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Elucidating the Art of Strategic Alliances For NASA Space Commerce

Naseem H. Saiyed

January 29, 2002

Space Commerce Group Office of Space Flight NASA Headquarters Washington, DC

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It provides a definition of strategic alliances and justifies them as one of the tools firms use to create value. Part of the strategy is to develop alliances with the private sector in the areas of technologies. c) joint development of an alliance management plan and d) development of an exit strategy. 1 Saiyed. The process factors are a) leadership from senior managers. c) development of internal financial and resource commitments and d) understanding of shared benefits. b) selection of “right” partner(s). . It seeks to commercialize the operation of some of our assets and to complement our resources with those of the private sector for mutual gain.Summary NASA’s current strategy to further space commerce is much broader and entrepreneurial than prior approaches. This short and fast paced report is a concise description of alliances. . these alliances can greatly increase the probability of mission success for both NASA and the private sector. Elucidating Strategic Alliances . When properly created. The reasons for firms to choose alliances are provided to assist us in developing our strategy. b) presence of an alliance strategy. The logic factors are a) presence of solid business strategy. The myriad of conditions that can easily hinder an alliances’ success are delineated as logic factors and process factors and further elaborated upon. Lastly. products and services for space commerce. Naseem . an initial road map for creating strategic alliances with the private sector is provided. managed and led.

Among other activities. While the former is built on trust and is easy. and the ensuing debates are well document1-8. United Postal Service (UPS) learned that it had to form alliances with local firms to deliver international packages. A strategic alliances is defined as “any governing organizational structure in which participants agree to couple their complementary skills. space customer. Extensive literature exists on strategic alliances for the private sector from both theoretical and practical perspectives32-53. but not only. facilities and access with the private sector and become their important. 2 Saiyed. NASA is formulating a new strategy10 “Enhanced Strategy for the Development of Space Commerce” to assist the private sector in strengthening the market pull for realizing full potential of space commerce.Introduction This Nation has acknowledged the great defense and economic implications of space industry since inception of the space age. With strong support from subsequent Congress and Administrations. The strategy is to share knowledge. which spun off into subsidiaries and eventually were acquired by UPS upon being proven successful31. Within the context of business strategy and based on documented industry examples. exacting definition of an alliance varies within scholars and practitioners—perhaps a reflection of its flexible and complex nature. . Although carefully crafted. this plan details NASA’s goal to “enable the commercial development of space”. or lack thereof. With the core mission of developing space for human enterprise. It is not true for non-profit or the government. no strategy was as comprehensive and focused as that provided in the NASA strategic plan of 20009. products and services. NASA developed several guidelines and strategies for fueling space commerce. The agreement can occur simply as a handshake between few key people or it can occur as an elaborate document attempting to detail the protocols for all conceivable events. The effects of this unique approach should be much more profound than typical government funded R&D efforts or partnerships of the past11-30. However. Its initial focus is the Low-Earth Orbit. . What is a strategic alliance? A fundamental catchall definition of an alliance is that it is a relationship for mutual benefits of participants. It should serve as the foundation upon which NASA alliance initiative is further developed and refined. following broad definition should encompass most interpretations and be applicable to NASA. goods or services for mutual benefits without altering their own identities”. Subsequent technology developments. NASA is seeking strategic alliances with industry to enable full exploitation of space commerce opportunities in technologies. It is because “unaltered identities” is the operative Elucidating Strategic Alliances . Alliances can be powerful strategies to accomplish firms’ overall strategic objectives. Congress recognized these implications in their 1958 mandate for NASA to promote commercial uses of space. UPS formed the alliances. Naseem . its application to any alliance with more than a few small firms is a recipe for failure. An attempt is made to provide general ideas about alliances and apply them to NASA in this writing. This is because NASA is now approaching space commerce as an entrepreneur.

firms are continually drawn to alliances. Air travel alliances are more visible—Star Alliance is the largest group with 15 airlines (United. businesses are striving to be flexible and adaptable to the rapidly changing market forces.requirement in the alliance definition. These are difficult times for businesses trying to remain rigid.e. This rules out licensing and cross-licensing agreements. Siemens and Toshiba formed an alliance for developing memory chips. hence keep control of their charter. . Firms remain independent after forming alliances. franchising. it implies that firms may elect to stop participating if their strategic objectives do not require it. changes the mindset of managers at every level. General Motors and Isuzu formed an alliance for developing small cars. requires critical attention to minute details and forces continual critical assessment of firms’ overall strategies. Absence of full control. goods or services needed to achieve their alliance objectives are complementary.) It may appear that a firm could form an alliance with indiscretion! It may be true for unsuccessful alliances. It implies that firms maintain their overall strategic objectives. because skills. It also demands skills managers often are in need of. Firms jointly decide on issues affecting alliances. Effects of partial control are exacerbated by the flexibility of alliances to allow participants easy entry and exit. 3 Saiyed. mergers and acquisitions as conventionally understood. . Elucidating Strategic Alliances . firms have far less control in achieving alliance objectives than their overall strategic objectives. IBM. . Advances within the last 20 years in obtaining and processing data. . Indeed. it is untrue for highly successful alliances. Air New Zealand . independent of an alliance needs and its objectives. Firms continually contribute in essential strategic areas. Globalization of demand. Alliances can be within the value-chain of a firm for increasing product value or they can be between non-rivals for development of new technologies. forces the firms to negotiate—a critical aspect of any alliance. Motorola and Toshiba formed an alliance to manufacture microprocessors. Industry examples might shed more light. competition and standards exacerbates these changes by illuminating complex business and social environments for firms to operate in. Air Canada. Alliance agreements generally share three defining characteristics: 1. Lack of complete autonomy can be unsettling for many managers. In addition. General Motors and Hitachi formed an alliance for developing electronic components for cars. therefore. information and computer technologies. In addition. 3. This rules out subsidiaries. development of good alliances and their management is highly complex and demands tremendous support and attention from every level of leadership and management. To gain competitive advantage. Yet. securing market position. indeed to survive. has accelerated the pace of change. creating new opportunities. supply. Naseem . Why are strategic alliances formed? Successful businesses always respond to changes in market conditions for gaining competitive edge. or to compete within. It behooves us to consider reasons firms develop alliances. i. 2. They can also be between rivals developing goods for markets they agree to share in. arm’s-length buy/sell contracts and franchises. etc.

we must consider them more as prerequisites than a recipe for success. Alliances play by rules very different from other types of agreements. drive them out! These factors are: a) Presence of solid business strategy An alliance will fail no matter how exuberant is its formation. They are built upon practical applications. Alliances. i. They also allow firms to exploit future opportunities. They allow access into markets previously closed to foreign firms. nano-technology. What are these rules in an everchanging world of economic competition? What are the success factors? Nearly every consultant. 4 Saiyed. they allow firms to test strategies before full implementation. when properly managed. spread risks and hedge their bets. b) Presence of an alliance strategy Such a strategy solidifies the desired objectives and targets to be gained from each alliance. . They respond directly to changes in the business environment. They occurred in nearly every industry. Finally. Naseem . They allow global firms to operate much more effectively in foreign lands. Logic factors These are the reasons an alliance is undertaken in the first place or allowed to continue. Therefore. Firms with good alliance management captured substantially higher market share and returns than firms with passive alliance strategies34. They provide tremendous opportunities for re-igniting the entrepreneurial spirit experienced while firms were young.An alliance provides a firm an opportunity to do just that—to remain nimble and respond quickly by leveraging own skills. many were not. . without a business case. i. Let us consider each in detail. justifications for an alliance. Stock values also substantially increased within months following alliance announcements33. They shorten market access time for new technologies and bring new skills. since every alliance is different. biotechnology. They allow national firms to compete globally. goods and services with those of others. information. these lists are continually updated. Keeps a firm focused on its internal objectives and provides grounds to judge Elucidating Strategic Alliances .e. are very favorable to the bottom line. Firms that embarked on new unproven technologies. author or practitioner provides a list of such factors. The number varies according to the breadth of research samples but it suffices to say that hundreds of alliances were formed within the last 10 years.e. However. They drive firms into alliances. Alliances allow firms to reconfigure value activities to achieve cost and differentiation advantages. Many alliances were successful. in an attempt to develop new fields had the greatest number of alliances. And. Development of such a case forces one to conduct a top to bottom review of both existing and wanting capabilities—a necessary requirement toward seeking partners for complementary skills. These benefits are not lost in the open market. The myriad of lists can be divided in two clear categories—logic factors and process factors.

Leaders must continually reinforce the case and advocacy for both internal and external cooperation. 5 Saiyed. Joint development of an alliance management plan This plan assists in the day to day operation of an alliance. Leadership from senior managers Alliances are difficult for managers not skilled in the art. Selection of “right” partner(s) This crucial step must be taken with prudence. assists in developing relationships with long-term horizons and in keeping focus on core competencies. a firm moves toward it using process factors. acceptance of levels of risk for each. . The search for partner begins once business strategy and role of alliances are made clear along the value chain. They are the stepping stones on which an alliance continues toward its objectives. Process factors After deciding upon an alliance based on logic factors. Provides a basis to negotiate sharing of tasks and resources and reduces the possibility of overly optimistic expectation from each partner. Incremental successes build confidence and trust between partners. complementary skills. c) Development of internal financial and resource commitments Fluctuating business environment will cause large swings in these. continual evaluation of market. The flexible character of the Elucidating Strategic Alliances . deep understanding that turf-battles are fatal. . c. d) Understanding of shared benefits This illuminates the reasons for each partner to stay in an alliance and assists in assuring partner compatibility (e. b. consistent goals. Missing a step can halt an alliance regardless of the strength of its logic. Its intent is to provide a list of functional activities and to build relationships and develop trust. technology and business strategy and negotiating skills. Naseem . These are the steps for initiating and maintaining an alliance. responsibilities and expectations and to spell out shared benefits.g. Assists in keeping partners focused on what each does best.alliances. Contacts are initiated at the senior level for further screening. patience from managers wanting autonomy. Alliances can be difficult for many. They require a shift from company focus to partnership focus. These factors are: a. Discussions and negotiations occur at both functional and senior levels toward clearly developing roles. Senior managers must initiate and regularly participate in a dialogue along the entire value chain to not only internally sell the alliance but to ease concerns of everyone involved. Functional managers use these criteria to provide alliance candidates. It must consider the varying cultures of all partners involved in a specific alliance strategy that is to be communicated across their value chains. products and services and different cultures). especially if commitments have not been agreed upon. Alliances can be very sensitive to the slightest setback at any link of the value chain. Also.

it is crucial that a great deal of prudence is exercised in initiating. a few criteria are proposed: a. Develop internal alliances. This draft will be modified as our experience with alliances deepens. facilities. Develop alliance strategy and goals including metrics. Phase 1: Alliance Justification Here the business case is developed and an alliance strategy is formulated. c. Some of the critical steps are: 4. for NASA to engage in alliances assuming the infrastructure to support an alliance exists (figures 1 and 2). . Forces a smooth transition and assists in continuing relationships between participants for future alliances. Future relationships with firms. 2. Its requires a deep understanding of our strategies. divided in three phases. A right partner skilled in alliances can also serve as insurance for firms just starting alliances. Requires that partners develop a joint plan for regularly evaluating alliances. It demands participants to anticipate changes in technology and market place dynamics in relation to the alliance strategy for underestimating or overestimating the market. Development of an exit strategy This assures that resources are utilized in an efficient manner. Its position relative to its competitors. Alliances will have a profound impact on the success or failure of our strategies. Develop partner selection criteria. the discovery that much needed homework and up-front thought was required occurs after significant resources have exhausted. Therefore. and personnel. Functional managers are vital in developing both of these. To assure a firm is able to deliver upon the agreements. Naseem . employee morale and trust in senior leadership are examples of such costs. Specific steps are: 1. NASA and strategic alliances Many firms begin alliances with high levels of exuberance only to later discover that it was irrational. b. d. Therefore. time and resources are reserved for developing internal alliances to assure all necessary functional managers agree and endorse both strategies. The costs of an alliance failure are more than monetary. Because of its significance. . 3. Following is a draft road map.plan should be made clear for modifying its performance metrics in response to market fluctuations. It requires an understanding of shared benefits. and Elucidating Strategic Alliances . we need to establish a formal process from soliciting to selecting right partners. Phase 2: Partner Selection An alliance is doomed from the start without a suitable partner. 6 Saiyed. Unfortunately. Its resources. developing and maintaining alliances. Financial strength of the firm. Develop business strategy and goals including metrics.

. delineation of roles at every functional level for both partners. Negotiate alliance terms. Final thoughts It is an exciting time to be at NASA. Phase 3: Alliance Implementation With solid fundamentals. f. phases 1 and 2. Develop alliance management plan. e. It is a framework. Such support is must for the new policy and for developing both external alliances and internal alliances. 5. resources. without which any initiative fails. develop and manage strategic alliance with the private sector without turf battles and bureaucratic obstacles. methods of solving conflicting requirements. Regularly evaluate each alliance and alliance strategy. 6. 10. d. 9. exchanging of skills. This policy will force NASA to become much more entrepreneur. a time when robust space commerce maybe within our grasp. This report provided a description of alliances that ranged from its definition to its success factors and an initial attempt at the infrastructure needed for its implementation. we now assure that an alliance has the tools necessary to succeed. Formally. One critical factor. Elucidating Strategic Alliances . g. 7. 8. alliance performance feedback mechanisms. 7 Saiyed. b. . c. description of NASA and firms’ strategies. is unequivocal support from senior leadership. rapid communication and response structure including points of contacts. We are considering a space commerce policy unlike others of the past.d. 12. 11. Following is a proposed content of the plan: a. Development of an infrastructure and adequate staffing are examples of extensive support. Solicit for alliances. and h. not a legal document. Develop financial and resource commitments. functional performance metrics and success criteria. deliverables. Development of internal alliances is needed for this step. Firms’ experience with alliances. the alliance structure Develop exit strategy. Naseem . etc. Demonstrate alliance based shared benefits for each candidate partner. that each partner uses to guide it own participation. select partner with endorsement from senior leaders of both NASA and firm. It hinges upon our ability to build. etc.

agencies and codes) Deputy--Public Affairs (Media and Communications) Deputy--Commerce Assessment (cost benefit analysis of all activities) Deputy--Infrastructure and facilities (sharing of infrastructure. develops partner selection criteria. negotiatesinternal agreements) Figure 2. Naseem . develops shared benefits and exit strategy) Internal Alliance POC (assures financial and resource comittment. .Chief of Space Commerce Office Code A? Deputy--Space Products (alignment of NASA w/commercial) Deputy--ISS Commercial Development (alignment of NASA w/commercial) Deputy--Policy (removing barriers) (supporting free trade) Deputy--Legisltative Affairs (removing barriers) (supporting free trade) Deputy--Technology Transfer (to businesses. facilities and personnel) Deputy--Strategic Alliances (develops and maintains alliances w/private sector in aerospace and non-aerospace) Figure 1. 8 Saiyed. develops agreements and initial alliance management plan) Alliance Champion (agressively seeks alliances. negotiates agreements) External Alliance POC (coordinates external alliances. Position of Strategic Alliances in Future Space Commerce Office Deputy--Strategic Alliances (maintains oversight. . develops alliance strategy. Makeup of Strategic Alliances in Future Space Commerce Office Elucidating Strategic Alliances .

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