private sector alliances

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