Strategic Relationships

Chapter 07
 Strategic Relationships

• The rationale for interorganizational relationships

• Types of organizational relationships
• Developing effective interorganizational
relationships
• Global relationships among organizations
 Strategic Relationships

• Strategic relationships occur for several reasons:

Gain access to markets, enhance value offerings, reduce the
risk generated by rapid environmental change, share
complementary skills, obtain resources
• The objective is to offer end user customers
superior value through collaboration of the
organizations
• E.g. RadioShack
Strategic Relationships
The Rationale for Interorganizational Relationships

• Value enhancing opportunities

• Environmental turbulence and diversity
• Skill and resource gaps
Financial constraints
Market access
Information technology
Drivers of Interorganizational
Relationships
Value Enhancing Opportunities
• The opportunity present in many markets today is
that organizations can couple their competencies to
offer superior customer value
• Modularity in product and process design offers a
promising base for leveraging interorganizational
capabilities to create superior customer value
 Environmental Turbulence and Diversity

• Environmental diversity reduces the capacity of an

organization to respond quickly to customer needs
and new product development
• Organizations meet this challenge by:
Altering their internal organization structures
Establishing strategic relationships with other
organizations
 Skills and Resource Gaps

• The skill and resource requirements of technologies in

many industries often surpass the capabilities of a single
organization
o Increasing complexity of technology
Technology constraints impact industry giants as well as smaller firms
o Financial constraints
o Access to markets
Vertical marketing system, horizontal marketing system
o Information technology
Types of Organizational Relationships
Customer-Supplier Relationships
• Moving products through various stages in the
value-added process often involves linking
suppliers, manufacturers, distributors, and
consumers, and business end users of goods and
services into vertical channels
• Functional specialization and efficiency create the
need for different types of organizations
Distribution Channel Relationships
• Vertical relationships also occur between
producers and marketing intermediaries (e.g.
wholesalers and retailers)
• These value-chain relationships provide the
producer access to consumer and organizational
end users
End User Customer Relationships
• The driving force underlying strategic
relationships is that a company may enhance its
ability to satisfy customers and cope with a
rapidly changing business environment through
partnering
o Customer focus
The importance of understanding customers’ needs and wants
encourages long term collaborative relationships
Customer Relationship Management (CRM)
End User Customer Relationships
o Assessing Customer Value
Some customers may not want to partner and others may not
offer enough potential to justify partnering with them
Relationship strategies need to recognize differences in the
value of customers to the seller as well as the specific
requirements of customers
Relationship building is appropriate when large differences
exist in the value of customers
 Strategic Alliances
• Strategic alliance between two organizations is an
agreement to cooperate to achieve one or more
common strategic objectives
• The alliance is not a merger and it is also different
from joint venture
• Weakness in alliance may come from several
causes:
acrimonious disputes, cultural clashes, power struggles etc.
 Strategic Alliances
• Alliance success
• Kinds of alliances
• Alliance success requirements
• Alliance vulnerabilities
Why Strategic Alliances Fail
 Joint Ventures
• Joint ventures are agreements between two or
more firms to establish a separate entity
• These relationships are used in several ways:
to develop new market opportunity
to access an international market
to share cost and financial risks
to acquire knowledge or technology for the core business
 Internal Partnering
• Internal partnerships may occur between business
units, functional departments, and individual
employees
• The intent is to encourage and facilitate cross-
functional cooperation rather than specialization
Developing Effective Relationships Between
Organizations
• Objective of the relationship:
identifying and obtaining new technologies and competencies
developing new markets and building market position
market selectivity strategies
restructuring and cost-reduction strategies
Relationship Management Guidelines
• Planning
• Trust and self-interest
• Conflicts
• Leadership structure
• Flexibility
• Cultural differences
• Technology transfer
• Learning from partner’s strength
Global Relationships Among Organizations

• The need to develop more flexible organizational

forms for competing in rapidly changing global
markets is illustrated by two types of
organizations:
network corporation
trading companies