Strategic Alliances in Distribution Chapter 11 with Duane Weaver

What is a Strategic Distribution Alliance? …when two or more organizations have a connection that cause them to function according to a perception of a single interest whereby the connections that bind the organizations are: –Enduring –Substantial –Cut across numerous aspects of each business

Chemistry Fit Operations Fit Strategic Fit Reference: Lynch, Robert P., Business Alliances Guide: The Hidden Competitive Weapon -- How to plan, negotiate, and manage strategic partnerships for increased corporate profits. Establishing Strategic Alliances Three Areas of Consideration – “FIT”

Establishing Strategic Alliances Corporate “FIT” CHEMISTRY FIT: A measure of the quality of the relationships among the people involved in operating the alliance A fool may be known by six things: 1.Anger without good cause 2.Speech without profit or direction 3.Change without progress 4.Inquiry without object 5.Putting trust in a stranger 6.Mistaking foes for friends. -- Arabian Proverb

Establishing Strategic Alliances Corporate “FIT” OPERATIONS FIT “Some executives fall into their own trap by assuming that a good strategic “fit” implies a good operational fit.” E.g.: Olivetti and AT&T

Establishing Strategic Alliances Corporate “FIT” STRATEGIC FIT: –Looks at STROI to build strategic synergy whereby the weaknesses of one company are offset by complementary strengths of the other. Thus, strategic direction is similar while operational strength and weaknesses are dissimilar. –STROI = Strategic Return On Investment measures: Market Strength, Innovative Capacity, Financial Gain, Organizational Capability, and Competitive Advantage.

Styles of Alliance Operations

Motives for creating distribution alliances Upstream Motives –Respect downstream, motivate to represent us, coordinate marketing, small players to giants (mergers) trend, erect barriers to entry, logistics cost reduction Downstream Motives –Assure stable supply, make marketing efforts more successful, cut costs, differentiate from other distributors, Alliances as out performers of ordinary channels –Discuss in your groups…what do you think?

Building Alliance Commitment via incorporating mutual vulnerability Expectations of Continuity Necessity of Mutuality Gauging Commitment Actions Binding Distributors to Suppliers Actions Binding Suppliers to Distributors

Building Commitment by managing daily interactions Manufacturing Trust Relative to your confidence in each other’s integrity and concern for mutual well-being Economic Satisfaction –Positive affective response to economic rewards from the union Non-economic Satisfaction –Psychosocial affect – relationship valued Choosing Partner and Setting –Need complementary capabilities that can be exploited for competitive advantage Decision Making Process –Centralization hurts trust

Life of a Marketing Channel Partnership: Relationship Stages See Figure 11.3, p. 339 Marketing Channel Relationship Stages 1.Awareness 2.Exploration 3.Expansion 4.Commitment 5.Decline and Dissolution

Conditions of potential success One side has special needs The other side has the capability to meet the needs Each side faces barriers to exiting the relationship The FIT is good across all three areas of fit

Thank You! Have a great day… ☺