each other Shared Equity Permanent Outsourcing Many technology Examples include standards consortia technology collaborations like the PowerPC chip between Motorola IBM and Apple Purchase agreements that are renewable annually or every several years Agreements to distribute products or services Long term Transactional Cross licensing like that between Disney and Pixar or R D partnerships like Millennium Pharmaceuticals and some of its smaller partners Simple purchase order Short term agreements on functions like for commodities someadvertising or manufacturing to achieve times called a spot efficiencies for example contract brewing of transaction Miller Beer by Anheuser Busch Level of Commitment No Linkages Beyond Transaction Information Sharing Non Equity Alliances Asset Resource and Capability Sharing Equity Alliances Source Adapted from J Harbison and P Pekar Smart Alliances A Practical Guide to Repeatable Success San Francisco Jossey Bass 1998 10 MULTI PARTY ALLIANCES 2 party alliances Multiparty alliances Example SEMATECH a consortium of semiconductor manufacturers 11 CREATING VALUE THROUGH A SET OF ALLIANCES Alsea Mexico Geographic expansion partners Westin Hotels and Resorts Coffee served throughout hotel New products marketing and sales partners Dreyer s premium coffee ice cream Starbucks Coffee Pepsico Bottled coffee beverages Barnes Noble in store stores Sazaby Japan Channel partners corporate sales United Airlines Inflight coffee Retail format partners Host Marriott Services worldwide airport kiosks Source Adapted from J D Bamford B Gomes Casseves and M S Robinson 2003 Mastering Alliance Strategy Strategy A comprehensive guide to design management and organization San Francisco John Wiley Sons p 22 12 ALLIANCES OFFER BENEFITS CONTRACTS CANNOT Joint Investment Complementary Resources Increase returns by encouraging firms to make investments that they d be otherwise unwilling to make e g Wal Mart supplier becomes willing to invest in new equipment Opportunity to create a stock of resources that is unavailable to competitors This may create a shared advantage e g Nestl and Coke combined resources to offer canned tea and coffee products Knowledge sharing Consistent informationsharing routines enhances learning e g John Deere exchanges key employees with alliance partner Hitachi Effective management Alliances may make it more cost effective to manage an activity than arm s length transactions or acquisitions 13 ALLIANCES MAY BUILD COMPETITIVE ADVANTAGE Alliances may serve to build a competitive advantage if Rivals cannot ascertain what generates the returns because of causal ambiguity surrounding the alliance Rivals can figure out what generates the returns but cannot quickly replicate the resources owing to time decompression diseconomies Rivals cannot imitate practices or investments because they are missing complementary resources they have not made the previous investments that make subsequent investments economically viable and because the current costs associated with prior investments are now prohibitive Rivals cannot find a partner with the necessary complementary strategic resources Rivals cannot access potential partners resources because they are indivisible Rivals cannot replicate a distinctive and socially complex institutional environment that has the necessary formal and informal controls that make managing alliances possible 14 MOTIVATION FOR ALLIANCES HAS CHANGED OVER TIME Product performance focus 1970s Position focus 1980s Learning and capabilities focus Post 2000 Produce with latest technology Build industry stature Ensure constant stream of new prospects with advancing technology Market beyond national borders Consolidate position Proactively maximize delivered value Sell product stressing performance Gain economies of scale and scope Optimize total cost by product customer segment Gain advantage in response to changing conditions and responsibilities Source Adapted from J Harbison and P Pekar Smart Alliances A Practical Guide to Repeatable Success San Francisco JosseyBass 1998 15 WHO MIGHT BECOME AN ALLIANCE