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Innovation Management

Innovation Management. Kevin O’Brien. Strategic Alliances. Learning Objectives. Understand the reasons for increasing use of strategic alliances Recognise different forms of strategic alliance Identify factors critical to the success of strategic alliances

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Innovation Management

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  1. Innovation Management Kevin O’Brien Strategic Alliances

  2. Learning Objectives • 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

  3. Definition of strategic alliance 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. 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

  5. Fall of the ‘go-it-alone’ strategy • Increased levels of competition • Increased complexity of products and production • Widening technology base • Dramatically shortened product life-cycles • Pressure to reduce npd time • Need to manage market and technological uncertainty

  6. Rise of the ‘octopus’ strategy • Competitive advantage often resides in sets of firms acting together: • European Airbus strategic alliance • VHS alliance between JVC, Sharp, Toshiba, RCA • Even IBM has forsaken go-it-alone strategy. •  Alliances with Toshiba, Microsoft, Siemens, HP, Cisco, Real Networks, & many more …… • Octopus strategy (Vyas et al., 1995) • From 1976 to 1987, the annual number of new joint ventures rose six-fold; three-quarters are in high-technology industries (Lewis, 1990).

  7. JVC’s Alliance for VHS Marketing Product Development Matsushita Matsushita Production

  8. JVC’s VHS • JVC with VHS (video recording format): • competing with Sony’s Betamax to set industry standard • VHS licensed to other Japanese video recorder manufacturers • joint ventures for marketing in Europe (Thorn-EMI, Thomson, Telefunken) • supplied RCA-branded video recorders for the US market

  9. European Airbus Aerospatiale CASA British Aerospace Deutsche Airbus

  10. Rise of the ‘octopus’ strategy • Competitive advantage often resides in sets of firms acting together: • European Airbus strategic alliance • VHS alliance between JVC, Sharp, Toshiba, RCA • Even IBM has forsaken go-it-alone strategy. •  Alliances with Toshiba, Microsoft, Siemens, HP, Cisco, Real Networks, & many more …… • Octopus strategy (Vyas et al., 1995) • From 1976 to 1987, the annual number of new joint ventures rose six-fold; three-quarters are in high-technology industries (Lewis, 1990).

  11. 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)

  12. Potential Alliance Partners Suppliers Government Complementary Firms Firm Competitors Facilitators Academia Customers Strategic Business Environment (Chan & Heide, 1993)

  13. Technology alliances • Strategic alliances can occur intra-industry or inter-industry. • Faulkner (1995); Conway & Stewart (1998) identify seven generic types of strategic alliance: • Licensing • Supplier relations • Joint venture • Collaboration (non-joint ventures) • R&D Consortia • Industry Clusters • Innovation networks

  14. High Technological and demand uncertainty Low Window strategy Time options strategy Positioning strategy Evolution of alliance strategy (Dyer & Singh, 2000)

  15. Elements of an alliance (Dyer & Singh, 2000)

  16. Disney & Pixar Alliance

  17. 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)

  18. 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.

  19. Critical success factors • Creating knowledge sharing routines • Codifiable knowledge, ‘know-what’ • Tacit knowledge, ‘know-how’ • Choosing complementary partners • Strategic complementarity • Assets, distinctive resources • Organisational complementarity • Decision processes, information/control systems, culture • Building and managing co-specialised assets • New assets created as a result of the alliance • Establishing effective governance processes • Formal (legal, financial), informal (trust) (Dyer & Singh, 1998)

  20. Risks of strategic alliances Can lead to: • 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 firm’s ability to innovate

  21. 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.

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