Strategic Management

Aftab KHAN
Aftab.khan@hesge.ch
12 Dec 2019
Inter-Firm Cooperation (IFC)
• IFC is quasi-stable and durable, formal or informal arrangement
between two or more independent firms, aiming to further the
perceived interests of the parties involved.
• IFC can take places in the following forms:
 M&A
 Alliances
 Transactional
 What is strategic alliances (SA)?
• One of the most prevalent forms of IFC involves SA. It generally
includes the following features
 Bring two or more individual organisation together
 Interconnected in some ways
 Interconnectedness involves reciprocal relations
 Shared goals, interest and values
 Individual parties maintain at least some level of autonomy

Starbucks and Barnes & Noble

Types of SA
• Contractual/non-equity alliances: such as distribution
agreements, outsourcing relationships, licensing agreements,
R&D partnerships etc. Example: airlines collaborate with credit
card company and offer frequent flyers rewards
• Equity investment: involves one company taking a minority
ownership interest in a partner company e.g. pharma company
frequently take a minority position in a biotech company etc.
• JV: involves two or more independent companies forming a third
entity. Each company contributes resources and shares control
(profits and losses) of the venture. It can be short term (ie. Major
construction job) or long term ( enter to a foreign market)
When Alliances make strategic
sense?
• Entering markets with significant new barriers (e.g. transnational
auto companies have formed alliances with Chinese organisations
to gain entry to large but unfamiliar market)
• Symbiotic relationship: companies in unrelated markets
cooperating for mutual benefits (e.g. supermarket chain
partnering with gas station chains, Coop partnering with
MediaMarkt, Apple & Nike)
• Gaining knowledge: R&D, technology
• Outsoucing benefits: Responsibity of customer services (e.g
Withers with Deloitte)
• Achieving synergy:
How do we create an Alliance?

• Process overview:
Step 1: Strategic Assessment
• (mostly financial projection)
Step 2: Partnership Planning
• Three aspects:
 Establish Organisational Buy-in
 Develop Plan
 Validate Plan
Example of validate plan
Step 3: Partner Engagement

• Strategic and cultural compatibitly check:

 What are the potential synergies
 What are the respective organisational philosophies and practices
 What languages they speak?
 What are organisation’s structured?
 What are HR, compensation, CSR practices
• Joint business plan:
 Obejctive and strategy
 Market served
 Product/services provided by each partner
 Value proposition
 Resources provided
 Support functions roles
 Definition of success and metrics
 Financial modeling
Step 4: Partnership Execution
Step 5: Governance
• Structural consideration
• Enabling pronciples
Step 6: Evaluate performance
• Strategic and financial goals
• Evaluate competitive environment: has anything happened in the
competitive environment to challenge the strategic logic of the
alliance?
• Should the alliance continue full spead ahead or is it time to exit?
Step 6: Termination
consideration/Exit strategy
• In case initiative fails – what are our triggers for exit?
• Rapid dissolution: what are the responsibilities of the two parties?
Agreement with partners about when and how to end the alliances
• Are there any continuing obligations after exit – e.g. access to
brands or ongoing sourcing agreements
• How should assets, personnel, and brands be valued and priced?
When it fails?
• Unable to match resources/capabilities, culture, decision making
processes etc.
• Unable to create trusting relationships
• When there is a need to handle rivalry and managerial complexity
• When methods of dealing with environmental change differ
Readings (available in
Cyberlearn)
• Strategic Alliances – BCG
• Collaborative advantage: the art of alliances