strategic alliances a practitioners approach
TRANSCRIPT
1
Strategic Alliances
A Practitioner’s Approach
University of Miami Graduate Program
School of Business Administration
2
SELECT PREFERRED
COURSE
IDENTIFY AND
SELECTPARTNER
STRUCTURE AND NEGOTIATE
DEAL
PLAN IMPLEMEN-
TATIONEXECUTE
STRATEGICPLANNING ALLIANCE PLANNING AND EXECUTION
1 2 3 4 5
FRAMEWORK FOR NEGOTIATING, DEVELOPING AND MANAGING A STRATEGIC ALLIANCE
The process consists of five phases:
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WHAT IS STRATEGY ?
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WHAT IS STRATEGY ?
• Word is derived from the Greek word “strategus” : art of the general
• Strategy is the pattern of major objectives and goals, and the essential policies and plans for achieving these goals
• Strategy is the match between the organization and the environment
• Strategy is an integrated set of actions aimed at securing competitive advantage
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WHY IS STRATEGY IMPORTANT?STRATEGIC PLANNING
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“ Would you tell me please, which way I ought to go from here?”
“ That depends good deal on where you want to go ’’ said the Cat
“ I do not much care”, said Alice
“ Then it does not matter which way you go”, said the Cat
“ …so long as I get somewhere”, Alice added as an explanation
“ Oh, you are sure to do that” said the Cat, “if you only walk long enough”
Lewis Carroll Alice in Wonderland
WHY IS STRATEGY IMPORTANT?STRATEGIC PLANNING
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WHAT IS STRATEGY?
WHAT IS TACTICS ?
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WHAT IS STRATEGY? WHAT IS TACTICS ?
Strategy is knowing what to do when there is nothing to do.
Tactics is knowing what to do when there is something to do.
Savielly Tarakover Polish Chess Grand Master
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STRATEGICPLANNING
Critical issues include:
• Understanding of business goals
SELECT THE PREFERRED COURSE
10
STRATEGICPLANNING
Critical issues include:
• Understanding of business goals
• Assessing the competitive environment
SELECT THE PREFERRED COURSE
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Assessing the Competitive EnvironmentIndustry Structure – Porter’s Five Forces
Potential Entrants
Substitutes
CustomersIndustry Competitors
Suppliers
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Assessing the Competitive EnvironmentIndustry Structure – Porter’s Five Forces
Potential Entrants
Substitutes
CustomersIndustry Competitors
Suppliers
Globalization Trade Agreements
Political Economy
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Industry Structure – Porter’s Five Forces
Potential Entrants
Substitutes
CustomersIndustryCompetitors
Suppliers
Globalization Trade Agreements
Political Economy
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High
VOLATILITY
Low
Low
IMPACT ON BUSINESS
High
Industry Structure – Not All Forces are Equal
Exit
Globalization
Suppliers
Competition
Example
New Entrants
Technology
Product Substitution
Customers
PoliticalEconomy
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Our Industry
Clients’ served industries
Our Suppliers’ Industries
E Commerce
Technology
Must understand the structure of ALL industries that are your suppliers and/or your customers… now and future!
Potential Competitors?Mostly outsiders looking in
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Strategic DriversImpact
VolatilityTiming5 years
Example
High
High
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Strategic DriversImpact
VolatilityTiming5 years
Customers
Example
High
High
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Strategic DriversImpact
VolatilityTiming5 years
Suppliers
Customers
Example
High
High
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STRATEGICPLANNING
Critical issues include:
• Understanding of business goals
• Assessing the competitive environment
• Identifying and evaluating expansion alternatives– Expansion Matrix: Mode and direction
SELECT THE PREFERRED COURSE
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CORPORATE EXPANSION MATRIXSTRATEGIC PLANNING
SAME BUSINESS
NEW MARKETSIN NEW REGIONS
VERTICAL INTEGRATION
RELATEDBUSINESS
UNRELATED BUSINESS
Mode
Direction
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CORPORATE EXPANSION MATRIXSTRATEGIC PLANING
SAME BUSINESS
NEW MARKETSIN NEW REGIONS
VERTICAL INTEGRATION
RELATEDBUSINESS
UNRELATED BUSINESS
CONSOLIDATION
GLOBALIZATION
COMPETITIVE STRATEGY
SYNERGY
CONGLOMERATE
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INTERNAL DEVELOPMENT
STRATEGIC ALLIANCES
MERGERS ANDACQUISITION
CORPORATE EXPANSION MATRIXSTRATEGICPLANNING
SAME BUSINESS
NEW MARKETSIN NEW REGIONS
VERTICAL INTEGRATION
RELATEDBUSINESS
UNRELATED BUSINESS
CONSOLIDATION
GLOBALIZATION
COMPETITIVE STRATEGY
SYNERGY
CONGLOMERATE
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SELECT THE PREFERRED COURSESTRATEGICPLANNING
Why is it important to select the right type of alternative?
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SELECT THE PREFERRED COURSESTRATEGICPLANNING
Why is it important to select the right type of alternative?
– Wide spectrum of possible strategic options– High rate of failure
JointVentureMergers
&Acquisitions
RelationshipInvestments,Licensing
> 50% < 50%
Decreasing Control / Commitment
Increasing Investment
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CO
MM
ITM
EN
T
PE
RM
AN
EN
TL
ON
GT
ER
M
TR
AN
SA
CT
ION
AL
No linkage Shared Resource
SharedFunding
CrossEquity
Shared Equity
WhollyOwned
OWNERSHIP
“How do you successfully manage this new entity and maximize value creation for your shareholders?”
STRATEGICPLANNING SELECT THE PREFERRED COURSE
Source: Booz Allen
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STRATEGICPLANNING
Critical issues include:
• Understanding of business goals
• Assessing the competitive environment
• Identifying and evaluating expansion alternatives
• Selecting the preferred growth course:– Acquisition– Internal Development– Strategic Alliances
• Establishing contingency plan
• Assessing the risks
SELECT THE PREFERRED COURSE
27
WHAT IS A STRATEGIC ALLIANCE?STRATEGIC PLANNING
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“ In a strategic alliance, firms cooperate out of mutual need and share the risks to reach a common objective. ”
Jordan D. Lewis Partnerships for Profit Free Press, 1990
“ A cooperative arrangement between two or more companies where:
- 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 each other, thus lending power to the enterprise.
- A pooling of resources, investments and risks occurs for mutual (rather than individual) gain.”
Booz-Allen & Hamilton
WHAT IS A STRATEGIC ALLIANCE?STRATEGIC PLANNING
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STRATEGICPLANNING
What are the advantages in forming strategic alliances?
SELECT THE PREFERRED COURSE
30
STRATEGICPLANNING
ADVANTAGES IN FORMING STRATEGIC ALLIANCE
1. Offers multinational access to resources
(e.g. products, technologies, personnel, market access)
2. Permits economies of scale through sharing or concentration of resources or facilities
(e.g. manufacturing) across all alliance partners
3. Shares risk, such as in joint R&D programs that
reduce the expenditure required by each firm
individually
4. Blocks or co-opts competition
(e.g. through defensive or offensive alliances)
5. Overcomes trade barriers
(e.g. in developing countries or nationally protected industries)
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STRATEGICPLANNING
What are the risks in forming strategic alliances?
SELECT THE PREFERRED COURSE
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1. Creates a competitor, by transferring knowledge or market access to the partner
2. Inhibits integration of local operations into the global strategy, and limits internal development of key resources for global operations
3. Raises organizational and commercial risks (e.g. differences in culture may prove to be disruptive and costly; alliance may be detrimental for industry structure and profitability)
4. Reduces autonomy and strategic / competitive flexibility
5. Consumes significant proportion of management time and attention
RISKS IN FORMING STRATEGIC ALLIANCES
STRATEGICPLANNING
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STRATEGICPLANNING
How do you minimize the risk of failure?
SELECT THE PREFERRED COURSE
34
STRATEGICPLANNING
How do you minimize the risk of failure?
By addressing the two most frequent types of failure:
1. LOGIC … “It looked like a good idea, but it was not.”
2. PROCESS … “It was a good idea, but it did not work.”
SELECT THE PREFERRED COURSE
35
SELECT PREFERRED
COURSE
IDENTIFY AND
SELECTPARTNER
STRUCTURE AND NEGOTIATE
DEAL
PLAN IMPLEMEN-
TATIONEXECUTE
STRATEGICPLANNING ALLIANCE PLANNING AND EXECUTION
1 2 3 4 5
FRAMEWORK FOR NEGOTIATING, DEVELOPING AND MANAGING A STRATEGIC ALLIANCE
The process consists of five phases:
36
What would you look for in your partners?
IDENTIFY &SELECT
PARTNER
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1. COMPATIBILITY ...in strategic objectives,technology,values,
management philosophies and beliefs
2. COMMITMENT ...to high safety, industrial hygiene, environmental and ethical standards. And,
a long-term commitment to the relationship
3. TRUST ...in every aspect of the relationship. Trust must be balanced with self-interest. Know each other’s goals and be sure both can
succeed
4. COMMUNICATION ...frequent, open and informal to avoid potential conflicts
5. ACTION ORIENTED ... nature of relationship requires prompt
and decisive actions
6. STRONG REPUTATION ... solid corporate image, record, financial
resources and strength
IDENTIFY &SELECT
PARTNERSIX GOLDEN RULES
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Complementary
Unrelated orSimilar
Resources,Technologiesand staff
Similar Different
Cultures/Values
FailureSuccess
Failure Failure
Based on our experience, strategic and cultural compatibility are critical for success
IDENTIFY &SELECT
PARTNER
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WHAT IS CULTURE ?IDENTIFY &
SELECT PARTNER
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WHAT IS CULTURE ?IDENTIFY &
SELECT PARTNER
•The sum total of known written and unwritten dynamic beliefs, rituals, rules, regulations, policies, procedures, institutions and artifacts that characterize human populations.
• In essence,•Culture is learned, it is not innate.•Various aspects of culture are interrelated.•Culture is shared.•Culture defines the boundaries of different groups.
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National Professional
Functional
CompanyIndustry
Regional
Geography, history, political and economic forces, climate, region, language
Resources, technology, product market, regulation, competitive advantage
Education, training, selection, socialization
External environment, nature of task, time horizon
Founder, leader, administrative heritage, nature of product/industry stage of development
INTERACTING CULTURAL SPHERES
Source: Adapted from J. Santos
IDENTIFY &SELECT
PARTNER
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CULTURAL COMPATIBILITY -“PERCEPTION VS. REALITY”
IDENTIFY &SELECT
PARTNER
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CULTURAL COMPATIBILITY -“PERCEPTION VS. REALITY”
• What are the shared values between N.E. Asia and S.E. Asia?
• What are the cultural differences?
IDENTIFY &SELECT
PARTNER
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SELECTION OF
PA RTNER“SHARED VALUES” : NE ASIA AND SE ASIA
• Age, deference to seniority, authority
• Education
• Upward mobility
• “Face”; self steem
• “Harmony”, conflict avoidance
• Manners, proper behavior, personal demeanor
• Personal trust and relationship
• Reciprocity and mutual obligation
• Pragmatism versus idealism
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• ETHNICITY HOMOGENEOUS DIVERSE
• RELIGION CONFUCIAN ISLAM - BUDHISM CHRISTIANITY
• COLONIAL JAPAN NETHERLANDS-UK FRANCE-USA SPAIN
• FAMILY PATRILINEAL BILATERAL
• GROUP VERTICAL HORIZONTAL EXCLUSIVE INCLUSIVE
• WOMEN SUBORDINATE EQUAL • FOREIGNERS OPPOSED WELCOMED
• TRADE INWARD LOOKING OUTWARD ORIENTED
• WEALTH ACCUMULATION DISTRIBUTION
NE ASIA SE ASIA
SELECTION OF
PARTNER
CULTURE
CULTURAL DIVERSITY MAKES A DIFFERENCE
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Near Eastern
Turkey
Iran
Greece
NordicFinland
Norway
Denmark
SwedenGermanic
Austria
Germany
Switzerland
Anglo
United StatesAustralia
CanadaNew Zealand
IrelandUnited Kingdom
South Africa
Latin European
France
Belgium
ItalySpain
Portugal
Latin American
Chile
Peru
Argentina
VenezuelaMexico
Colombia
Far Eastern Malaysia
Hong KongSouth Vietnam
Singapore
PhilippinesIndonesia
Taiwan
Thailand
ArabBahrain
Abu Dhabi
United Arab Emirates
KuwaitOman
Saudi Arabia
Independent
Brazil
Japan India
Israel
SELECTION OF
PARTNERCountry Clusters
Source: S. Ronen and O. Shenkar (1965) “Clustering Countries on Attitudinal Dimensions”, Academy of Management Review, 10(3)
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Near Eastern
Turkey
Iran
Greece
NordicFinland
Norway
Denmark
SwedenGermanic
Austria
Germany
Switzerland
Anglo
United StatesAustralia
CanadaNew Zealand
IrelandUnited Kingdom
South Africa
Latin European
France
Belgium
ItalySpain
Portugal
Latin American
Chile
Peru
Argentina
VenezuelaMexico
Colombia
Far Eastern Malaysia
Hong KongSouth Vietnam
Singapore
PhilippinesIndonesia
Taiwan
Thailand
ArabBahrain
Abu Dhabi
United Arab Emirates
KuwaitOman
Saudi Arabia
Independent
Brazil
Japan India
Israel
SELECTION OF
PARTNERCountry Clusters
Source: S. Ronen and O. Shenkar (1965) “Clustering Countries on Attitudinal Dimensions”, Academy of Management Review, 10(3)
Elements that cross across national boundaries
• Geography
•History
•Linguistics
•Religion
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• POWER DISTANCE - the extent to which a society accepts that power in institutions and organizations is distributed unequally.
• UNCERTAINTY AVOIDANCE - the extent to which a society feels threatened by uncertain or ambiguous situations.
• INDIVIDUALISM - a loosely knit social framework in a society in which people are supposed to take care of themselves and of their immediate families only.
• COLLECTIVISM - the opposite occurs when the people distinguish between in-groups and out-groups ; they expect their in-group to look after them in exchange for absolute loyalty .
FOUR DIMENSIONS OF NATIONAL CULTURE
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POWER DISTANCE - the extent to which a society accepts that power in institutions and organizations is distributed unequally.
UNCERTAINTY AVOIDANCE - the extent to which a society feels threatened by uncertain or ambiguous situations.
INDIVIDUALISM - a loosely knit social framework in a society in which people are supposed to take care of themselves and of their immediate families only.
COLLECTIVISM - the opposite occurs when the people distinguish between in-groups and out-groups ; they expect their in-group to look after them in exchange for absolute loyalty .
MASCULINITY with its opposed pole FEMININITY . This dimension express “the extent to which the dominant values in society are assertiveness, money and material things, not caring for others, quality of life and people”.
AND A FIFTH DIMENSION OF NATIONAL CULTURE
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Source: G. Hofstede (1991) Cultures and Organizations
Hofstede’s MapsSELECTION
OF PARTNER
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Low
Formalization
High
Low
Hierarchy
High
SELECTION OF PARTNER PREDOMINANT CULTURAL PROFILES
Uncertainty Avoidance
PowerDistance
Village Market(Anglo Nordic)
Family or Tribe (Asian)
Well-Oiled Machine (Germanic)
Traditional Bureaucracy“pyramid of people” (Latin)
52
Low
Formalization
High
Low Hierarchy High
SELECTION OF PARTNER PREDOMINANT CULTURAL PROFILES
Uncertainty Avoidance
PowerDistance
DecentralizedGeneralistPeople as free agentsFlexibilityMore delegationCoordination thru Informal communicationOutput Control
Decentralized decision makingNarrow span of controlSpecialist/technical competenceDiscretion limited by expertiseStrong role of “staff experts”Top management teamOrganized by functionsCompartmentalizedCoordination thru rulesStructural solutionsThroughput control/Efficiency
CentralizedPaternalisticLoyaltyGeneralistStrong social versus task rolesPersonal relationshipsSocial control
Centralized decision makingCoordination at the topLess delegation“Cloisonné” highly specializedStrong role of staffAnalytical abilityPyramid of peopleInformal relationships“Systeme D”Elitist( power and authority)Input control
53
SELECT PREFERRED
COURSE
IDENTIFY AND
SELECTPARTNER
STRUCTURE AND NEGOTIATE
DEAL
PLAN IMPLEMEN-
TATIONEXECUTE
STRATEGICPLANNING ALLIANCE PLANNING AND EXECUTION
1 2 3 4 5
FRAMEWORK FOR NEGOTIATING, DEVELOPING AND MANAGING A STRATEGIC ALLIANCE
The process consists of five phases:
54
STRUCTURE &NEGOTIATE
DEAL
Critical issues include:
• Defining the scope of alliance– By territory, product, geography, technology– Flexibility for other alliances– Liability limitations
• Clarifying roles– Clear expectations, requirements of business strategy
• Defining what success will look like– Must be “win-win” to both parties– Alliance objectives– Specific performance criteria and milestones
55
Critical issues include: Cont’d.
• Understanding & verifying synergies
• Anticipating likely competitor and customer response
• Evaluating the potential financial impacts
• Developing the business case
• Planning and completing negotiations
• Completing the due diligence
• Protecting majority and minority rights
STRUCTURE &NEGOTIATE
DEAL
56
Protecting majority and minority rights
• Memorandum of understanding
• Material Adverse Clause (MAC)
• Shareholders agreement
• By-Laws
• Management responsibility
• Dividend policy
• Technology and administrative fees
• Access to core technologies, people, trade secrets
• Conflict resolution methodology
STRUCTURE &NEGOTIATE
DEAL
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High
Conflict Potential
Low
Low Extent of Organizational
Interaction
High
STRUCTURE & NEGOTIATE DEAL
TYPOLOGY OF AN ALIANCE
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High
Conflict Potential
Low
Low Extent of Organizational
Interaction
High
Pre
CompetitiveCompetitive
Non
Competitive
Pro Competitive
STRUCTURE & NEGOTIATE DEAL
TYPOLOGY OF AN ALIANCE
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PROTECTING MAJORITY AND MINORITY RIGHTS
High
Relative Fear
Low
Low Relative Expectations
High
Source: Mustafi, Mahajan & Dutla - Handbook of Business Strategy
STRUCTURE & NEGOTIATE DEAL
FEAR - EXPECTATION MATRIX
60
PROTECTING MAJORITY AND MINORITY RIGHTS
High
Relative Fear
Low
Low Relative Expectations
High
Preparing for divorce
Courtship
HoneymoonMaturity
Source: Mustafi, Mahajan & Dutla - Handbook of Business Strategy
STRUCTURE & NEGOTIATE DEAL
FEAR - EXPECTATION MATRIX
61
What you can see
What you can’t see
STRUCTURE &NEGOTIATE
DEALCOMPLETING THE DUE DILIGENCE
• Establishing an alliance is like buying an iceberg
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What you can see•Plants
• Industry Conditions
•Brands
• Financial Status
•Technology
•Competitors•Distribution
•Advertising
What you can’t see
STRUCTURE &NEGOTIATE
DEALCOMPLETING THE DUE DILIGENCE
• Establishing an alliance is like buying an iceberg
63
What you can see
•Reward System•Accounting System
•Decision-making process
•Customer Relations
•Suppliers relations
•Management style•Labor relations
•People
•R&D Pipeline
•Technology•Turnover
•Culture
•Morale What you can’t see
STRUCTURE &NEGOTIATE
DEALCOMPLETING THE DUE DILIGENCE
• Establishing an alliance is like buying an iceberg
64
SELECT PREFERRED
COURSE
IDENTIFY AND
SELECTPARTNER
STRUCTURE AND NEGOTIATE
DEAL
PLAN IMPLEMEN-
TATIONEXECUTE
STRATEGICPLANNING ALLIANCE PLANNING AND EXECUTION
1 2 3 4 5
FRAMEWORK FOR NEGOTIATING, DEVELOPING AND MANAGING A STRATEGIC ALLIANCE
The process consists of five phases:
65
Critical issues include:
• Selecting key management– Senior management must be committed– Appoint credible/successful managers
• Agreeing on success factors– Apply adequate resources to ensure success
• Identifying key milestones• Designing a practical operations plan
– Select initial projects of significant value and high potential
PLANIMPLEMEN-
TATION
66
MINORITYINVESTMENT
JOINTVENTURE ACQUISITION
NOT ALL TYPES OF ALLIANCES CAN BE MANAGED THE SAME
CONTROL
STRATEGICVALUE
TIMEFRAME
KEY SUCCESSFACTORS
PLANIMPLEMEN-
TATION
67
CONTROL
STRATEGICVALUE
TIMEFRAME
KEY SUCCESSFACTORS
MINORITYINVESTMENT
MARGINALNEGOTIATED
TRACK NEWTECHNOLOGIES
SHORT TERM
STRUCTURE OFAGREEMENT
JOINTVENTURE
CONTRACTUAL,POTENTIALLYCONTENTIOUS
DEVELOP NEW OPTIONS
MEDIUM TERM
MANAGINGSHARED
RESOURCES
ACQUISITION
EXCLUSIVE
CAPITALIZEON OPTIONS
LONGER TERM
MINIMIZINGINTEGRATION
COSTS
PLANIMPLEMEN-
TATIONNOT ALL TYPES OF ALLIANCES CAN BE MANAGED THE SAME
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Excellent
Poor
Strategic Formulation[ Thinking ]
Execution
Strategic Planning Strategic Formulation and Execution Matrix
Value Creation
Poor Excellent
Value Destruction
Red Zone
Value Stabilization/ Erosion
Value Stabilization/ Erosion
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Excellent
Poor
Strategic Formulation[ Thinking ]
Execution
Strategic Planning Strategic Formulation and Execution Matrix
Value Creation
Poor Excellent
Value Destruction
Red Zone
Value Stabilization/ Erosion
Value Stabilization/ Erosion
70
SELECT PREFERRED
COURSE
IDENTIFY AND
SELECTPARTNER
STRUCTURE AND NEGOTIATE
DEAL
PLAN IMPLEMEN-
TATIONEXECUTE
STRATEGICPLANNING ALLIANCE PLANNING AND EXECUTION
1 2 3 4 5
FRAMEWORK FOR NEGOTIATING, DEVELOPING AND MANAGING A STRATEGIC ALLIANCE
The process consists of five phases:
71
Critical issues include:
• Announcement
• Operations start-up
• Assessment of milestone progress
• Adjustment of business goals
EXECUTE
72
BUILDING BLOCKS FOR SUCCESSFUL STRATEGIC ALLIANCES
LEADERSHIP
CULTURE
PEOPLE
PERFORMANCE
CONTINUOUS IMPROVEMENT
Corporate Values - Clear strategic focus: VisionVisible senior management involvement
Common set of objectives
Assign your best people … drive process with passion
Definition of
success
Adjustkey
metrics
Createreward
incentives
Be flexible and adaptable + Learn from successes and failures
Willingness to share
knowledge
Willingness to use others’ knowledge
Willingness to accept
risk+ + =
Right Partner/Improved
Performance
SUMMARY
73
Strategic Alliances
A Practitioner’s Approach
University of Miami Graduate Program
School of Business Administration