Private Sector AlliancesBE0964 Partnership & Collaborative Working
Introduction
• Why Collaborate
• A history of partnering
• Key issues
• Examples
PartnershipsA partnership is an 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
Who Partners?
Partnerships can be
established among…
Customers
Employees
Suppliers
Potential Competitors
Increasing use of AlliancesBetween 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
Strategic AllianceStrategic PartnershipCollaboration Joint Venture
Types of Partnerships
Linan Qiu (2011)
Joint Ventures• Business agreement in 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.
Joint Venture Examples
Strategic Alliances• A co-operative arrangement
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
Strategic Alliance Examples
Main Differences
• In a joint 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.
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.
THE FIVE CRITERIA OF A “STRATEGIC” ALLIANCE
The Paradox of Competition and Co-operation
Competition Co-operation Network Level Strategy
Discrete Organisation Embedded Organisation
‘Altering the Boundary’
‘clear/sharp boundaries’ ‘fuzzy boundaries’
Negative sum game Positive sum game
What are the options 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 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
Partners goals may conflict Organisational confusion Lose control of know-how & technology
Pool resources & know-how Spread risks, capital commitment
Internal development
Mergers & Acquisitions
Alliances
Types of and Motives for Strategic AlliancesLoose (market)
relationships Contractual relationships
Formalised ownership
Formal integration
Networks Opportunistic
alliances
Subcontracting Licences and
franchises
Consortia, Joint ventures
Acquisitions and mergers
Assets managed separately by each partner
Assets managed together
Draws on Parent�s Assets
Dedicated Assets for alliance
High risk
Low Risk
Fast Change
Slow Change
Maintains risk
Dilutes Risk
Unfavourable Climate
Favourable Climate
PERMANENT ARRANGEMENT / TRANSACTION
Asset Management
Partner�s Assets
Risk of Losing Assets to Partner
Speed of market change
Spreading Financial Risk
Political Climate
FORMS OF ALLIANCES
Reasons for International Alliances
Overcome government pressures
Lower capital investment
Neutralise competition
Market access
Joint R&D
Synergy
Six Objectives of International Strategic Alliances
Framework by Stephen Preece (1995)
Learning
Leaning
Leveraging
Linking
Leaping
Locking out
Acquire needed know-how (e.g. markets, technology)
Replace value-chain activities, fill in missing firm infrastructure
Fully integrate firm operations with partner
Closer links with suppliers and customers
Pursue radically new area of endeavour
Reduce competitive pressure from non-partners
Six Objectives of International Strategic Alliances
Learning
Leaning
Leveraging
Linking
Leaping
Locking out
Positive Aspects Negative Aspects
Inexpensive and efficient acquisition
Specialisation advantages Partner dependency
New portfolio of resources Decision paralysis, evolving environment
Closer co-ordination of vertical activities Greater inflexibility in vertical relations
Expanding universe of market opportunity Cultural incompatibility
Temporary competitive disruption Static strategic position, short term advantage
Preece’s Six expanded to 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
Ingredients of Successful Alliances
Source: Hunt et al (2002)
Reasons for Failed Alliances
37%
52%
11%
Bad legal and financial terms and
conditions
Poor and damaged relationships
Poor strategy and business planning
Source: Vantage Partners
Failed AlliancesPoor choice of 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”
Simple Rules for Making 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 therelationship with
partners
managing your own internal
Source: Hughes & Weiss (2007)
Managing Alliance Relationships
Partner selection • Considering relationship and strategic ‘fit’ !Alliance structure • Building & Maintaining internal structures and
alignment !The manner in which the alliance is managed • Establishing ground rules
• Governance
This can be seen as an organisational capability (can be developed)
Dedicated alliance managers • Collaboration Skills
• Corporate collaborative ‘mindset’ (embedded organisation)
!Auditing Alliances (Evaluation) • Managing change
Alliances are like Marriages…..
The partners 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
Explaining Alliance Success: 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))
Further Reading
SeminarAnatomy of a failed alliance - Daewoo & GM
Alliances Best Practice - Cisco Systems
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