Chapter 9

1. Chapter 9 Strategic alliances & networks

3. Strategic alliances Microsoft Testra A strategic alliance is: • A formal partnership arrangement between two businesses. • It takes place when two separate businesses agree to poolsome resources and work together to gain a combined competitive advantage in one area of their interrelated business activities. • Both organisations maintain their autonomy, and operate as separate entities for the majority of their business activities. • Replace mergers and acquisitions (integrative and diversification growth) as a more effective method of achieving growth and improving competitive position.

4. Fiat Crysler Strategic alliance criteria • Each partner must lose some independence in order to pursue a common objective. • Each partner must commit some, but not all, of the business’s resources to the partnership. • The alliance should produce results that would not be possible if each partner continued to operate independently. • Each partner must remain independent in the operation of all aspects of the business not part of the alliance.

5. Success factors for strategic alliances • mutual commitment of partners to success, • organisational compatibility of the partners, • development of agreed mutual objectives, • management of organisational structures of partners to create positive cultures and operations. Ghos

6. Reasons for creating strategic alliances The alliance • is critical to achieving a core business objective or goal such as product/market development or cost reduction. • is critical to creating or maintaining a competitive advantage or core competency. • blocks a competitive threat. • creates or maintains the ability to make future strategic moves. • reduces or eliminates a significant risk to one or both businesses.

7. ATM Types of strategic alliances • Product & service alliances - two businesses join together to provide a combined product and/or service offering. • Promotional alliances - the two businesses jointly conduct a promotional campaign. • Logistic alliances - a manufacturer or retailer forms an alliance with a logistics company to carry out the supply/ delivery of product. • Pricing collaborations - two or more businesses enter an alliance to provide a complete package to customers. • Sales alliances - two businesses agree to co-market and sell complimentary products and services.

8. Types of strategic alliances • Solution-specific alliances - two businesses agree to jointly develop and sell a marketplace solution. • Geographic-specific alliances - two businesses agree to jointly market or co-brand their products and services in a specific geographic region. • Investment alliances - one business invests in another, agreeing to jointly market the resulting products or services. • Joint venture alliances - two businesses join together to form a third, co-owned and managed business to market and/or develop specific products or enter a restricted geographic market.

9. Benefits of strategic alliances • cost reductions, • increased return on equity and higher share prices, • flexibility - the ability to increase output without expanding the workforce and target opportunities that would be otherwise out of reach, • easier and faster expansion into new geographic markets, • instant access to technologies and expertise.

10. Disadvantages of strategic alliances Of every 100 alliance negotiations that are commenced, only 10 proceed to the formal agreement stage, and of these, only one fifth are likely to survive more than four years due to: • lack of compatibility, commitment to the process and management of the alliance, trust and clear identification of objectives; • communication differences: different languages, or even versions of the same language can lead to misinterpretations or misunderstandings; • the level of effort in choosing the right partner and managing the relationship.

11. Networks A series of connections between individuals representing their company (business networks), or themselves (private networks), with a range of other individuals both inside and outside the company and the market in which the business operates. Private networks also extend outside the market in which the individual is employed in many cases. Networks can be formally organised, or be informal relationships between individuals.

12. Types of networks Xerox • Technical - assist individuals or businesses to source technical expertise and resources. 2. Economic - using outside suppliers (outsourcing) can significantly lower costs & increase competitive advantages. Social • on a personal level, networking allows individuals with similar characteristics and interests to feel less isolated and provide support for each other. • on a business level, a number of firms may network to develop standards of practice and inter-firm assistance. Political – networks establish lobby groups leading to substantially greater economic and political power than individual firms. Social network Bis

13. Car Advantages of networks Networks, both formal and informal, can • provide support, • Encourage cross fertilisation of ideas, • reduce isolation, • provide access to new customers, • provide referrals to intermediaries that can become useful for outsourcing activities, • reduce much of the analysis work involved running a business and sourcing new customers or suppliers.

14. Disadvantages of networks • Networking can become the end rather than the means - the energy is spent on networking rather than using the outcomes. • Networking takes time and effort, which may distract from normal business activity - a recent study of over 450 managers found that those who were promoted fastest spent 48 per cent of their time networking. • Networks develop trust, which if misplaced, may lead the individual or business to neglect normal risk analysis procedures.