External Strategic Development: Strategic Alliances Lecture Eighteen

Aims of the Lecture Introduce the idea of Strategic Alliances. Explore the reasons for developing Strategic Alliances. Consider the pros & cons of Alliances.

Reminder of the Potential External Strategic Options Mergers Acquisition Alliances

Strategic Alliances Based on 2 or more organisations sharing resources and activities. An effective means of responding to complex environments, e.g. Globalisation. Productive in a public sector context, though views on Private Finance Initiatives (PFIs) are mixed. Develop the Social Capital and Knowledge flow of an organisation.

Social Capital - What Is It? “Goodwill available to individuals or groups” Adler & Kwon, 2002 “the aggregate of the actual or potential resources which are linked to possession of a durable network of more or less institutionalised relationships of mutual acquaintance or recognition.” Pierre Bourdieu, 1986

What Enables Social Capital? Structure – Extended number & density of connections to external knowledge providers Network members must satisfy the necessary condition… Opportunity Motivation & expectation of Value Ability …in order for the exchange and combination of intellectual resources to occur Cognitive – Develop a collective basis for communication through shared language narrative and common etiquette Relationship – Build ties through social interactions that increase trust, demonstrate reciprocity and encourage identification with norms McKenzie & van Winkelen, 2004

Network Relationships The organisation at the centre of the network gets faster access to knowledge. An organisation at the centre of the network gains influence when other players are not connected to each other. The organisation with a similar network to that of the major competitor reduces the risk of confrontation. Knowledge flows more quickly and efficiently in dense networks. McKenzie & van Winkelen, 2004

Why Alliances? Market access Share technological expertise Share knowledge and core competencies Spread risk and R&D costs More effective management of innovation

Types of Alliances Joint Ventures Consortia Networks Franchising A newly created company jointly owned by Parent bodies. Can be effective in entering new markets, e.g. China. Consortia A number of partners focused on specific venture or project. Networks Organisations work in collaboration without formal relationships. Franchising McDonalds, etc. Both parties agree to specific activities.

How to get it Right Alliances need to be managed for a partnership to develop. Clear strategic purpose is required Compatibility across the companies, not just at senior management. Expectations v Flexibility Trust The Value Chain can be a way of aiding the identification of alliance opportunities.