Learning Objectives

Innovation Management
Kevin OBrien

Strategic Alliances

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

1. 2. 3.

Reasons for Entering a Strategic Alliance

Improved access to capital and new business Greater technical critical mass Shared risk and liability Better relationships with strategic partners Technology transfer benefits Reduce R&D costs Use of distribution skills Access to marketing strengths Access to technology Standardisation By-product utilisation Management training

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).

4. 5. 6. 7. 8. 9. 10. 11. 12.

Fall of the go-it-alone strategy

Rise of the octopus strategy

Increased levels of competition Increased complexity of products and production Widening technology base Dramatically shortened product lifecycles Pressure to reduce npd time Need to manage market and technological uncertainty

Competitive advantage often resides in sets of firms acting together:

European Airbus strategic alliance VHS alliance between JVC, Sharp, Toshiba, RCA Alliances with Toshiba, Microsoft, Siemens, HP, Cisco, Real Networks, & many more

Even IBM has forsaken go-it-alone strategy.

Octopus strategy (Vyas et al., 1995) From 1976 to 1987, the annual number of new joint ventures rose six-fold; threequarters are in high-technology industries (Lewis, 1990).

JVCs Alliance for VHS

Marketing Product Development

JVCs VHS
JVC with VHS (video recording format): competing with Sonys Betamax to set industry standard VHS licensed to other Japanese video recorder manufacturers joint ventures for marketing in Europe (ThornEMI, Thomson, Telefunken) supplied RCA-branded video recorders for the US market

Matsushita Matsushita

Production

European Airbus
Aerospatiale CASA

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)

British Aerospace

Deutsche Airbus

Potential Alliance Partners

Technology alliances
Strategic alliances can occur intra-industry or inter-industry. Faulkner (1995); Conway & Stewart (1998) identify seven generic types of strategic alliance:

Suppliers

Government

Complementary Firms

Firm

Competitors

Facilitators

Customers

Academia

Strategic Business Environment

(Chan & Heide, 1993)

Licensing Supplier relations Joint venture Collaboration (non-joint ventures) R&D Consortia Industry Clusters Innovation networks

Evolution of alliance strategy

Elements of an alliance
Window strategy Options strategy Building platforms Positioning strategy Scale-based advantages Scale, operational effectiveness Ability to identify complementary resources Speed and responsiveness (partner dependence)
(Dyer & Singh, 2000)

High Strategic objectives Technological and demand uncertainty Key success factors Learning Monitoring Effective tracking Knowledge absorption Low Key difficulties Window strategy Time options strategy Positioning strategy
(Dyer & Singh, 2000)

Scalability Ability to evaluate technologies

Leakage of knowledge

Value of option

Disney & Pixar Alliance

Movie-Making Value Chain

Complementary Innovators VCR/DVD CD Projection Computing

Suppliers Actresses Actors Cameras

Manufacturers Time Warner MCA/Universal Disney Paramount

Distribution Channel Cinemas TV networks Cable TV Satellite TV Video stores

Customers Movie 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 Strategic complementarity

Choosing complementary partners

Assets, distinctive resources Decision processes, information/control systems, culture

Organisational complementarity

Building and managing co-specialised assets

New assets created as a result of the alliance Formal (legal, financial), informal (trust)
(Dyer & Singh, 1998)

Establishing effective governance processes

Risks of strategic alliances

Can lead to:

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.

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 firms ability to innovate