1. Strategic Growth
Lecture 8

2. Learning Outcomes Establish the potential role of organic strategies
Identify key issues in the successful management of mergers and acquisitions
Identify the key issues in the successful management of strategic alliances
Determine the appropriate choices between organic development, mergers and acquisitions and strategic alliances
Compare key success factors in mergers, acquisitions and alliances

3. Three Strategy methods
Johnson, Whittington and Scholes, (2011 p327) 3

4. Options for Growth
Next week

5. Organic development
Organic development is where a strategy is pursued by building on and developing an organisation’s own capabilities. This is essentially the ‘do it yourself’ method. 5

6. Advantages of organic development
Knowledge and learning can be enhanced.
Spreading investment over time – easier to finance.
No availability constraints – no need to search for suitable partners or acquisition targets.
Strategic independence – less need to make compromises or accept strategic constraints. 6

7. Corporate entrepreneurship
Corporate entrepreneurship refers to radical change in the organisation’s business, driven principally by the organisation’s own capabilities.
For example, Amazon’s development of Kindle using its own in house development, or Ryanair from inside the aircraft leasing company Guinness Peat.
Discuss:
Emergent strategy
Inside-out/outside-in approach 7

8. Blue Ocean Strategy – Kim and Mauborgne (2005)
New Market spaces where competition is minimised
Encourages entrepreneurs to focus on “untapped market space, demand creation and the opportunity for highly profitable growth”
Strategy is to find strategic gaps that competitors are not operating or exploiting
So what is Red Ocean strategy?
Lynch, (2012 p292)

9. Cirque du Soleil

10. Blue Ocean Strategy Formulation Principles Implementation Principles
Reconstruct market boundaries
Focus on the big picture, not on the numbers
Reach beyond existing demand
Get the strategic sequence right
Overcome key organisational hurdles
Build execution into the strategy

11. Strategic alliances
A strategic alliance is where two or more organisations share resources and activities to pursue a strategy.
Collective strategy is about how the whole network of alliances of which an organisation is a member competes against rival networks of alliances.
Collaborative advantage is about managing alliances better than competitors. 12

12. Types of strategic alliance
There are two main kinds of ownership in strategic alliances:
Equity alliances involve in the creation of a new entity that is owned separately by the partners involved.
Non-equity alliances are typically looser, without the commitment implied by ownership. 13

13. Types of Strategic Alliances
Equity Alliances
Non-Equity Alliances
Joint Ventures
Franchising
Licensing
A contract manufacturer/ long-term subcontracting

14. Types of Strategic Alliances
Equity Alliances - Joint Ventures
Equity joint ventures:
The partners share profits, losses and risk in equal proportion to their respective contributions to the venture's registered capital.
These escalate upwardly in the same proportion as the increase in registered capital.
Cooperative joint ventures (Contractual Operative Enterprises):
Have a limited structure - the foreign investor provides the majority of funds and technology and the local party provides land, buildings, equipment, etc.

15. Types of Strategic Alliances
Non-Equity Alliances - Franchising
Responsibilities of the franchisee:
Pay a royalty for the trademark
Pay for the training and advisory services given to the franchisee
Give a percentage of the individual business unit's sales.
Responsibilities of the franchisor:
Share trade secrets, technology, patents with the franchisor
Provide equipment and training to staff
What is the RISK?…

16. Types of Strategic Alliances
Non-Equity Alliances – Licensing
The Benefit of Licensing for Licensees
transferring the values and consumer favour towards the property to the licensed product or service
providing added value and differentiation from competitive offerings
appealing to new target markets who have not historically been interested in a licensee’s product or service
giving credibility for moving into new market sectors through product extension
The Benefit of Licensing for Licensors
exploit and enhance its brand or property
increasing its brand presence at retail or distribution outlet
entering new markets (consumer or geographical) which were unfeasible with it’s own resources or capabilities
generating new revenue streams, often with little involvement or additional financial or other resource implications
What is the RISK?...

17. Types of Strategic Alliances
Non-Equity Alliances – A contract manufacturer
Benefits
Cost Savings
Advanced Skills
Quality
Risks
Lack of Control
Relationships
Quality concerns
Intellectual Property Loss
Competences to contract manufacturers.

18. Motives for alliances
Scale alliances – lower costs, more bargaining power and sharing risks.
Access alliances – partners provide needed capabilities (e.g. distribution outlets or licenses to brands)
Complementary alliances – bringing together complementary strengths to offset the other partner’s weaknesses.
Collusive alliances – usually illegal 19

19. Strategic alliance motives
Johson Whittington and Scholes (2011 p341) 20

20. Strategic alliance processes
Two themes are vital to success in alliances:
Co-evolution – the need for flexibility and change as the environment, competition and strategies of the partners evolve.
Trust – partners need to behave in a trustworthy fashion throughout the alliance. 21

21. Alliance evolution Figure 10.4 Alliance evolution 22
Source: Adapted from E. Murray and J. Mahon (1993), ‘Strategic alliances: gateway to the new Europe’, Long Range Planning, vol. 26, p 22

22. Motives Critical Mass Cost reduction and improved customer offering
Not area of competitive advantage within the partnership
Larger competitive grouping
Fast growth, low capital investment

23. Motives Co-specialisation Learning
Each partner specialises in their capabilities eg across value chain, international growth
Learning
Temporary partnership eg agents or local partner for market entry, development of e-business

24. Strategic Alliances In Summary - Requirements Longer term
Commitment of resources
Core activity of a strategic nature for one or more of the partners
Trust

25. For Effectiveness Shared purpose Clear goals, clear expectations
Active management of the relationship
Effective governance and organisational relationships
Enough flexibility to allow evolution