Chapter 9

Understanding Alliances and

Cooperative Strategies
OBJECTIVES

1 Describe why strategic alliances are important

strategy vehicles    

2 Explain the various forms and structures of

strategic alliances

3 Describe the motivations behind alliances and

show how they’ve changed over time

4 Explain alliances as both business‑level and
corporate‑level strategy vehicles

5 Understand the characteristics of alliances in

stable and dynamic competitive contexts

6 Summarize the criteria for successful alliances

2
WHITE WAVE’S STRATEGY

Traditional Silk brand

Packaging Small boxes Milk cartons

Health and natural

Distribution Grocery stores
food stores

Un-refrigerated Refrigerated dairy/

Display
health section milk section

3
THE WHITE WAVE-DEAN ALLIANCE

$15 million

35% ownership
White Dean
Wave Foods

Leverage over retailers

(e.g., slotting fees)

4
THE WHITE WAVE-DEAN ALLIANCE

$15 million We’ll buy you for our

pre-arranged price

Too low 35% ownership

White Dean
a price Wave Foods

We’ll pay more than

our agreement
Leverage over retailers requires
(e.g., slotting fees)

5
BENEFITS OF STRATEGIC ALLIANCES

Companies which participate most

actively in alliances outperform the
least active firms by 5 to 7 percent
Why?

• Share investments and rewards

• Reduce risk
• Reduce uncertainty
• Focus resources on what each
partner does best
• Foster economics of scale and scope

6
ALLIANCES ARE NOT STRATEGIES IN THEMSELVES

Arenas

An alliance is one vehicle

Staging Economic Vehicles for realizing a strategy
Logic

Differentiators

7
ALLIANCES INVOLVE MANY ACTIVITIES
Company A Company B

R&D R&D R&D

Input Input
Logistics Logistics
Supply/
Production

Operations Operations Operations

Production/
Marketing
Marketing Marketing
and Sales Marketing and Sales

Output Output
Logistics Delivery Logistics

Product or Service Product or Service

8
THE USE OF ALLIANCES AS STRATEGIC VEHICLE HAS BALLOONED

Alliances as percent of revenues

16%

As of 2005,
large MNCs have over 20%
of their total assets tied
up in alliances

2%

1980 1995

9
ALLIANCES CAN TAKE MANY FORMS
Examples of cooperative arrangements in the continuum of organizational forms
Keiretsu in Japan or Caltrex, which was
Chaebols in South jointly owned by
Korea Chevron and
Permanent Texaco prior to their
merger.
Outsourcing Many technology Examples include Anheuser-Busch’s Stand-alone joint
standards consortia technology collaborations cross ownership with ventures like Dow-
Long-term like the PowerPC chip Kirin in Japan and Corning.
between Motorola, IBM, Modelo in Mexico
and Apple
Purchase agreements Agreements to Cross-licensing like that
that are renewable distribute products between Disney and Pixar
annually or every or services or R&D partnerships like
several years Millennium Pharma-
ceuticals and some of its
Transactional smaller partners
Simple purchase order Short-term agreements on functions like
for commodities, some- advertising or manufacturing to achieve
times called a spot efficiencies – for example, contract brewing of
transaction Miller Beer by Anheuser Busch
No Linkages Beyond Information Asset, Resource, and Cross-Equity Shared Equity
Level of Transaction Sharing Capability Sharing (partners take
Commitment ownership in one
party or each other)

Non-Equity Alliances Equity Alliances

Source: Adapted from J. Harbison and P. Pekar, Smart Alliances: A Practical Guide to Repeatable Success (San
Francisco: Jossey-Bass, 1998 10
MULTI-PARTY ALLIANCES

2 party alliances Multiparty alliances

Example: SEMATECH, a consortium

of semiconductor manufacturers

11
CREATING VALUE THROUGH A SET OF ALLIANCES

Geographic
Alsea (Mexico) Sazaby (Japan)
expansion partners

Dreyer’s Westin Hotels and

(premium coffee Resorts (Coffee served
ice cream) throughout hotel)
marketing
and sales
products,

partners

Starbucks Channel partners

Coffee (corporate sales)
New

Pepsico (Bottled United Airlines (In-

coffee beverages) flight coffee)

Barnes & Noble Retail format Host Marriott Services

(in store stores) partners (worldwide airport
kiosks)

Source: Adapted from J.D. Bamford, B. Gomes-Casseves, and M.S. Robinson (2003). Mastering Alliance Strategy,
Strategy: A comprehensive guide to design, management, and organization (San Francisco, John Wiley & Sons, p.22)
12
ALLIANCES OFFER BENEFITS, CONTRACTS CANNOT
Joint Investment
Increase returns by
encouraging firms to make
investments that they’d be
otherwise unwilling to make
(e.g., Wal-Mart supplier
becomes willing to invest in
new equipment)
Knowledge sharing
Consistent information-
sharing routines enhances
learning (e.g., John Deere
exchanges key employees
with alliance partner Hitachi)
Knowledge sharing
Opportunity to create a
stock of resources that is
unavailable to competitors.
This may create a shared
advantage (e.g., Nestlé and
Coke combined resources
to offer canned tea and
coffee products
Effective management
Alliances may make it
more cost effective to
manage an activity than
arm’s-length transactions
or acquisitions
13
ALLIANCES MAY BUILD COMPETITIVE ADVANTAGE

Alliances may serve to build a competitive advantage if

 Rivals cannot ascertain what generates the returns because of causal
ambiguity surrounding the alliance
 Rivals can figure out what generates the returns but cannot quickly
replicate the resources owing to time decompression diseconomies
 Rivals cannot imitate practices or investments because they are missing
complementary resources (they have not made the previous investments
that make subsequent investments economically viable) and because the
current costs associated with prior investments are now prohibitive
 Rivals cannot find a partner with the necessary complementary strategic
resources
 Rivals cannot access potential partners’ resources because they are
indivisible
 Rivals cannot replicate a distinctive and socially complex institutional
environment that has the necessary formal and informal controls that
make managing alliances possible

14
MOTIVATION FOR ALLIANCES HAS CHANGED OVER TIME
Product performance Learning and
focus Position focus capabilities focus
1970s 1980s Post 2000

Ensure constant stream

Produce with latest
Build industry stature of new prospects with
technology
advancing technology

Market beyond national Proactively maximize

Consolidate position
borders delivered value

Sell product stressing Gain economies of scale Optimize total cost by pro-
performance and scope duct/customer segment

Gain advantage in res-

ponse to changing condi-
tions and responsibilities
Source: Adapted from J. Harbison and P. Pekar, Smart Alliances: A Practical Guide to Repeatable Success (San Francisco: Jossey-
Bass, 1998) 15
WHO MIGHT BECOME AN ALLIANCE PARTNER?

Rivals

Complementors New
entrants
Any other
organization could
Firms become an alliance
partner

Substitutes Suppliers

Customers

16
3 TYPES OF BUSINESS STRATEGY ALLIANCES

Examples

Partner with one or more suppliers or Timkin and

customers. Typically done to create more suppliers
1 Vertical value for the end customer and to lower total
production costs along the value chain

Partner with a rival or potential competitor to Mondavi and

gain access to multiple segments of the top foreign wine
2 Horizontal
industry and reduce risk, improve efficiency, producers
or foster learning

Partner with a complementary product or Kraft and

Comple-
3 service’s producer to gain access to new Starbucks
mentary
customers to meet new needs

17
THE “VALUE NET” CAN HELP IDENTIFY OPPORTUNITIES FOR COOPERATION

Customers

Competitors Your Company Complementors

Suppliers

Source: Adapted from A. Brandendburger & B. Nalebuff. Co-opetition. NY: Doubleday (1996). 18
ALLIANCES ARE INCREASING TAKING FORM OF NETWORKS

Alliances Network

Firm

Firm

19
EXAMPLES OF NETWORKS OF BUSINESS ALLIANCES

Coopetition is essentially the notion that companies are com-

plementors when they make markets and competitors when
they divide markets. This relationship is called a value net

Timken Co. is getting its cus- Only recently are firms

tomers to think of them as more recognizing that
than simply a bearings supplier by Your working
employing sophisticated bundling Company with suppliers is as
processes to combine basic important as listening to
bearings with additional the customer….
components in order to provide
companies with exactly what they
need. As a result, their bundled Most often ignored
products are a source of reliability source of value creation
and cost reduction for their
customers like Caterpillar. Also,
Timken’s acquisitions don’t create Suppliers
value simply due to added product
lines, but instead due to the greater
value added by a more complex
and tailored bundle
20
RISKS ARISING FROM ALLIANCES

Failure to make complementary

Poor contract management
resources available

Misrepresentation of resources Being held hostage through

and capabilities specific investments

Misappropriation of resources Misunderstanding a partner’s

and capabilities strategic intent

21
DYNAMIC CONTEXTS INTRODUCE NEW CHALLENGES

Stable contexts Dynamic contexts

Forgiving of mistakes

Ease of maintenance
and management

Time to regroup
after mistakes

22
FIVE LEVERS FOR INCREASING THE PROBABILITY OF ALLIANCE SUCCESS

Understand the determinants of trust

Be able to manage knowledge and learning

Understand alliance evolution

Know how to measure alliance performance

Create a dedicated alliance function

23
BENEFITS OF TRUST

Trust and Competitive Advantage

• Site specialization Dedicated Knowledge

• Physical asset Asset Sharing
specialization Investments Routines
• Human Specialization

Interfirm
Trust

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BENEFITS OF TRUST

Trust and Competitive Advantage

Dedicated Knowledge • Learning curve?
Asset Sharing • Consulting teams?
• Voluntary study groups?
Investments Routines • Problem-solving teams?
• Interfirm employee transfer?
• Performance feedback and?
monitoring …

Interfirm
Trust
’

BUT

25
BENEFITS OF TRUST

Trust and Competitive Advantage

Dedicated Knowledge
Asset Sharing
Investments Routines

Interfirm
Trust
’
• TRUST is one party’s confidence that the other party in the exchange relationship will fulfill its promises and
commitments and will not exploit its vulnerabilities
• Trust and alliances are a conundrum from a classical economics perspective – assumption of opportunism means
firms must choose market or hierarchy, make or buy, not an alliance
BUT
Trust lowers transaction costs • Increases knowledge sharing
• Search costs • Increases investments in dedicated
• Contracting costs AND assets
• Monitoring costs
• Enforcement costs
26
FOUR KEY FACTORS AFFECT TRUST

Initial
conditions

Negotiation
process

Trust

Reciprocal
experiences

Outside
behavior

27
MANAGING KNOWLEDGE AND LEARNING
Outcome
Toyota US suppliers achieve
greater incremental perfor-
mance gains than suppliers
for GM or Ford, in fact they
outperformed GM and Ford
on absolute performance
despite being newer and
at an earlier stage of learn-
ing curve
How?
• Toyota created the Toyota
Supplier Support Center (TSSC)
• 20 consultants
• Each works with 6-12 suppliers
• Plant visits every 4-month period
• Offer improvement suggestions
• Annual meeting to report each
group’s learning activities
28
FUJI-XEROX ALLIANCE – MANAGING CO-EVOLUTION

Fuji-Xerox
Xerox Fuji
alliance

• R&D and technology • Develops own R&D • Photo manufacturing

reimbursements plants
• Provides platform
• Adopt Japanese to sell Xerox in Japan
quality improvement
techniques
• Market outside Japan

29
COMPONENTS OF A DEDICATED ALLIANCE FUNCTION

Alliance Partner Alliance

Alliance Assessment
business case assessment negotiation and
management and termination
and selection governance

• Value-chain • Partner screening • Negotiations • Problem-tracking • Relationship-

analysis form form matrix template evaluation form
• Needs-analysis • Technology and • Needs-vs.-wants • Trust-building • Yearly status
checklist patent-domain checklist work sheet report
maps
• Manufacturing- • Alliance-contract • Alliance-contact • Termination
vs.-partnering • Cultural-fit template list checklist
analysis evaluation form
• Alliance-structure • Alliance- • Termination-
• Due-diligence guidelines communication planning work
team infrastructure sheet
• Alliance-metrics
framework

30
HOW WOULD YOU DO THAT?

Millennium Pharmaceuticals faced

huge alliance opportunity but
turned it down …
Why?

• Strategic fit?
• Resource fit?
• Cultural fit
• Structural fit?
• Other questions?

31
SUMMARY

1 Describe why strategic alliances are

important strategy vehicles    

2 Explain the various forms and structures of

strategic alliances

3 Describe the motivations behind alliances and

show how they’ve changed over time

4 Explain alliances as both business‑level and
corporate‑level strategy vehicles

5 Understand the characteristics of alliances in

stable and dynamic competitive contexts

6 Summarize the criteria for successful

alliances

32
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