A FRAMEWORK TO STUDY STRATEGIC ALLIANCE IMPLEMENTATION

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Strategic alliance is sharing of capabilities, such as R&D, manufacturing or marketing, which affects the long term competitiveness of the firms involved and implies a relatively long-term commitment of resources by partners. The strategic alliance can be formed by following a four step framework which comprises of deep understanding of the industry drivers and competitive forces, access the extent to which the relationship is viable and valuable, Negotiation and design of the alliance, and finally implementation. The strategic alliance between GM and Reva was a technological alliance.

Keywords: strategic alliance; reva; GM; strategy framework;

Objective

In this work I have presented my understanding about Strategic alliance, a framework to study the various steps in formation of strategic alliance and implementation. Also I have applied the framework for strategic alliance between Reva and GM .

Introduction

What is a Strategic Alliance?

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An alliance can be defined as the sharing of capabilities between two or more firms with the view of enhancing their competitive advantages and creating new business without losing their respective strategic autonomy (Lasserre, 2009).

The alliance is called strategic as there is sharing of capabilities, such as R&D, manufacturing or marketing, affects the long term competitiveness of the firms involved and implies a relatively long-term commitment of resources by partners.

What are the types of strategic alliance?

Based on the scope and objective strategic alliance can be classified as

Global reach Alliance

Here the firms try to establish geographically complementing partnership, this alliance are formed to develop a global presence

Global leverage Alliance

This is formed to enhance the worldwide competitive capabilities of the firm. This may focus on Partnering in R&D activities or manufacturing.

Scope

Global

Global reach Alliance

Global leverage Alliance

Local

Alliance for country market entry

Alliance for country resource sharing

Market

Capabilities

Object

Alliance for country market entry

This is an Alliance formed with a foreign company with the objective of penetrating local market. These are the traditional joint ventures that are formed in emerging market.

Alliance for country resource sharing

These are joint ventures in resource rich countries which are formed with objective of accessing resource available in a particular country (Rudolf grunig, 2001).

What is the complexity in strategic alliance?

A strategic alliance can be formed neither through a market contract such as buyer supplier contract nor through merger of capabilities as in mergers. As a consequence a strategic alliance is a governance structure involving an incomplete contract between separate firms and in which each partner has limited control. It cannot specify fully what each party should do under every conceivable condition and therefore requires that both parties engage in some form of trusting open-ended relationship in which decision making is shared in order to allocate resource and distribute the outcome of the joint activity according to the prevailing business condition (Lasserre, 2009).

Framework for analysis

The framework is to study the various steps of alliance formation and implementation.

The analysis can be divided into four major steps (Dent, 1999).

Strategic context and value potential

The starting point of any alliance analysis is a deep understanding of the industry drivers and competitive forces.

The value potential of the alliance is calculated on the basis of the potential benefits it brings to the respective companies involved (Spekeman, 2000). The analysis is carried out in two steps

Objective

Steps

Questions to be answered

Shape EXPECTATION

Strategic context and value potential

Defining the scope

Strategic objective

Value creation potential

What are the benefits of the alliance?

What do partners get from it?

Identify ISSUES

Partners fit

Strategic fit

Capabilities fit

Cultural fit

Organizational fit

How workable is the relation?

Set the AGREEMENT

Negotiation and design

Operational scope

Interface

Governance

How do we manage?

Achieve RESULTS

Implementation

Integration

Co-operation

Learning

How do we work?

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The value potential of the alliance is calculated on the basis of the potential benefits it brings to the respective companies involved (Spekeman, 2000). The analysis is carried out in two steps

Value created by the alliance

Revenue through volume of sales

Revenue through ability to command high differentiated price

Future revenues through joint R&D products and process

Cost benefits resulting through economies of scales

Value captured by partners

Revenue through sale of intermediary products or services to alliance

Profits derived from products or process developed

Profits from sale of other products whose sales are boosted because of alliance

Issues

Relative contribution is often hard to access

Much of values accrue outside alliance

Partners may not declare the real value they seek

Partner fit analysis

This try to access the extent to which the relationship is viable and valuable. It consists of four assessments

Strategic fit

The purpose of this is to assess the degree of compatibility among the partners, given their respective explicit or implicit strategic objectives. When stated objectives are explicit the analysis is simple, but when there are hidden agendas the analysis requires an in-depth study of the partners. An analysis of strategic fit implies the following assessments

Criticality of the alliance for the partners

The relative competitive position of partners

The compatibility in the strategic agendas

The importance of alliance for the partners is determined on the basis of the contextual analysis done earlier. If the strategic importance is unbalanced, there will be a divergence in commitment and the fit will be more questionable (Ernst, 2000).

Capabilities fit

To assess the extent to which partners are capable of contributing to the necessary competitive capabilities of the business.

Cultural fit

Three types of cultural differences can be distinguished in global alliances

Corporate cultures

Industry cultures

National cultures

Each of them likely to create gap that may affect the future functioning of the partnership.

Organisational fit

Organisational fit analysis is strongly correlated with cultural fit. The objective is to assess whether the partners organisational structure systems and procedures differ significantly to the extent that the organisation of the work between partners within the alliance is affected. The main dimensions to it are

Degree of de-centralization in decision making

Extent of documentation of policies and rules

Accounting and reporting method

Negotiation and design

Operational scope

There are four types of alliance design, depending on the type of partnership and operational capabilities

Self contained

This act as autonomous subsidiary, it forms the joint venture company which will develop its own strategy and reports to shareholders.

Transfer platform

Here people and assets are transferred to joint venture company by the parents. This act as a learning alliance.

Project team

The team is formed as a co-specialization alliance, It implements strategy but coordinates operations from the parent company.

Joint committee

Here the assets and operational people are with parent company. The joint ventures role is to serve as a forum where parent companies exchange their contribution.

Interface and governance

Deciding on the interface and governance for the alliance is probably the most difficult part of the negotiation between partners. Six domains have to be agreed

Legal structure and decision making mechanism

Deciding on Control over the alliance. This will necessarily device the decision making mechanism

Degree of task integration

Task integration defines which activities are carried on by the alliance, which one are carried separately and the extent to which activities carried by each partner need to be integrated. Integration requires co-ordination and joint work and therefore is likely to demand complex management approach.

Appointment of executives

Deciding the appointment of executives including alliance manager and various functional and line managers.

Distribution of values

An alliance creates value this value has to be distributed according to the agreed scheme. They need to decide on whether to go for revenue sharing or profit sharing

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Reporting and communication processes

Alliance agreements should provide communication platform so that partners remain informed about the development of the venture. This include both vertical and horizontal communication between and within partners.

Conflict resolution mechanism

The creation of an internal mechanism for resolving conflicts.

Implementation

The last stage in alliance management is implementation stage. The two different aspects of implementation that are critical are

Integration and co-operation

Learning

Integration and co-operation

Once the alliance has been formed Integration teams are formed. They are functional working groups made of managers from the different partners who are assigned with task of

Which process to adopt

Which IT platform

Kind of measurement

Managing relationship with third parties

Accounting system

An Internal Selling Job is often needed to erode fears or misinterpretation of the alliance's value; trade unions have to be convinced that the alliance is not designed to eliminate jobs through internal training sessions (Jerry Ross, 2001).

Learning

The learning opportunities in strategic alliance can be broadly classified as

Co-learning

Captured Learning

Co-learning

Co-learning is what the partners learn from the alliance and within the alliance. It may be

About the business

About the tasks

About partners expectations and capabilities

Partners discover jointly the characteristics ad trends of market, the industry and its competitive drivers.

Captured learning

Captured learning refers to learning from partners. For this the organization must identify clearly what it wants to learn and set up a learning agenda defining the learning sequence (Andrew C., 1998). The captured learning will become effective if there is

Allocation of time and budgets to learn

Planned approach to skill acquisition

Internal training

Attitude to learn

Search for benchmarking

Organized intelligence

Networked internal information interchange

Implementation for strategic alliance between Reva and GM

Steps

Implementation

Strategic context and value potential

Defining the scope

Strategic objective

Value creation potential

The scope of the alliance is to develop and market "e-spark".

GM will be spending less on R&D through this Technological alliance.

Partners fit

Strategic fit

Capabilities fit

Cultural fit

Organizational fit

GM's Infrastructure and Reva's R&D capabilities fitted the alliance well.

Organizational and cultural aspects were compatible.

Negotiation and design

Operational scope

Interface

Governance

Break even is around 4000 to 6000 units of e-spark.

Market through spark's Infrastructure.

Implementation

Integration

Co-operation

Learning

Functional groups were formed.