Strategic Alliances

Innovation Management

Kevin O’Brien

Learning Objectives

Understand the reasons for increasing use of strategic alliances

Recognise different forms of strategic alliance

Identify factors critical to the success of strategic alliances

Appreciate the risks and limitations of strategic alliances

Definition of strategic alliance

A strategic alliance is an agreement between two or more partners to share knowledge or resources, which could be beneficial to all parties involved

(Vyas et al., 1995).

Reasons for Entering a Strategic Alliance

1. Improved access to capital and new business2. Greater technical critical mass3. Shared risk and liability4. Better relationships with strategic partners5. Technology transfer benefits6. Reduce R&D costs7. Use of distribution skills8. Access to marketing strengths9. Access to technology10. Standardisation11. By-product utilisation12. Management training

Fall of the ‘go-it-alone’ strategy

Increased levels of competition Increased complexity of products and

production Widening technology base Dramatically shortened product life-

cycles Pressure to reduce npd time Need to manage market and

technological uncertainty

Rise of the ‘octopus’ strategy

Competitive advantage often resides in sets of firms acting together: European Airbus strategic alliance VHS alliance between JVC, Sharp, Toshiba, RCA

Even IBM has forsaken go-it-alone strategy.  Alliances with Toshiba, Microsoft, Siemens, HP,

Cisco, Real Networks, & many more …… Octopus strategy (Vyas et al., 1995) From 1976 to 1987, the annual number of

new joint ventures rose six-fold; three-quarters are in high-technology industries (Lewis, 1990).

JVC’s Alliance for VHS

Matsushita

Matsushita

Product Development

Production

Marketing

JVC’s VHS

JVC with VHS (video recording format): competing with Sony’s Betamax to set

industry standard VHS licensed to other Japanese video

recorder manufacturers joint ventures for marketing in Europe (Thorn-

EMI, Thomson, Telefunken) supplied RCA-branded video recorders for the

US market

European Airbus

Aerospatiale

Deutsche Airbus

CASA

British Aerospace

Rise of the ‘octopus’ strategy

Competitive advantage often resides in sets of firms acting together: European Airbus strategic alliance VHS alliance between JVC, Sharp, Toshiba, RCA

Even IBM has forsaken go-it-alone strategy.  Alliances with Toshiba, Microsoft, Siemens, HP,

Cisco, Real Networks, & many more …… Octopus strategy (Vyas et al., 1995) From 1976 to 1987, the annual number of

new joint ventures rose six-fold; three-quarters are in high-technology industries (Lewis, 1990).

Benefits of strategic alliances

Opportunities to learn & acquire new technologies

Access to complementary technological resources and capabilities that reside in other firms

Access to new markets Access to resources that can enhance the

competitive position of the firm (e.g. through minimising costs)

Opportunities to influence or control technological standards

(Dyer & Singh, 2000)

Potential Alliance Partners

Suppliers

CompetitorsFirmComplementary

Firms

CustomersAcademia

Government

Strategic Business Environment

Facilitators

(Chan & Heide, 1993)

Technology alliances

Strategic alliances can occur intra-industry or inter-industry.

Faulkner (1995); Conway & Stewart (1998) identify seven generic types of strategic alliance: Licensing Supplier relations Joint venture Collaboration (non-joint ventures) R&D Consortia Industry Clusters Innovation networks

Evolution of alliance strategy

High

Low

Technological and demand

uncertainty

Windowstrategy

Time optionsstrategy

Positioningstrategy

(Dyer & Singh, 2000)

Elements of an alliance

Window

strategy

Options

strategy

Positioning

strategy

Strategic objectives

Learning

Monitoring

Building platforms Scale-based advantages

Key success factors

Effective tracking

Knowledge absorption

Scalability

Ability to evaluate technologies

Scale, operational effectiveness

Ability to identify complementary resources

Key difficulties Leakage of knowledge

Value of option Speed and responsiveness (partner dependence)

(Dyer & Singh, 2000)

Disney & Pixar Alliance

Movie-Making Value Chain

SuppliersActresses

ActorsCameras

ComplementaryInnovatorsVCR/DVD

CDProjectionComputing

ManufacturersTime Warner

MCA/UniversalDisney

Paramount

DistributionChannelCinemas

TV networksCable TV

Satellite TVVideo stores

CustomersMovie viewers

(Adapted from Affuah, 2003, p188)

Disney Acquires Pixar

Disney buys Pixar in $7.4bn deal

Walt Disney has agreed a $7.4bn (£4.1bn) deal to buy Pixar, the animation firm behind films including Toy Story and The Incredibles.

Disney's distribution deal with Pixar was due to end this year, and it seemed the two would split after failing to agree on how to divide future profits.

The loss of Pixar would have been a blow for Disney, as demand for the company's films, as well as DVDs, videos and merchandise, has proved to be very strong.

Disney's earnings from Pixar's six films are estimated to be about $3.2bn.

(Source: bbc.co.uk, 24th January 2006)

"Disney and Pixar can now collaborate without the barriers that come from two different companies with two different sets of shareholders," Mr Jobs said.

"With this transaction, we welcome and embrace Pixar's unique culture, which for two decades has fostered some of the most innovative and successful films in history," Mr Iger said.

Critical success factors

Creating knowledge sharing routines Codifiable knowledge, ‘know-what’ Tacit knowledge, ‘know-how’

Choosing complementary partners Strategic complementarity

Assets, distinctive resources Organisational complementarity

Decision processes, information/control systems, culture

Building and managing co-specialised assets New assets created as a result of the alliance

Establishing effective governance processes Formal (legal, financial), informal (trust)

(Dyer & Singh, 1998)

Risks of strategic alliances

Can lead to: 

Competition rather than co-operation Loss of competitive knowledge Conflicts resulting from incompatible cultures

and objectives Reduced management control Increased complexity Loss of autonomy Information asymmetry

May harm a firm’s ability to innovate

References

Chan, P.S. and Heide, D. (1993) Strategic alliances in technology: key competitive weapon, Advanced Management Journal, 58(4), 9-17.

Conway, S. and Stewart, F. (1998) Mapping innovation networks, International Journal of Innovation Management, 2(2), 223-254.

Dyer, J.H. and Singh, H. (1998) The relational view: cooperative strategy and sources of interorganizational competitive advantage, Academy of Management Review, 23(4), 660-679.

Dyer, J.H. and Singh, H. (2000) Using alliances to build competitive advantage in emerging technologies, in Day, G.S. and Schoemaker, P.J.H., Wharton on Managing Emerging Technologies, New York: Wiley.

Faulkner, D. (1995) International Strategic Alliances, Maidenhead; McGraw-Hill.

Langrish, J., Evans, W.G. and Jerans, F.R. (1982) Wealth from Knowledge, London: Macmillan.

Lewis, J.D. (1990) Partnerships for Profit, New York: Free Press.Vyas, N.M., Shelburn, W.L. and Rogers, D.C. (1995) An analysis of

strategic alliances: forms, functions and framework, Journal of Business and Industrial Marketing, 10(3), 47-60.