David Ernst By Group 4

 Alliance have become more important over the years.  Many leading companies rely parts of their annual revenue on alliances  Many companies still have no idea of how alliances can help create value and how to design it to help them succeed with it.

HOW ALLIANCE CAPTURE VALUE  Six basic ways that companies use alliance to create values:  Building new businesses  Accessing new markets  Acquiring skills  Gaining scale  Improving the supply chain  Creating networks HOW TO AVOID THE SEVEN ALLIANCE SINS  Seven common pitfalls  Unclear Objectives  Lack of detailed business plan  Decision gridlock  Aligning with a weak or competitive partner  Unmanaged cultural clash  Failure to learn or protect core capabilities  Failure to plan for alliance evoltuion

“A relationship between separate firms that involve joint contribution and shared ownership control….coordinate their actions and resources as well as rewards and risks.”

1.1 Alliances to Build and New Business Useful when… - High risks - Incomplete Skills - Speed is Essential Example: Microsoft & NBC

1.2 Alliances to Access New Markets

1.2 ) Alliances to Access Skills and Learning - Learning core competency from partners - Can be harmful

 Alliances share the same idea as merger and acquisition in the past which is to gain scale.  This allows the companies to still being able to fully run and control their own business

 By having relationship with the suppliers, the company can have a better performance from the suppliers since they will have a sense of belonging and it will motivate them to perform better as they are feeling being a part of your company.  Example: Mercedes

 By having the right alliance type with the right partner, the company can successfully expanding your business without costing them too much

 The seven sins are  Unclear Objectives  Lack of detailed business plan  Decision gridlock  Aligning with a weak or competitive partner  Unmanaged cultural clash  Failure to learn or protect core capabilities  Failure to plan for alliance evolution

 The first thing to think about when forming an alliance is the definitions of success for the alliance.  The questions that should be taken into considerations when writing your definition of success includes: ▪ What are the financial goals? ▪ What are the strategic goals? ▪ How are these two goals going to be measured? ▪ What are your partner's goals and what is your partner's methodology of measuring their goal

 Alliances are not always the best solution in many aspects like:  Not having all the powers or controls in decision making  All the rewards or return have to be shared between the partner(s) ‏  Might not know how long the alliance will last  Don't know whether or not your partner change its objectives and become one of your competitors.  Determining whether or not an alliance is really needed. An alliance should only be taken into consideration only when needed.  Consider the time and cost needed in the project when doing it alone and compare it to when forming an alliance.  See whether or not you have the specific skills or capabilities required to complete the project. Seek for the specific capabilities by forming an alliance.

 Choosing a financially strong partner  Researches have shown that alliances between two strong partners has twice the success rate.  Executives pay more attention in fixing the weaknesses and not focusing on the alliance.  Find partners with very different strengths from your own when alliance not aimed to consolidate.  Example of KFC and Mitsubishi: ▪ KFC needed the knowledge of buying or leasing real estate in order to sell chicken in Japan. Mitsubishi had the capability of providing this knowledge to KFC.

 Screening for cultural fit. ▪ Companies should not look for partners with identical corporate cultures, instead, they should look for partners with slightly different cultures.  How bargaining powers will evolve with a potential partner is also a very important aspect to look at when doing an alliance. ▪ Example: An alliance in the automotive products business. The producer of the product and the distributor of the product as its partner. ▪ Project worth $300 million dollar to the distributor and this project was completely dependent on the license belongning to the producer.

 Executives need to decide about structuring alliances in the way that is different from mergers and acquisitions including about scope, strategy, and governance.  Setting up an effective governance structure is also important because about half of alliance failures result from governance issue.  Example: A joint-venture Japanese and U.S. company

 If a company wants to set up a joint venture. There are three fundamental governance models are available to choose.  Independent  Dependent  Interdependent

 Independent is the choice that most people choose because they can treat venture as having an autonomous business, strong organization, and authority to make decisions within the company.  Dependent is one of the partners acts as the operator and the others as more passive financial investors.  Example: Fuji Xerox company  For interdependent, it is impossible to ovoid having multiple levels of ongoing interaction and resource flows between the venture and corporate parents.  Example: Toshiba and Motorola

 Almost 80 percent of joint ventures end up as a sale to their partners.  Planning for evolution is also essential for non-equity deals. If you are committing exclusive rights, you shouldn’t forget about exit.  Example: a U.S. consumer goods company

 The most successful alliances are usually having plans to evolve and grow. Therefore executives need to be prepared and ready for it.  How will the alliance grow?  What kind of conflicts will that create?  What is the natural lifecycle of the technology or product?  Will the alliance need to be escalated from a licensing deal to a joint venture?  Will additional partners need to be added?

Conclusion  Alliances are very powerful tools but it has a mixed result of success rates.  Most important is crisply defining success for each hand every alliance.  Other key factors for alliances to be successful: ▪ Choosing strong and complementary partners ▪ Having bargaining power ▪ Choose the right structure and govern accordingly ▪ Prepare for scope expansions and restructuring ▪ Manage alliance evolution

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