Gomes Casseres Alliance

Management Roundtable Alliance Workshop
Fundamentals for Success Fundamentals for Success

Ben Gomes-Casseres
Brandeis University
Waltham, Mass.
Alliance Strategy: Alliance Strategy:
Alliance Strategy Consulting

Lexington, Mass.
ben@alliancestrategy.com www.alliancestrategy.com
Presented at Management Roundtable Workshop Boston, June 2 -3, 2003
Benjamin Gomes -Casseres 2003. Please do not copy or distribute any part of this
presentation without approval of the author.
Ben Gomes-Casseres
Degrees
Harvard Business School Princeton University Brandeis University
Professional Experience
Prof, Brandeis University, 1995 today Prof, Harvard Business School, 1985-1995 Economist, World Bank, 1978 -1981 Independent Consultant, 1987 - today
Expertise
Alliance Strategy and Management Competition and Strategy Technology Strategy International Business
Clients
Sun, Motorola, HP, Qualcomm Abbott, Lilly, DuPont DaimlerChrysler, Timken, Ashland MasterCard, Towers Perrin, Harris
(c) Benjamin Gomes-Casseres 2003 (www.alliancestrategy.com)
The Arc of Alliance Strategy

Goals, partner selection, structure
Alliance Design Alliance Management
Relationship management, alliance evolution
Alliance Constellation
Alliance Capability
Design and management of alliance portfolio
Internal organization, knowledge management
STRATEGY
ORGANIZATION
Industry and company context

Source: Mastering Alliance Strategy: A Comprehensive Guide to Design, Management, and Organization, by James Bamford, Benjamin Gomes-Casseres, Michael Robinson (Jossey -Bass, 2003).
(c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).
Alliance Strategy
Develop alliance strategies, not strategic alliances . . .

1. Let business strategy drive alliance decisions 2. Design the alliance to fit the strategy 3. Grow relationships, dont do deals 4. Use portfolios of alliances, not stand-alones 5. Organize internally to cooperate externally
Alliance Strategy
Corning Glass: From Pyrex to Photonics

n Alliances to exploit vertical markets
l l l
Dow-Corning Samsung-Corning Owens-Corning
n Alliances to develop new technologies

l l
Optical waveguide R&D alliances Siecor and BICC JV to make and sell optical fiber cables
Alliances to enter and exit businesses

l l l
Vitro JV . . . slowly exit kitchen-ware business Ciba-Geigy JV . . . develop then exit medical diagnostics Siecor . . . develop then dominate optical fibers
5
Alliance Definition
Types of Inter-Firm Relationships

Long
Mergers and acquisitions Joint production Co-marketing Preferred suppliers International joint ventures
Hierarchy
DURATION OF COMMITMENT
Market Exchange
Competitive suppliers One-off arms length purchase
Joint R&D
Minority investments
Short
EXTENT OF JOINT DECISION MAKING
Alliance Definition
Types of Alliances
Long
Mergers and acquisitions Joint production Co-marketing Preferred suppliers International joint ventures
DURATION OF COMMITMENT
Joint R&D Competitive suppliers One-off arms length purchase
Minority investments
Short
EXTENT OF JOINT DECISION MAKING
Alliance Definition
Definition of Alliance
Arms length contract Merger or acquisition
Alliance
1. Creates value by combining capabilities 2. of separate firms 3. which share control 4. in an open-ended (incomplete) agreement.
Alliance Definition
Incompleteness in Alliance Agreements

n n n n n n
Changes in technology and markets Uncertainty in what the joint project will require Difficulty in measuring inputs or outputs Need for investments dedicated to joint project Integration among concurrent projects Difficulty in protecting intellectual assets
9
Alliance Definition
Alliance = a way to manage incompleteness

Incomplete contract
Unforeseen External Events
Unforeseen Internal Events
New decisions New decisions New decisions New decisions

10
Alliance Strategy
Fundamental Phases of Every Alliance
Alliance Design
Alliance Management
11
Alliance Design
Strategy
Partner
Structure
12
Alliance Design
Process Flow for Alliance Design

KSFs for achieving business goal
n
Self-reliance
Purchase on the market
Purchase inputs Hire people
Acquire company
YES Capabilities available in house or feasible to develop?
YES
NO
Capabilities available on the market?
Alliance preferred or acquisition blocked
JV NO
Lic.
Inv.
Co-...
Alliance
Co. A (c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).
Co. B
Co. C
Co. D
13
Alliance Design
Criteria for Partner Selection
n n n n
Complementary Capabilities Limited Rivalry Compatible Goals Common Goals
1+1=3
1+1=1
14
Alliance Design
Structure Shapes Performance

n n n n n n n
Incentives for collaboration Protection of intangible assets Scope: Whats in, whats out Roles: who does what, when Process for decision making Process for maintaining partner alignment Creation of trust
15
Alliance Design
Charles Handys Seven Rules of Trust in the Virtual Corporation

n n n n n n n
Trust is not blind Trust needs boundaries Trust demands learning Trust is tough Trust needs bonding Trust needs touch Trust needs leaders
16
Source: Charles Handy, Harvard Business Review. (c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).
Alliance Management
Relationships Between Key Alliance Phases

Design creates conditions that affect Management
Alliance Design
Alliance Management
Exit
People and practices introduced in Design continue to operate in Management

17
Alliance Management
The Alliance Life Cycle
Operate Invest Negotiate Plan
Restructure
18
Alliance Management
Alliance Stages
n n n n n n
Management Tasks
- Define logic - Match goals, skills - Design structure - Invest, build trust - Support, exchange - Review, change
19
Set strategy Partner search Negotiation Start-up Operation Adjustments
Alliance Management
Relationship Management Approaches

n n n n n n n
Negotiate with relationship in mind Alliance managers and leaders Relationships and communication at all levels Periodic, planned, personal meetings People exchange, information sharing Blameless reviews of alliance health Be flexible: expect the unexpected
20
Portfolio Coordination
An Alliance Portfolio
21
RISC Constellations, ca. 1992

TI Toshiba Cypress Nippon Steel Seiko AT&T SUN Philips DEC Matsushita Hyundai Prime Solbourne CompuAdd Tandon Mentor ACE initiative Bull Daewoo SGI Prime Olivetti CDC C-Itoh UNISYS Fujitsu Sony LSI Logic Toshiba LSI Logic IDT NEC Siemens ICL Kubota MIPS Pyramid Nixdorf Perf. Semi.
Goldstar
Company
Semiconductor firm
Hitachi
Samsung
Wang Motorola
Company
Systems firm HP Equity investment Product supply Technology license Agreement to use chip Stratus Sequoia Apple Kaleida, Taligent Sears IBM
Source: Benjamin Gomes-Casseres, The Alliance Revolution (Harvard University Press, 1996). (c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).
22
Global Airline Constellations, ca. 2001
North America
oneworld American
Europe
British Airways IBERIA
Asia/Pacific
Quantas Cathay Pacific
Africa
South America
Wings
Northwest Continental
KLM
Northwest
Kenya Airways
SkySkyTeam Qualifyer Group
Delta
Air France Swissair Sabena
Korean
Aeromexico
South African Singapore Thai Airways Ansett Air New Zealand ANA Air China 23 Varig Mexicana
Star Alliance
United Air Canada & Canadian
Lufthansa British Midland Austrian Airlines Group SAS Spanair
USair
From: Thomas Sattelberger,2003 (c) B. Gomes-Casseres Lufthansa EVP (www.alliancestrategy.com).
n n
A single, ideal partner seldom exists Complexity demands multiple capabilities
n n
Select position among and within groups Group design can create advantages or disadvantages
24
Analyze your constellation(s)

1. Define goal and key success factors in a business 2. List and map current alliances in this area 3. List and map potential alliances 4. Evaluate critical links and weak links 5. Map competing networks of your rivals 6. Evaluate strengths and weaknesses vs. rivals
25
Manage your constellations

n n
Top execs responsible for specific alliances Alliance management units

Corporate level Business group level
n n n
Partner forums, committees, conventions Common rules for similar alliances Hierarchy of alliances
26
Alliance Capability
Evolution of Internal Alliance Capability Level 1

Reactive alliances One-off alliances Legal and financial skills
Level 2
Alliance ideas generated by BUs Best practices codified Alliance management skills
Level 3
Integrated alliance strategy Hierarchy of alliances Portfolio management skills
Source: Adapted from The Alliance Analyst. (c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).
27
Alliance Capability
The Locus of Alliance Capability Centralized

l l l l
Pooling of knowledge Transfer of knowledge across divisions Special skills and repeatable processes Cross-divisional coordination and monitoring
Decentralized
l l l l
Integration in business strategy Local knowledge of clients and partners Accountability Speed of decision making and action
28
Alliance Capability
Formal vs. Informal Alliance Capabilities

Method of Learning
In-house alliance seminars On-line database Reference manual List of best practices Dedicated alliance staff Apprenticeships External conferences
H-P
Yes Yes Yes Yes Bus devt No Some
Corning
No No No No No Yes Speaker
Source: Adapted from The Alliance Analyst, November 25, 1994.
29
Alliance Capability
Location and Form of Alliance Capability Decentralized
Unisys Lilly HP Siebel Fedex

Formal
Sun
Centralized
Lotus
Corning
Informal
30
Conclusion
Seek Best Thinking. . . not Best Practices

n
Identify and diagnose your own issues Find and develop your own solutions Embrace ideas, not simple answers
31
Conclusion
Mastering Alliance Strategy

n n n n n
Recognize alliances as integral to strategy Identify your own expertise Develop alliance tools where relevant Use database, intranets, websites, newsletters Training on internal and external best practices
32

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Management Roundtable Alliance Workshop

Fundamentals for Success Fundamentals for Success

Alliance Strategy: Alliance Strategy:

Alliance Strategy Consulting

(c) Benjamin Gomes-Casseres 2003 (www.alliancestrategy.com)

Management Roundtable Alliance Workshop

The Arc of Alliance Strategy

Relationship management, alliance evolution

Design and management of alliance portfolio

Internal organization, knowledge management

Industry and company context

(c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).

Develop alliance strategies, not strategic alliances . . .

(c) Benjamin Gomes-Casseres 2003 (www.alliancestrategy.com)

Management Roundtable Alliance Workshop

Corning Glass: From Pyrex to Photonics

Dow-Corning Samsung-Corning Owens-Corning

n Alliances to develop new technologies

Alliances to enter and exit businesses

(c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).

Types of Inter-Firm Relationships

EXTENT OF JOINT DECISION MAKING

(c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).

(c) Benjamin Gomes-Casseres 2003 (www.alliancestrategy.com)

Management Roundtable Alliance Workshop

Joint R&D Competitive suppliers One-off arms length purchase

EXTENT OF JOINT DECISION MAKING

(c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).

(c) Benjamin Gomes-Casseres 2003 (www.alliancestrategy.com)

Management Roundtable Alliance Workshop

Incompleteness in Alliance Agreements

(c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).

Alliance = a way to manage incompleteness

Unforeseen External Events

Unforeseen Internal Events

New decisions New decisions New decisions New decisions

(c) Benjamin Gomes-Casseres 2003 (www.alliancestrategy.com)

Management Roundtable Alliance Workshop

Fundamental Phases of Every Alliance

(c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).

(c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).

(c) Benjamin Gomes-Casseres 2003 (www.alliancestrategy.com)

Management Roundtable Alliance Workshop

Process Flow for Alliance Design

Purchase on the market

Purchase inputs Hire people

YES Capabilities available in house or feasible to develop?

Capabilities available on the market?

Alliance preferred or acquisition blocked

Co. A (c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).

Criteria for Partner Selection

Complementary Capabilities Limited Rivalry Compatible Goals Common Goals

(c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).

(c) Benjamin Gomes-Casseres 2003 (www.alliancestrategy.com)

Management Roundtable Alliance Workshop

Structure Shapes Performance

(c) B. Gomes-Casseres 2003 (www.alliancestrategy.com).

Charles Handys Seven Rules of Trust in the Virtual Corporation

(c) Benjamin Gomes-Casseres 2003 (www.alliancestrategy.com)

Management Roundtable Alliance Workshop

Relationships Between Key Alliance Phases

People and practices introduced in Design continue to operate in Management