A strategic alliance (also see strategic partnership) is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations.

The alliance is a cooperation or collaboration which aims for a synergy where each partner hopes that the benefits from the alliance will be greater than those from individual efforts. The alliance often involves technology transfer (access to knowledge and expertise), economic specialization,[1] shared expenses and shared risk.

A strategic alliance will usually fall short of a legal partnership entity, agency, or corporate affiliate relationship. Typically, two companies form a strategic alliance when each possesses one or more business assets or have expertise that will help the other by enhancing their businesses.

Strategic alliances can develop in outsourcing relationships where the parties desire to achieve long-term win-win benefits and innovation based on mutually desired outcomes. This form of cooperation lies between mergers and acquisitions and organic growth. Strategic alliances occur when two or more organizations join together to pursue mutual benefits.

Partners may provide the strategic alliance with resources such as products, distribution channels, manufacturing capability, project funding, capital equipment, knowledge, expertise, or intellectual property.

Definitions and discussion

There are several ways of defining a strategic alliance. Some of the definitions emphasize the fact that the partners do not create a new legal entity, i.e. a new company. This excludes legal formations like joint ventures from the field of Strategic Alliances. Others see joint ventures as possible manifestations of Strategic Alliances. Some definitions are given here:

Definitions including joint ventures

Definitions excluding joint ventures

Terminology

Various terms have been used to describe forms of strategic partnering. These include ‘international coalitions’ (Porter and Fuller, 1986), ‘strategic networks’ (Jarillo, 1988) and, most commonly, ‘strategic alliances’. Definitions are equally varied. An alliance may be seen as the ‘joining of forces and resources, for a specified or indefinite period, to achieve a common objective’.

There are seven general areas in which profit can be made from building alliances.[8]

Typology

Some types of strategic alliances include:[2][9][10][11]

Michael Porter and Mark Fuller, founding members of the Monitor Group (now Monitor Deloitte), draw a distinction among types of strategic alliances according to their purposes:

Further kinds of strategic alliances include:[9][11]

Historical development of strategic alliances

Some analysts may say that strategic alliances are a recent phenomena in our time, in fact collaborations between enterprises are as old as the existence of such enterprises. Examples would be early credit institutions or trade associations like the early Dutch guilds. There have always been strategic alliances, but in the last couple of decades the focus and reasons for strategic alliances has evolved very very quickly:[9][11]

In the 1970s, the focus of strategic alliances was the performance of the product. The partners wanted to attain raw material at the best quality at the lowest price possible, the best technology and improved market penetration, while the focus was always on the product.

In the 1980s, strategic alliances aimed at building economies of scale and scope. The involved enterprises tried to consolidate their positions in their respective sectors. During this time the number of strategic alliances increased dramatically. Some of these partnerships lead to great product successes like photocopiers by Canon sold under the brand of Kodak, or the partnership of Toshiba and Motorola whose joining of resources and technology lead to great success with microprocessors.

In the 1990s, geographical borders between markets collapsed and new markets were enterable. Higher requirements for the companies lead to the need for constant innovation for competitive advantage. The focus of strategic alliances relocated on the development of capabilities and competencies.

Goals of strategic alliances

Advantages/disadvantages

Advantages

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For companies there are many reasons to enter a strategic alliance:

Further advantages of strategic alliances

Disadvantages

Disadvantages of strategic alliances include:[2]

Success factors

The success of any alliance very much depends on how effective the capabilities of the involved enterprises are matched and whether the full commitment of each partner to the alliance is achieved. There is no partnership without trade-offs, but the benefits of it must preponderate the disadvantages, because alliances are made to fill gaps in each others´capabilities and capacities. Poor alignment of objectives, performance metrics, and a clash of corporate cultures can weaken and constrain the effectiveness of the alliance effectiveness. Some key factors that have to be considered to be able to manage a successful alliance include:[14][15][16]

Further important factors

Risks

Using and operating strategic alliances does not only bring chances and benefits. There are also risks and limitations that have to be taken in consideration. Failures are often attributed to unrealistic expectations, lack of commitment, cultural differences, strategic goal divergence and insufficient trust. Some of the risks are listed below:[2][18]

The "dark side" of strategic alliances has received increasing attention across different management fields, such as business ethics,[19] marketing,[20] and supply chain management.[21]

Common mistakes

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Many companies struggle to operate their alliances in the way they imagined it and many of these partnerships fail to reach their defined goals. Some common mistakes are:

Importance of strategic alliances

Strategic alliances have developed from an option to a necessity in many markets and industries. Variation in markets and requirements leads to an increasing use of strategic alliances. It is of essential importance to integrate strategic alliance management into the overall corporate strategy to advance products and services, enter new markets and leverage technology and Research & Development. Nowadays, global companies have many alliances on inland markets as well as global partnerships, sometimes even with competitors, which leads to challenges such as keeping up competition or protecting own interests while managing the alliance. So nowadays managing an alliance focuses on leveraging the differences to create value for the customer, dealing with internal challenges, managing daily competition of the alliance with competitors and Risk Management which has become a company-wide concern. The percentage of revenues for the top 1000 U.S. public corporations generated by strategic alliances increased from 3-6% in the 1990s to 40% in 2010, which shows the fast changing necessity to align in partnerships. The number of equity-based alliances has dramatically increased in the last couple of years, whereas the number of acquisitions has decreased by 65% since the year 2000. For a statistically examination over 3000 announced alliances in the USA have been reviewed in the years 1997 to 1997 and results showed that only 25% of these alliances were equity based. In the years 2000 to 2002 this percentage increased up to 62% equity-based alliances among 2500 newly formed alliances.[3][9]

Life cycle of a strategic alliance

Analysis and selection

In the analysis phase performance goals for the partnership are defined. These goals are used to determine the broad operational capabilities that will be required. In the selection phase those performance goals are used as some of the criteria to evaluate and select potential alliance partners. The activities most often associated with the analysis phase are:[24]

The activities most often associated with the selection phase are:

Formation

Forming a strategic alliance is a process which usually implies some major steps that are mentioned below:[11][25][26]

Operation

In this phase in the life of a strategic alliance, an internal structure occurs under which its functions develop. While operating it, the alliance becomes an own new organization itself with members from the origin companies with the aim of meeting all previously set objectives and improving the overall performance of the alliance which requires effective structures and processes and a good, strong and reliable leadership. Budges have to be linked, as well as resources which are strategically most important and the performance of the alliance has to be measured and assessed.[9][25]

Alliance structuring and governance

This phase focuses on creating frameworks both legally and organizational for the strategic alliance relationship, on agreeing and finalizing operational plans, making sure that key leadership is in place, and creating a formula for risk-and-reward that will motivates both parties to make the relationship a success. This phase ends with the contract being signed.[28] Steps include:

End/development

There are several ways that a strategic alliance can come to an end:[25]

See also

Strategic partnership

Further reading

References

  1. ^ David C. Mowery, Joanne E. Oxley, Brian S. Silverman, Strategic Alliances and Interfirm Knowledge Transfer (1996) Strategic Management Journal, Vol. 17, Special Issue: Knowledge and the Firm (Winter, 1996), pp. 77-91
  2. ^ a b c d McGovern, Brian. http://brianmcgovern.com. [Online] 2014. http://brianmcgovern.com/joint-ventures-strategic-alliances-and-co-marketing/.
  3. ^ a b http://tbmdb.blogspot.de/. [Online] 29. August 2009. http://tbmdb.blogspot.de/2009/08/strategic-alliances-important-part-of.html.
  4. ^ http://www.businessdictionary.com. [Online] http://www.businessdictionary.com/definition/strategic-alliance.html.
  5. ^ Emanuela Todeva, David Knoke. Strategic Alliances & Models of Collaboration. University of Surrey, Guildford, UK : s.n.
  6. ^ Thompson, David S.; Twait, Steven; Fill, Kim (August 2011). "Measuring Alliance Management: Quantify your Value by Showing how you Mitigate Risk and Solve Problems". Strategic Alliance Magazine (Q3): 22–25.
  7. ^ Thompson, David S.; Twait, Steven (August 2011). "High Risk to High Reward: How to Dig In, Solve Problems, and Create a Valued Alliance Management Function". Strategic Alliance Magazine (Q3): 37–41.
  8. ^ Rigsbee, Ed (2000). Developing Strategic Alliances, First Edition. Library of Congress Cataloging-in Publication Data. ISBN 1-56052-550-9.
  9. ^ a b c d e Cummings, Stevan R. Holmberg and Jeffrey L. Building Successful Strategic Alliances. 2009.
  10. ^ Shawn Grimsley. http://education-portal.com. [Online] 2014. http://education-portal.com/academy/lesson/strategic-alliance-in-business-definition-advantages-disadvantages.html#lesson.
  11. ^ a b c d Priscilla Wohlstetter, Joanna Smith, Courntey L. Malloy. Strategic Alliances in Action: Toward a Theory of Evolution. The Policy of Study Journals. 3, 2005, 33.
  12. ^ Raue, J.S. & Wieland, A. (2015), The interplay of different types of governance in horizontal cooperations: a view on logistics service providers. The International Journal of Logistics Management, Vol. 26, No. 2.
  13. ^ Hanson, Cynthia (August 2015). "Orchestrating Partnerships Across Enterprise" (PDF). Strategic Alliance Magazine (Q3): 16–20.
  14. ^ Išoraitė, Margarita. Importance of Strategic Alliances in Company's Activity.
  15. ^ Strategic alliances and joint ventures. [Online]
  16. ^ Dengl, Michaela. http://www.genios.de. [Online] 2011. http://www.genios.de/wirtschaft/strategische_allianzen_wann_unternehmen/c_strategie_20111018.html.
  17. ^ Burke, Michael (August 2011). "Keeping Score on Alliance Metrics" (PDF). Strategic Alliance Magazine (Q3): 19–21.
  18. ^ http://www.wirtschaftslexikon24.com. [Online] http://www.wirtschaftslexikon24.com/d/strategische-allianz/strategische-allianz.htm.
  19. ^ Nicholls, Alex; Huybrechts, Benjamin (2016). "Sustaining Inter-organizational Relationships Across Institutional Logics and Power Asymmetries: The Case of Fair Trade". Journal of Business Ethics. 135 (4): 699–714. doi:10.1007/s10551-014-2495-y. ISSN 0167-4544. S2CID 55239140.
  20. ^ Abosag, Ibrahim; Yen, Dorothy A.; Barnes, Bradley R. (2016). "What is dark about the dark-side of business relationships?". Industrial Marketing Management. 55: 5–9. doi:10.1016/j.indmarman.2016.02.008. ISSN 0019-8501.
  21. ^ Villena, Verónica H.; Revilla, Elena; Choi, Thomas Y. (2011). "The dark side of buyer-supplier relationships: A social capital perspective⋆". Journal of Operations Management. 29 (6): 561–576. doi:10.1016/j.jom.2010.09.001.
  22. ^ The Handbook of Alliance Management (3 ed.). ASAP. 2013. p. 35. ISBN 978-0-9882248-1-0.
  23. ^ Handbook of Alliance Management (3rd ed.). ASAP. 2013. pp. 63–64. ISBN 978-0-9882248-1-0.
  24. ^ The ASAP Handbook of Alliance Management (3rd ed.). The Association of Strategic alliance Professionals. January 2013. pp. 33–34. ISBN 978-0-9882248-1-0.
  25. ^ a b c Mühlencoert, Thomas. Kontraktlogistik-Management. Koblenz : Springer Gabler, 2012. ISBN 978-3-8349-3131-3.
  26. ^ Joan Jané, Alejandro Lago, Beuhla D´Souza. The Effectiveness Of Strategic Alliances. IESE Business School- University of Nevada : s.n., 2008.
  27. ^ Reuer, Jeffrey J.; Ariño, Africa (2007). "Strategic alliance contracts: dimensions and determinants of contractual complexity". Strategic Management Journal. 28 (3): 313–330. doi:10.1002/smj.581.
  28. ^ Watenpaugh, Norma; Lynch, Robert Porter; Burke, Michael (January 2013). The Handbook of Alliance Management: A Practitioners Guide (3rd ed.). ASAP. pp. 115–131. ISBN 978-0-9882248-1-0.