BE0964: Partnership and Collaborative Working Session 2: Private Sector Alliances

1. Private Sector Alliances
BE0964 Partnership & Collaborative Working

2. Introduction
•
Why Collaborate
•
A history of partnering
•
Key issues
•
Examples

3. Partnerships
A 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

4. Who Partners?
Suppliers
Customers
Partnerships
can be
established
among…
Potential
Competitors
Employees

5. Increasing use of Alliances
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
Linan Qiu (2011)
Collaboration
Strategic Partnership
Joint Venture
Strategic Alliance

7. 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.

8. Joint Venture Examples

9. 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

10. Strategic Alliance Examples

11. 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.

12. Strategic Alliance
THE FIVE CRITERIA 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 of Competition
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 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
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 and Motives 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
Overcome government pressures
Synergy
Lower capital
investment
Joint R&D
Neutralise
competition
Market access

17. Six Objectives of International
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 of International
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 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

20. Ingredients of Successful
Alliances
Source: Hunt et al (2002)

21. Reasons for Failed Alliances
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 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”

23. 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 the
relationship with
partners
managing your own
internal
Source: Hughes & Weiss (2007)

24. Managing Alliance Relationships
This can 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…..
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

26. Further Reading
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))

27. Seminar
Anatomy of a failed alliance - Daewoo & GM
Alliances Best Practice - Cisco Systems