Strategic Alliances as Strategic Alliances as a Small a Small Business Growth StrategyBusiness Growth Strategy

A Contribution to the 2012 WiSense A Contribution to the 2012 WiSense Entrepreneurship SeriesEntrepreneurship Series

ByBy

Peter MacKinnon, WiSense Project ManagerPeter MacKinnon, WiSense Project Manager

School of Electrical Engineering and Computer School of Electrical Engineering and Computer ScienceScience

uOttawa, CanadauOttawa, Canadapmackinn@site.uottawa.ca

613.562.5800 x 2177613.562.5800 x 2177

WiSense Seminar # WiSense Seminar # 7373 April 5, 2012April 5, 2012

AgendaAgenda

Learning ObjectivesLearning Objectives A Context for Strategic AlliancesA Context for Strategic Alliances Managing InnovationManaging Innovation Partnerships/AlliancesPartnerships/Alliances Partnership OptionsPartnership Options Understanding Strategic AlliancesUnderstanding Strategic Alliances Tools to Aid in Structuring & Managing Tools to Aid in Structuring & Managing

Strategic AlliancesStrategic Alliances Lessons Learned & SummaryLessons Learned & Summary

Learning ObjectivesLearning Objectives

To gain an understanding of the range To gain an understanding of the range of partnerships & the differences of partnerships & the differences between tactical & strategic alliances between tactical & strategic alliances and how they relate to fulfilling a and how they relate to fulfilling a business strategybusiness strategy

To appreciate the role of tacit To appreciate the role of tacit knowledge associated with practical knowledge associated with practical experience gleaned from creating & experience gleaned from creating & managing strategic alliancesmanaging strategic alliances

A Few Questions to Get StartedA Few Questions to Get Started

So, who has started a company?So, who has started a company? Who wants to start a company?Who wants to start a company? Who wants to be part of the management team?Who wants to be part of the management team? Has anyone had an opportunity to work within a Has anyone had an opportunity to work within a

partnership such as a strategic alliance?partnership such as a strategic alliance? What do you think are the main reasons to make What do you think are the main reasons to make

use of partnerships in general & strategic use of partnerships in general & strategic alliances in particular?alliances in particular?

Basically, to tell stories based Basically, to tell stories based on . . . ?on . . . ?

So Why am I here?So Why am I here?

So Why am I hereSo Why am I here??

Basically, to tell stories based on . . . ?

SHARING EXPERIENCESHARING EXPERIENCE

---> that intangible ingredient that parallels formal learning and is so essential in the workplace (i.e., tacit knowledge)

Two Kinds of KnowledgeTwo Kinds of Knowledge

Explicit Knowledge Explicit Knowledge (e.g., codified knowledge)

Tacit Knowledge Tacit Knowledge (e.g., know-how contained in people’s heads, experience)

My task is to share with you tacit knowledge based on my experience and know-how

Explicit knowledge makes up many other aspects of this seminar

Knowledge inKnowledge inBusiness TermsBusiness Terms

Explicit Knowledge Explicit Knowledge - Subject domain (e.g., marketing, finance, sales,

‘territory’ knowledge)

Tacit Knowledge Tacit Knowledge - Relationships

- Customs/traditions/conventions

- The way a ‘system’ actually works despite rules, regulations & documentation

A Context for Strategic A Context for Strategic AlliancesAlliances

Changing ViewsChanging Views

Old ViewOld View Tariff Walls Regional Competition Industrial

Development Multiple Supplier

Chains Basic Production Investment in Market

Access

New ViewNew View Leveling the Playing

Field Global Competition Wealth Creation Strategic Supply Chains Value-added Production Investment in

Innovation

Components of the Globalizing Components of the Globalizing EconomyEconomy

The Globalizing Economy

New Competitors

PrivatisationInformation &

Communications Technologies

Changing Pattern of Borders

Rise of Global Standards

Global Products & Customers

Growing Trade & Investment

Change Policy EnvironmentsChange Policy Environments

Business Policy

Trade Policy

Science & Technology

Policy

Innovation & Competitivene

ss Policy Environments

Threats & UncertaintiesThreats & Uncertainties

New technologies are transforming the means to create wealth through accelerated technology penetration & shortened product life-cycles

Common technologies are globalizing products & services

Changing policy environments cause confusion & uncertainty

Rising cost & risk in R&D & timely market entry Scarcity of highly qualified people Increasing competition among firms Erosion of traditional trade barriers

The New DynamicThe New Dynamic

Technology, trade & investment are intertwined

They represent different ‘inter-related states’ of global activity

Regional & global imperatives are eroding national roles

Investment in all its forms is a response to this new global dynamic

ManagingManaging InnovationInnovation

Business Approaches: Business Approaches: Organic versus SystematicOrganic versus Systematic

OrganicOrganic Why bother? Who knows what will Why bother? Who knows what will

happen tomorrow?happen tomorrow? Decisions evolveDecisions evolve Authority is based on trustAuthority is based on trust Procedures are traditionalProcedures are traditional Jobs are vaguely definedJobs are vaguely defined Communication is informal as in the Communication is informal as in the

‘grapevine’‘grapevine’ The right connections earn promotionThe right connections earn promotion ‘‘Honour calls’Honour calls’ Title describes your statusTitle describes your status

SystematicSystematic Planning influences what happens Planning influences what happens

tomorrowtomorrow Decisions are madeDecisions are made Authority is based on competenceAuthority is based on competence Procedures are rationalProcedures are rational Goals are preciseGoals are precise Communication through ‘official Communication through ‘official

channels’channels’ Competence earns promotionCompetence earns promotion ‘‘Duty calls’Duty calls’ title describes your jobtitle describes your job

Source: Adapted from When in Rome, by J. Mole, American Management Association, 1991 ISBN 0-8144-7769-0

Different National Different National Approaches to BusinessApproaches to Business

LE

AD

ER

SH

IP

ORGANISATION STYLEOrganic Systematic

Group

Individual

UK

Ireland

PortugalBelgium

Denmark

The Netherlands

GermanyCANADA

Switzerland

Spain France USA

China

Australia

Japan

Managing Innovation from a Managing Innovation from a Technology-driven PerspectiveTechnology-driven Perspective

Production

Development

Research

Marketing

DistributionSales

Customers

World Pool of Knowledge

Arrows represent direction of flow and relative intensity of

information exchanges

Managing Innovation from a Managing Innovation from a Market-driven Perspective (2)Market-driven Perspective (2)

Production

Development

Research

Marketing

DistributionSales

Customers

World Pool of Knowledge

Future Markets

Partners

Arrows represent direction of flow and relative intensity of

information exchanges

Partnerships/AlliancesPartnerships/Alliances

Common Kinds of AlliancesCommon Kinds of Alliances

State-to-StateState-to-State Defensive Defensive

(e.g., Peloponnesian League)(e.g., Peloponnesian League)

Offensive Offensive (e.g., Axis Powers of WW II)(e.g., Axis Powers of WW II)

Economic Economic (e.g., Hanseatic League)(e.g., Hanseatic League)

Common Kinds of Common Kinds of AlliancesAlliances

State-to-StateState-to-State Defensive Defensive

(e.g., Peloponnesian League)(e.g., Peloponnesian League)

Offensive Offensive (e.g., Axis Powers of WW II)(e.g., Axis Powers of WW II)

Economic Economic (e.g., Hanseatic League)(e.g., Hanseatic League)

State-to-CorpState-to-Corp Service Delivery Service Delivery

(e.g. Iqaluit Airport as a (e.g. Iqaluit Airport as a Public Private Partnership) Public Private Partnership)

Financial Assistance Financial Assistance (e.g., Technology Partnerships (e.g., Technology Partnerships Canada)Canada)

First Mover First Mover RelationshipRelationship(e.g., government as an (e.g., government as an early adopter – CDN early adopter – CDN Innovation Innovation Commercialization Program)Commercialization Program)

Common Kinds of AlliancesCommon Kinds of Alliances

CommunitiesCommunities Public-Private Public-Private

Partnerships Partnerships (e.g., waste management)(e.g., waste management)

City Twinning City Twinning (e.g., create/share cultural, social, (e.g., create/share cultural, social, economic ties)economic ties)

Innovation ClustersInnovation Clusters(e.g., wireless sensor cluster for (e.g., wireless sensor cluster for Ottawa)Ottawa)

Common Kinds of Common Kinds of Alliances (2)Alliances (2)

CommunitiesCommunities Public-Private Public-Private

Partnerships Partnerships (e.g., waste management)(e.g., waste management)

City Twinning City Twinning (e.g., create/share cultural, (e.g., create/share cultural, social, economic ties)social, economic ties)

Innovation ClustersInnovation Clusters(e.g., wireless sensor cluster (e.g., wireless sensor cluster for Ottawa)for Ottawa)

Corp-to-CorpCorp-to-Corp Defensive Defensive

(e.g., protect a market)(e.g., protect a market)

Offensive Offensive (e.g., create/grow a market)(e.g., create/grow a market)

Access/Economic Access/Economic (e.g., know-how, intellectual (e.g., know-how, intellectual property, channels)property, channels)

Business Partnerships: Business Partnerships: The OptionsThe Options

Strategic

Strategic

Tactical

Tactical

• Agents

• Distributors

• Original Equipment Manufacturers

• Value-added Resellers

• Strategic Alliances

• Joint Ventures

• Acquisitions

• Mergers

Value to Business Future

Value to Marketing & Sales

• Suppliers

Business Partnership Options: Complexity Business Partnership Options: Complexity of Relationships vrs Convergence of the of Relationships vrs Convergence of the

‘Whole’‘Whole’C

om

ple

xit

y

Convergence

Suppliers

Channel Partners

Strategic Alliances

Joint Ventures

Acquisitions

Mergers

Identifying Partners: What Firms Identifying Partners: What Firms Look ForLook For

Complementary skills– e.g., resources & skills needed

Organisational Complementarity– e.g., group size

Complementary strategies– e.g., willing to share in a growing market

Willingness to co-operate– e.g., management & staff commitment

Willingness to share plans & problems– e.g., trust, belief & commitment to shared goals

Choosing Partners: Where to Choosing Partners: Where to LookLook

Choosing

Partners

Customers

Competition

Government

Suppliers

Universities

Cross Border Issues for AlliancesCross Border Issues for Alliances

Ease & approach to establishing Ease & approach to establishing businessbusiness

Protection of Intellectual PropertyProtection of Intellectual Property Tax TreatmentTax Treatment Technological infrastructureTechnological infrastructure Market size & sophistication of demandMarket size & sophistication of demand Attitude towards alliancesAttitude towards alliances Availability of suitable partnersAvailability of suitable partners

Assessing a Partnership/AllianceAssessing a Partnership/AllianceDecide on link in the value chain

Select a Potential PartnerBegin Over

AssessPartner

AssessPerformance

TerminateRelationship

Assess Meeting Strategic Objectives

Continue/EnhanceRelationship

TerminateRelationshipTerminate

Relationship No Yes

NegotiateAgreement

Define Type ofAlliance

Build/SupportNew Alliance

Build Trust & Commitment

TerminateRelationship No

Assess Meeting Strategic Objectives Yes

TerminateRelationship No

No

Watch Out for ‘Dirty Tricks’Watch Out for ‘Dirty Tricks’

Deliberate deceptionDeliberate deception StallingStalling Escalating authorityEscalating authority ‘‘Good guy versus bad guy’Good guy versus bad guy’ ‘‘You are wealthy & we are poor’You are wealthy & we are poor’ Old friends/unsavoury political Old friends/unsavoury political

connectionsconnections

Understanding Strategic Understanding Strategic AlliancesAlliances

What Drives the Need for Strategic Alliances?What Drives the Need for Strategic Alliances?

Companies seek global alliances Companies seek global alliances because of pervasive, unremitting & because of pervasive, unremitting & mutually reinforcing effects of:mutually reinforcing effects of:

Globalization of businessGlobalization of business Increasing complexity of technologyIncreasing complexity of technology Speed of technical changeSpeed of technical change

– These often combine to make the risk These often combine to make the risk too high to create ‘value-add’ without too high to create ‘value-add’ without partnerspartners

What Drives Need for Strategic Alliances? What Drives Need for Strategic Alliances? (2)(2)

Uncertain & changing policy Uncertain & changing policy environmentsenvironments

Desire to reduce riskDesire to reduce risk Means to add valueMeans to add value Expand capabilities & capacityExpand capabilities & capacity Access to know-how & ‘intellectual Access to know-how & ‘intellectual

property’property’

Strategic Alliances in OverviewStrategic Alliances in Overview

Improve strategic advantage & increase market Improve strategic advantage & increase market shareshare

Offensive & defensive strategiesOffensive & defensive strategies Support planned growthSupport planned growth Develop first-mover advantageDevelop first-mover advantage

Strategic alliances should be driven by Business Strategic alliances should be driven by Business needsneeds

OBJECTIVE:OBJECTIVE:

USES:USES:

GUIDING PRINCIPLE:GUIDING PRINCIPLE:

What Firms Seek in a Strategic What Firms Seek in a Strategic AllianceAlliance

• Technologies

• Products

• Channels

• Financing

• Know-How

• Services

Strategic Alliance Entry PointsStrategic Alliance Entry Points

• Research

• Development

• Manufacturing

• Distribution

Strategic Alliance: A General Strategic Alliance: A General DefinitionDefinition

A Strategic Alliance is a formal & mutually A Strategic Alliance is a formal & mutually agreed collaboration in which partners agreed collaboration in which partners pool, exchange & integrate specific pool, exchange & integrate specific resources with a view to achieving mutual resources with a view to achieving mutual gain while remaining separate entitiesgain while remaining separate entities

Strategic Alliance DownsidesStrategic Alliance Downsides

Strategic Alliances are not for every firmStrategic Alliances are not for every firm They are difficult to manage & can They are difficult to manage & can

easily fail due to misunderstandingseasily fail due to misunderstandings Partnering too close to the core of a Partnering too close to the core of a

business could erode core competitive business could erode core competitive advantageadvantage

Tools to Aid in Structuring & Tools to Aid in Structuring & Managing Strategic AlliancesManaging Strategic Alliances

The Partnership MatrixThe Partnership Matrix

TECHNOLOGY

PRODUCT

CHANNEL

SERVICES

KNOW-HOW

FINANCING

PARTNER A CONTRIBUTION

PARTNER B CONTRIBUTION

SHARED MANAGEMENT

TE

CH

NO

LO

GY

PR

OD

UC

T

CH

AN

NE

L

SE

RV

ICE

S

KN

OW

-HO

W

FIN

AN

CIN

G

The Partnership Matrix (2)The Partnership Matrix (2)

TECHNOLOGY

PRODUCT

CHANNEL

SERVICES

KNOW-HOW

FINANCING

PARTNER A CONTRIBUTION

PARTNER B CONTRIBUTION

SHARED MANAGEMENT

TE

CH

NO

LO

GY

PR

OD

UC

T

CH

AN

NE

L

SE

RV

ICE

S

KN

OW

-HO

W

FIN

AN

CIN

G

Assumption: B - Small venture backed R&D firm

Assumption: A - Medium sized R&D firm with

global channels transforming into a market driven company

The Partnership Matrix (3)The Partnership Matrix (3)

TECHNOLOGY

PRODUCT

CHANNEL

SERVICES

KNOW-HOW

FINANCING

PARTNER A CONTRIBUTION

PARTNER B CONTRIBUTION

SHARED MANAGEMENT

TE

CH

NO

LO

GY

PR

OD

UC

T

CH

AN

NE

L

SE

RV

ICE

S

KN

OW

-HO

W

FIN

AN

CIN

G

Assumption: B - Small venture backed R&D firm

Assumption: A - Large firm with diverse

products & global channels

The Partnership Matrix (4)The Partnership Matrix (4)

TECHNOLOGY

PRODUCT

CHANNEL

SERVICES

KNOW-HOW

FINANCING

PARTNER A CONTRIBUTION

PARTNER B CONTRIBUTION

SHARED MANAGEMENT

TE

CH

NO

LO

GY

PR

OD

UC

T

CH

AN

NE

L

SE

RV

ICE

S

KN

OW

-HO

W

FIN

AN

CIN

G

Assumption: B - Medium sizedfirm with product & global channel

Assumption: A - Large firm with diverse

products & global channels

SummarySummary

Summary of Lessons LearnedSummary of Lessons Learned

Alliances have evolved over a long period of timeAlliances have evolved over a long period of time There are a variety of types of allianceThere are a variety of types of alliance Partnerships may be tactical or strategicPartnerships may be tactical or strategic There are numerous drivers for strategic There are numerous drivers for strategic

alliances with value-add as a key componentalliances with value-add as a key component Large firms often develop portfolios of strategic Large firms often develop portfolios of strategic

alliances whereas SMEs optimally tend to mange alliances whereas SMEs optimally tend to mange only a few alliances at a timeonly a few alliances at a time

Strategic partnering is not for every firmStrategic partnering is not for every firm

Summary of Lessons Learned (2)Summary of Lessons Learned (2)

Managing innovation is a key to fostering Managing innovation is a key to fostering strategic alliancesstrategic alliances

There are multiple entry points in There are multiple entry points in structuring a strategic alliancestructuring a strategic alliance

The ‘Partnership Matrix’ can assist in The ‘Partnership Matrix’ can assist in formulating the value-chain & managing formulating the value-chain & managing alliance negotiations & ongoing operationsalliance negotiations & ongoing operations

Understanding ‘national traits’ in the Understanding ‘national traits’ in the conduct of business is essentialconduct of business is essential

Summary of Lessons Learned (3)Summary of Lessons Learned (3)

Explicit Knowledge isExplicit Knowledge is necessary but is not necessary but is not sufficientsufficient

Tacit Knowledge is key to building strategic Tacit Knowledge is key to building strategic alliances & business relationshipsalliances & business relationships

Negotiation success requires an appropriate Negotiation success requires an appropriate combination of explicit & tacit knowledgecombination of explicit & tacit knowledge

Simple cultural & business Simple cultural & business misunderstandings can derail a truly misunderstandings can derail a truly valuable business relationvaluable business relation

A Bit about My BackgroundA Bit about My Background

What Kinds of stories Can I Tell?What Kinds of stories Can I Tell?

Career spans a series of experiences as a:Career spans a series of experiences as a:– ScientistScientist– Technical & Business ManagerTechnical & Business Manager– EntrepreneurEntrepreneur– BureaucratBureaucrat– ExecutiveExecutive– DiplomatDiplomat– AcademicAcademic– Management AdvisorManagement Advisor

A Bit about My BackgroundA Bit about My Background

As a ScientistAs a Scientist– participated in international expeditions to participated in international expeditions to

polar regionspolar regions((e.g., American, Australian, British, French, Danish, e.g., American, Australian, British, French, Danish, Norwegian, Russian & Swiss participantsNorwegian, Russian & Swiss participants))

As an International BureaucratAs an International Bureaucrat– co-ordinated gathering of global climate co-ordinated gathering of global climate

change data from ice cores & radar change data from ice cores & radar soundings of continental ice sheetssoundings of continental ice sheets

((e.g., worldwidee.g., worldwide))

A Bit about My Background (2)A Bit about My Background (2)

As an Entrepreneur & Business ExecutiveAs an Entrepreneur & Business Executive– participated in strategic & tactical alliances, participated in strategic & tactical alliances,

mergers & acquisitions, technology transfer & mergers & acquisitions, technology transfer & remote R&Dremote R&D

((e.g., Australia, China, Hong Kong, Japan, USA, Western e.g., Australia, China, Hong Kong, Japan, USA, Western EuropeEurope))

As a DiplomatAs a Diplomat– participated in international foreign direct participated in international foreign direct

investment, strategic alliances & technology investment, strategic alliances & technology partnershipspartnerships

((i.e., Western Europe - London-basedi.e., Western Europe - London-based))

A Bit about My Background (3)A Bit about My Background (3)

As an International Management As an International Management AdvisorAdvisor– Participate in providing advice, reports & Participate in providing advice, reports &

presentations to business, government, presentations to business, government, universities & international institutional universities & international institutional clients throughout the worldclients throughout the world

(e.g., Australia, Bahamas, Belgium, Brazil, China, France, (e.g., Australia, Bahamas, Belgium, Brazil, China, France, Hong Kong, India, Japan, Pakistan, Spain, United Kingdom Hong Kong, India, Japan, Pakistan, Spain, United Kingdom & United States)& United States)

Why So Much Background Why So Much Background You Might Ask?You Might Ask?

First, to illustrate that international business experience can be First, to illustrate that international business experience can be gained by many routesgained by many routes

Second, you can do these things ifSecond, you can do these things if: :

(i) You have an attitude & willingness to adapt(i) You have an attitude & willingness to adapt

(ii) You are adequately prepared with both relevant codified & tacit knowledge(ii) You are adequately prepared with both relevant codified & tacit knowledge

(iii) You know what you want in terms of the(iii) You know what you want in terms of the ‘deal’ ‘deal’