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Strategic Alliances and Networks (Subject) / Lecture 8 (Lesson)

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• Allaince Management Success factors Phase : Alliance formation and Partner selection Key drivers: Partner complementarity, partner compatibility, partner commitment Phase : Alliance governance and Design Key drivers: Equity sharing of ownership, contractual provisions, relational governance Phase: Postformation alliance management Key drivers: use of coordination mechanisms, development of trust and relational capital, control and reconfiguration, conflict resolution and escalation
• Main alliance management challenges Need for proper alliance management (Harrigan) High complexity and need of active cooperation between  two or even more partners establishment of adequate coordination and communication mechanisms alignment of alliance's vision and goals Realization of close partner relationship(s) Flexibility in relationship, mutual trust and commited attitudes international partners (cultural gap) Frictional problems occur Establishment of elarning environment Learn from one's partner instead of just use the partner's skills overcome the not-invented-here-syndrome
• Five core problems of alliance management Opportunism Balance cooperation and competition different cultures coordination synergy allocation
• Problem 1 of alliance mgmt: Coordination Problem of large numbers : The more partners, the higher is complexity of coordination. (Handling of conflicts, changing hierarchical orders) Negotiation problem: Heterarchical structure among equals results in endless debating and discussion ("debating clubs"); allows veto positions -> Institutionalize behaviour and decision rules Allocation of pwer: Many small pwoer centers, instead of one hub (Develop strcutures which take partners interest into account)
• The effect of alliance size Structure : Formalization +  Specialization + Centralization - Horizontal + - vertical - Mechanisms Coordination - Direct supervision + - Standardization + - Mutual Adjustment- - (Transfer) Price + Control system (elaboration) Incentives - Self-enf. - - Third aprty- - equality rule +
• Problem 2 of alliance mgmt: Opportunism Reduce Opportunism Protect core competencies Contracts Technology and knowledge transfer credible commitments
• Opportunism, "Trojan horse" problem and effects of reputation Partner might have hidden intentions that were not obvious at the selection phase Not transferring everything he promised to give Taking more than asked for Moral hazard (failure to uphold to standards) Trying to weaken the company or to increase its dependence towards him Effects of reputation Reputation effects have information content that can attenuate or intensify fear of opportunism Firms action may be based on its partners reputation and concern for its own reputation as well as on the payoff structure High behavioural transparency, long time horizons, and frequent interactions promote reciprocal cooperation -> decrease threat of opportunism
• Problem 3 of alliance mgmt: Cooperation and competition Issue             -       Cooperation                  Competition Paradigm   Emphasis on similar values    Emphasis on contrary positions Communicat. Honest and open comm.    Danger of insufficient or                                                                   misleading information exchang Attit. to partn.  Trust, help the partner,       mistrust, opportunism, own                         facilitate                              benefits, hinder task orientate.  joint pursuit of gials, not     own benefit of paramount                          individual problems, but      importance                          one common problem  
• Problem 4 of alliance mgmt: Synergy assesment and allocation Measure contributions and benefits - management task: introducate a system to measure individual members contributions and benefits - core problems    separate private from common benefits    exactitude of measurement (quantification)   balance short term and long term goals Synergy allocation    Management Task: find an allocation key    Core problem: find a rule that is accepted by all partners  
• Problem 4 of alliance mgmt: synergy assessment: Measuring performance System performance The extent to which an alliance performs well as a BU -> Health of the alliance in respect of its viability as an operational system      2. Goal Performance Defined as the extent, to which the objectives that each parent company has in forming an alliance are realized in practice Each perspective highlights different aspects of alliance performacne difficulties in alliacne assessment due to appropriate criteria, finding suitable indicators and data
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• Problem 5 of alliance mgmt: Diverse Cultures: Relevance Defining culture in organizations Rules and expectations for behaviour that arise Through deliberate actions of leadship and ongoing interaction of group members these rules/expectations are unwritten and often unspoken employees may not always be totally conscious of the influencfe of this culture on their actions Culture gives the organization a certain style and character culture may have tremendous impact on how company employees think, act, and feel
• Potential functions of cultures Culture as Barrier : Different social, national and ethical worldviews are often source of fundamental conflict and lead to misunderstanding Culture as challenge: Different cultures require mutual trust and call for precision in defining the operational processes Culture as resource: Complementarity of culture leads eventually to a specific culture of the alliance, combining advantageous asepcts of their original cultures
• Pitfalls of diverse cultures Similarities across corporate cultures might seem favourable to improve the probability of parnership success compatibility cannot be ensured beforehand (not visible from outside) Often differences in culture operation procedures and practices become apparent only during the course of partnership
• Managerial tools used across the alliance life cycle 1. Alliance business case : Value chain analysis form, needs-analysis checklist, manufacturing vs partnering analysis 2. Partner assessment and selection: parnet screening form, technology and patent domain maps, cultural fit evaluation form, due diligence team 3. Alliance negotiation and goverance: Negotiations matrix, needs vs wants checklist, alliance-contract template, alliance structure guidelines 4. Alliance mgmt: Problem-tracking template, trust-building sheet, alliance-contract list, alliance-communication structure 5. assessment and termination: relationship-evaluation form, yearly status report, termination checklist, termination planning work sheet
• The tasks of an alliance manager Manage the relationship between the alliance partners Manage the alliance itself manage the relationship between the alliance and the parents
• Frayne and geringers challenges of the JV manager Presence of multiple parent companies existence of divided loyalties the need for operational independence despite often limited preparation and support responsibility which exceeds authority pressure for rapid action
• The role and value of a dedicated alliance management function Knowledge Management - Learning External visibility - support Internal coordination - legitimacy Alliance assessment - intervention to fix problems   Value Greater alliance success rate from improved practices greater abnormal stock-market gains ability to form more alliances and to attract better partners
• Successful management of alliance Management philosophy - abiility to relinquish some sovereignity, control while also engage in planning, organizing with alliance partners and taking into account the need of the partner --> facilitates Trust, joint problem solving, commitment, communication quality, joint planning --> Aligntment of partners expectations, goals, objectives   --> ALLIANCE SUCCESS
• issues managing multiple alliances Multiple alliance simply an addition of dyads(Symmetrie) ? Special challenges in establishing and managing multiple alliances? In which forms do/can they appear? Why does a firm choose to enter multiple alliances? Are the motives for entering multiple alliances different than entering dyadic relationships? Are multiple alliances an expection, or are they frequent?
• Difference of alliance portfolio and multilaterial alliance Alliance portfolio Set of discrete bilaterial alliances entered into by a firm perspective: the focal firm( a firms alliances) Multilateral alliance (Alliance constellation; strategic network) Alliance among more than 2 partners for a common goal Perspective: alliance
• Critical issues of managing an alliance portfolio Portfolio : Perspective of a central firm Each alliance in the portfolio raises the issue of partner  compatibility and associated management problems The broader the application of core competencies and technologies across the alliance portfolio, the stronger the nodal(knoten) position related applications allow for economies of scale and scope alliance portfolio with no synergies across the competencies and technologies required in each alliance is of limited value the nodal partner remains valueable to its partners only as it maintains leadership in crucial competencies / technologies Keeping partners separate facilitates the role of the nodal firm the nodal firm can maintain its leadership position only as it avoids stretching its financial and technical resources the managerial capability of the nodal partner must be up to the task
• Strategic benefits of an alliance portfolio Reach toward more opportunities than limited resources would allow Maximize asset co-specialization for new business creation maximize leverage of core competencies across application domains and georgraphies maintain excellence of contributions and competencies learn across alliances and cross-fertilize maintain "most valued" links betwen separate partners use the cumulative "weight" of multiple partners to one's own advantage
• Difficulties and limitations of an alliance portfolio difficult to invest/divest selectively into/from individual alliances, in particular with limited resources difficult to select "right" partner early, then held hostage to existing partner easy to be stretched too thin. how "core" are core competencies? Risk of losing nodal "start position" tough to manage the organizational complexity of a nodal position Need to keep partners separate Difficult to maintan a strategically united and purposive portfolio
• Special issues in managing alliance constellations Complexity and ambiguity increase strategic consistency : maintain consistency in a web of relationships with firms that are competitors and collaborators "strategic games" between participants in the web become more relevant With more than two partners: - Coalitions can be formed, transforming power relations - partners can play off others against each other
• Key strategic issues in building an alliance constellation 1. Choose the alliance composition (co-suppliers, users, complementers) 2. Optimize alliance size (Creating and sharing enough value for all partners, maintaining enough strategic consistency/compatibility between partners, containing the complexity of managing too many relationships, diminishing returns to extra/late membership 3. Select a growth path (establish sequence of new partner participation: credibility, criticality, leverage, surround but do not confront strongest established players, recognize speed of growth, first mover advantages, avoid going for "missing links" late, segment markets / applications first, "de-segment" later 4. Contain competition between members (Role differentiation, duplication, complementarity, sustained leadership by nodal firm(s) 5. Provide alliance governance (Open neutral (third party / association) governance, management by nodal firm(s)) 6. Maintain nodal firms advantage (Make enough knowledge and technology available, keep enough proprietary to maintain advantage, be able to afford accelerated learning)
• Options for governing alliance constellations 1. Specialized body/separate entitity Separate network operation and maintenance organization Focal point for communication and exchange ("hub") Watchdog for freeriders Central repository about member performance Maintainer of behaviour norms 2. Nodal Firm One firm acting as "manager" Assignin roles, defining rules Exercise control but also provide support Built by an enticing and compelling vision, unique resources and competencies, negotiating skills and forbearance A Firm can take this role by intention(from the start) or emerge as a nodal firm in one or more relevant areas for the network
• Difficulties in maintaining alliance constellations and possible control mechanisms Problem (p) , social control mechanisms (scm) (p) norms of reciprocity <---> (scm) generalized reciprocity demonstrate goodwill and commitment, thus company takes risk -> trust (p) conflict resolution <---> (scm) social sanctions mutual monitoring and rapid dissemination of information aout the credibility of participating companies (p) coordination <---> (scm) Macroculture system of widely shared assumptions and values
• Monitoring of alliance portfolios Monitoring of alliances and alliance portfolios should guarantee that the effective development process of the alliance/alliance portfolio lies within predefined boundaries and that set goals will be accomplished Consequence: Control of effective contribution of alliances Adaptation according to monitoring results
• Difficulties in monitoring alliance portfolios Same difficulties apply as for monitoring dyads Measuring contributions and benefits synergy allocation complexity and ambiguity tend to increase -> assessment of managerial involvement with each alliance more difficult Life cycle of each alliance different Comparison of monitoring assessment needs to account for it
• Important aspects for the assessment of alliances (Ring & Van de Ven) 1. Efficiency Minimizing of transaction costs/maximizing of transaction value 2. Reciprocity "Fair Dealing" Benefits received proportionally to their investments goes beyond economic rational calculation of equivalence of benefits among partners "fair dealing" includes the sociological meaning of indebtedness
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• Options for governing alliance constellations 1. Formal Component Negotiation of commitment Contract Role interaction of partners efficiency assessment 2. Informal component Sensemaking "psychological" contract Personal interaction Assessment of reciprocity(Fear dealing) of relationship

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