Summary containing all the relevant theory discussed in the course book (third edition) of the course Alliances, Mergers, and Networks given in the first year of Business Administration (master) at the Vrije Universiteit Amsterdam.
Why create an alliance
To develop and maintain competitive advantages. Instead of just acquiring
resources, they enjoy the benefits of combining their own resources with
the assets of others. There is a move from tangible to intangible resources.
What is an alliance?
An alliance is a voluntary, long-term, contractual relationship between two
or more autonomous and independent organizations (i.e. firms), designed
to achieve mutual and individual objectives by sharing and/or creating
resources.
4 implications that arise from this definition:
1. Alliance is an instrument that firms use to achieve their objectives
Alliance management = strategic activity.
2. Alliances offer flexibility in achieving their objectives, but they also
represent relatively unstable organizational arrangements, because
there is an absence of hierarchical governance.
3. Firms must manage their alliances proactively to resolve any tension
between cooperative forces.
4. Alliances are transitional entities, because firms can dissolve them at
any time, requires systematic management attention to resolve any
emerging adversities.
Examples alliance: IBM and Twitter
Alliances are critical weapons in firms’ competitive arsenals, and in recent
decades, alliance activity has increased substantially.
Reasons for engaging in alliances shift with economic and
industry developments:
- 70’s: firms focused on product performance (i.e. efficiency and
quality) and engaged in alliances to obtain access to technology and
new domestic and international markets.
- 80’s: becoming flexible, consolidate industry positions and gain
economies of scale and scope.
- 90’s & 00’s: learning and capability development for innovation,
therefore reason for alliances changes with economy & industry.
Advantages of alliances:
Access to resources
Economies of scale/scope
Risk & cost sharing
Access to (new/foreign) markets
Learning
Increase reputation
,Disadvantages of alliances:
Loss of proprietary information (proprietary information can be lost
to a partner who is a competitor or eventually will become one)
Management complexities
Financial and organizational risks
Risk of becoming dependent
Loss of decision autonomy
Loss of flexibility
Paradox:
As firms increase their focus on and use of alliances, their failure rates
seem to keep
climbing alliances are subject to widespread failure and premature
dissolution.
4 key reason for alliance failures:
1) Misunderstanding tension between cooperation and competition
Lack of trust
2) Lack of hierarchy / coordination
3) Misunderstanding of unique challenges due to different alliance
objectives
Whereas learning alliances require firms to focus on knowledge
sharing and protection mechanisms
4) Lack of institutionalization of their alliance know-how and know-what
Which we refer to as alliance capabilities
The strategic alliance development framework consists out of 3
parts:
1. Alliance development stages
2. Alliance context
3. Alliance competences
Every step of the strategic alliance framework should be considered by
management to gain optimal results.
This book describes the whole framework step by step with each chapter.
There are 8 alliance development stages these are dependent of the
context (objectives, partners and environment) and this results in
alliance competencies.
During the alliance strategy formulation stage, a firm decides which
governance mode is appropriate for realizing its objectives and thus create
competitive advantage 3 governance modes:
Make: internal growth or merger and acquisition
could increase the level of bureaucracy because the firm has full
control over an activity.
o Internal growth
= activities and resources developed internally
Coordination: hierarchy
Advantages: proprietary rights and ownership +
protecting and building competencies
Disadvantages: slow and costly development +
uncertainty
o Merger and acquisition
= activities and resources internalized through a
transaction in which two firms agree to merge
Coordination: hierarchy
Advantages: quick access to similar markets + tax
benefits
Disadvantages: required finances + high failure costs
Buy: market
o = activities and resources procured through a market
transaction
o Coordination: price
o Advantages: good access to different types of relevant
information + high-powered incentives
o Disadvantages: high transaction costs due to market failure +
information symmetries between buyers and suppliers may
result in higher prices.
Ally: alliance
o = access to activities and resources obtained through
collaboration with external firms
o Coordination: relational (supplemented with hierarchical and
price)
o Advantages: quick access to complementary resources +
speed and flexibility
o Disadvantages: shared returns + lack of control
This chapter: 7 theories that provide rationales for governance mode
decisions and influence the governance mode choice: (1) transaction cost
economics,
(2) resource-based view, (3) resource dependence perspective, (4)
strategic management theory, (5) social network theory, (6) organizational
learning perspective and (7) institutional theory.
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