professor jeff dyer byu, marriott school agenda n creating value through horizontal alliances n...

Professor Jeff Dyer BYU, Marriott School

AGENDA

CREATING VALUE THROUGH HORIZONTAL ALLIANCES

CREATING VALUE THROUGH VERTICAL ALLIANCES

Professor Jeff Dyer

BYU, Marriott School

Strategic Alliances

Based on: Yoshino and Rangan, 1995

The Scope of Inter-corporate Linkages

Contractual Agreements Equity Arrangements

Traditional Nontraditional No New Firm Creation of Entity DissolutionContracts Contracts of Entity

Arm’s-length Joint Research Minority NonsubsidiaryJV Mergers and Buy/Sell Equity JVs Subsidiaries Acquisitions Contracts Investments of MNCs

Franchising Joint Product Equity Fifty-fifty Development Swaps Joint Ventures

Licensing Long-term Unequal Sourcing Equity Agreements Joint

Ventures Cross- Joint Manufacturing licensing

Joint Marketing

Shared Distribution/ Service

Standard Setting/ Research Consortia


Alliances-Alliances-How far have we come?How far have we come?

“Alliances are mere transitional devices and because of this they are destined to fail”

Michael Porter

“Many so-called alliances between Western companies and their Asian rivals are little more than sophisticated outsourcing arrangements -- the traffic is almost entirely one way”

Hamel, Doz, and Prahalad

“Avoid alliances like the plague.”Reich and Mankin


Alliances Growing as a Source of RevenueAlliances Growing as a Source of RevenueAlliances as a Percentage of Revenue forTop 1,000 U.S. Public Corporations

Source: Columbia University, European Trade Commission, Studies by BA&H, AC.1983-1987, 1988-1993, 1994-1996, 1999

0%

5%

10%

15%

20%

25%

30%

1980 1985 1990 1995 1998


Total business conducted Total business conducted through alliancesthrough alliances

20%

30%

40%

0%

10%

20%

30%

40%

50%

2000 2005 2010

Source: EIU Global Executive SurveyAndersen Consulting, Warren Company

3-5%

1990

Why Seek a Partner?

Reduce Risks– Size or Uncertainty

Associated with Project– Preempt Competitors– Flexibility/Option Value

Gain Efficiency– Economies of Scale and/or

Scope– Speed to Market

Access Complementary Skills

– New market entry; synergy-sensitive skills

Learning– Acquire New Skills– Gain Market Knowledge

and Experience– Monitor Competition

Politics– Sensitive Industries– Regulations– Market Access

Professor Jeff Dyer

BYU, Marriott School

Objectives of Horizontal Alliances

Reduce Risks– E.g., Oil Drilling JVs (spread risk and cost of drilling)

Gain Efficiency– E.g.., McDonalds and Disney (share advertising costs)

Learning (Development & Innovation)– E.g.,; Autobody and Composites Consortiums (GM, Ford,

Chrysler); Fuji-Xerox Access Complementary Skills

– E.g., Apple-Sony partnership to develop Powerbook; Politics

– E.g.,: Otis-Tianjin JV in China (Otis allowed to enter China)

But There are Costs in Collaboration

Coordination Costs– Management Time– Redundant Structures– Communication Programs– Control Systems

Loss of Competitive Position– Leakage of Knowledge– Reduced Flexibility– Create a Potential Competitor

Exposure– Loss of Bargaining Power with Others– Lower Market Valuation due to Loss of Control Premium


Challenges for Horizontal Alliances

Leveraging each partner’s resources while protecting proprietary know-how; many horizontal alliances are inherently learning races.

Building trust with potential competitors; simultaneously cooperating and competing (Co-opetition)

Less ability to “control” partner decisions (relative to supplier alliances).


Favorable Conditions for Horizontal Alliances

The partner’s strategic goals converge while their competitive goals diverge.

– (e.g., Philips and Du Pont collaborate to mfg. compact disks; neither invades the other’s market)

The size, market power, and skills/resources of partners is modest compared with industry leaders; an attempt to catch up.

– (e.g., Japanese chipmakers collaborate to develop chips; U.S. automakers collaborate on autobody and battery technology).

Each partner believes it can learn from the other and at the same time limit access to proprietary skills

– (e.g., Xerox and Fuji alliance; Xerox gets access to Japanese market and technology in Japan; Fuji participates in copier business; Fuji believes it can protect film business while Xerox believes it can protect worldwide copier business)


The Logic for Joint Ventures

Alliance objective is characterized by a high degree of uncertainty, such as R&D alliances (need incentives to bring best technology)

Desire to create a “new culture” (resources, processes, values) that fit the new opportunity.

Desire to limit liability of parent companies. Superior way to measure alliance

performance (separate P&L)


Identify Partners with:– Strategic Fit: Compatible resources, assets, and capabilities– Cultural Fit: Compatible cultures and work processes

Establish clear performance objectives & monitor performance– for the alliance and requirements for each partner; make technology

transfer dependent on meeting performance requirements Develop plan to learn from partners

– Invest in absorbing key skills/technology from partners while protecting protect proprietary knowledge/skills as much as possible.

Use appropriate “governance” mechanisms– Build trust and align the incentives of partnering firms (e.g., joint stock

ownership is superior to legal contracts for eliciting knowledge transfer). Create a “Strategic Alliance” function in your firm

– Assign responsibility to acquire and codify knowledge with regard to effective alliance management practices.

Keys to Horizontal Alliance Success


Str

ate

gic

Fit

Organization/Cultural Fit

Hig

hL

ow

Low High

OptimalStrategicAllianceSolution

Compatibilitybut few

Synergies

Good CommercialCompatibility butOrganizational

IntegrationDifficult

NoRedeeming

Value

HOWEVER,Remember

that it is the differences between the organizations

that drive the formationof the alliance

The Importance of Strategic and Cultural Fit

professor jeff dyer byu, marriott school agenda n creating value through horizontal alliances n...

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