"An alliance is a relationship that is strategical or tactical, and that is entered into for mutual benefit by two or more parties having compatible or complementary business interests and goals" (Segil L. 1996; cited by Muson, 2002, p. 20). The use of strategic alliances to form networks of organisations which compete jointly for the benefit of individual member organisations is a relatively new competitive weapon, yet is becoming increasingly popular in the world of business (Drago, 1997).
The number of strategic alliances has almost doubled in the past ten years and is expected to increase even more in the future (Booz et al. , 1997; cited by Elmuti, 2001). This is especially true in the information technology industry (Drago, 1997). The rapid advancement of technology and the growth of a global economy are the basis for the growing number of strategic business alliances. Collaboration with other firms can take many forms. Some alliances are no more than fleeting encounters, others are the prelude to a full merger of two or more companies' technologies and capabilities.
Moreover, they can involve a customer, supplier or even a competitor. The precise form of collaboration is determined by the motives and preferences of the partners. Whatever the duration and objectives of business alliances, being a good partner has become a key corporate asset (Kanter, 1994). Entering a strategic alliance can have different and multiple reasons. One key driver in the formation of business partnerships is innovation. From the 1990s onwards an emphasis on innovation has been seen to replace efficiency and quality as the main source of competitive advantage of firms (Swan et al. 1999).
"The ability to innovate is considered to be at the heart of competitiveness" (Swann, 1993; cited by Dickson and Hadjimanolis, 1998). Therefore, a business which is serious about competing in fast changing markets must make things happen - it must innovate (Johne, 1999). Strategic alliances provide access to resources that are greater than any single firm could buy, and as a result the partners can achieve something which falls outside their individual areas of capability and expertise.
Although strategic alliances can greatly improve firm's ability to create new products, bring in new technologies and penetrate other markets, the formation of alliances often entails drawbacks which can hamper innovation (Arias, 1995). It therefore seems appropriate to look more closely into whether strategic alliances foster or block innovation. Starting with arguments speaking for innovation being fostered by alliances, one has to emphasize the following point, which is concerned with the issue of technology. An investment in technology is central to the success of some innovations.
However, the increasingly interdisciplinary nature of many of today's technologies and products means that, in many technical fields, it is not practical for any firm to maintain all necessary skills in-house. Rapid changes in technology and dramatically rising costs of building and sustaining the necessary specialised equipment are forcing companies to enter alliances (Trott, 2002; Amin et al. , 1995). By sourcing technologies externally, one is reducing the risks, costs and time associated with in-house development.
Therefore, most managers now recognise "that no company can continue to survive as a technological island" (Tidd, 2001). Alliances are used to build jointly on the technical resources of two or more companies in developing innovative products technologically beyond the capability of the companies acting independently (Walters et al. , 1994). Moreover, alliances allow not only for exchange of technology, but also for the exchange of competencies. As technology is usually embedded with experience and know how, skills and knowledge are essential for being innovative.
Strategic alliances are an effective way of internalising a partner's know-how. Thus, strategic alliances and networks make technological innovations easier to accomplish. However, according to Ty Francis, most successful innovations are new marketing concepts rather than new products. One of the major marketing concept is concerned with new markets. New markets are defined as "new types of customer groups for an existing product or service" (Doyle P. , 1998). Schifrin (2001) emphasises that expansion into new markets is one of the three most important reasons for companies to form alliances.
Ohmae (1992; cited by Emulti and Kathawala, 2001) points out that companies simply do not have the time to establish new markets one-by-one. Therefore, forming an alliance with an existing company already in that marketplace is a very appealing alternative. Partnering with a company can make the expansion into unfamiliar territory a lot quicker, easier and less stressful for a firm. Equally, alliances can enable a company to enter new markets, where it might not have much experience and might have difficulty entering alone (Kotler and Armstrong, 2001).
The company may lack the necessary marketing expertise because it does not fully understand customer needs, does not know how to promote the product or service effectively, or does not understand or have access to the proper distribution channels. Instead of developing this expertise internally, the company may ally with another organisation that possesses those desired marketing skills. By capitalising on the product skills of one organisation and the marketing skills of the other, the resulting alliance is able to serve the market quickly and effectively (Walters et al. 1994).
Alliances are especially helpful when entering a foreign market for the first time because of the extensive cultural differences that may abound. Further, by teaming up with a company, an organisation can minimize the expenditure and risk that is required to enter new markets or sectors (Blackett and Boad, 1999). As entering a new market is a dangerous venture, joining with, rather than competing against, an established player can reduce the risk of failure. Another advantage of strategic alliances is speed to market.
Companies that are slow to innovate usually end up with high product development costs and achieve lower prices. Late entrants rarely obtain a significant market share. Bringing together the competencies of partner companies facilitates rapid new product development and helps getting the products to market quickly. Today, with advanced technology, global markets and short product life cycles, speed to market is essential (Doyle, 1998). As one can see, networks are a powerful tool to foster innovation in companies and industry wide.
However, despite all the above listed benefits, one should not overlook the questionable aspects of strategic alliances. There is evidence to suggest that alliances and networks may harm a company's ability to innovate. In an alliance, there is a certain degree of interdependence, which requires the involved partners to give up some strategic flexibility to join in the alliance (Drago, 1997). Strategic flexibility is the ability to do things differently should the need arise. This flexibility is needed to respond to continuous evolutions and revolutions in products, technologies and markets (Arias, 1995).
As a result of the interdependence that has been built up, alliances also expose organisations to the risk of being exploited through appropriations of knowledge, ideas or products. Further, a possible source of strategic gridlock is technological. In network industries, the degree to which different technological systems are compatible with one another determines the users' relevant network boundaries. As the size of the network increases, so does the customer value of each component organisation's product. However, established technical standards that grant compatibility limit the degrees of freedom to explore innovative technologies.
Thus, companies are facing a strategic dilemma between compliance to standards or innovation (Tomas, 1995). Additionally, the creation of tightly structured networks of relationships may produce increased complexity, loss of autonomy and information asymmetry (Trott, 2002). Further disadvantages include higher co-ordination costs and increased management time (Dickson and Hadjimanolis, 1998). All the discussed risks and disadvantages may ultimately lead to a decreased ability to innovate and participate in technological change.
As one can see, strategic alliances and networks simultaneously promote and block innovation in the partner companies involved. However, most arguments are favouring the use of strategic alliances to facilitate innovation, because cooperating to compete will give participants a greater opportunity for growth and a stronger competitive edge. Therefore, innovative firms that cannot rely on their own internal capabilities and resources are advised to seek the establishment of alliances and networks with external organisations possessing the appropriate resources and expertise.
Gosper (1996) points out that seeking a complementary business ally should not be considered as a sign of weakness, but as a confident decision based on core competencies and future expansions. After the presentation, a group discussion was initiated. The discussion was not as active as it could have been, because the author missed out to discuss the issues first with the small groups prior to the main discussion. The following paragraphs are summing up the outcomes and raised issues. Moreover, the author is elaborating on each of them.
In order to illustrate the principal of strategic alliances clearer, the seminar group was asked to give examples of where firms established alliances to facilitate innovation. The group named the alliance between Siemens and Fujitsu as one example. They suggested, that the motive of this alliance could be the development and launch of more innovative computers. The two firms are complementing each other, as Fujitsu has not enough knowledge about the European market and Siemens can take advantage of Fujitsu's technological expertise.
Furthermore, the group raised the example of the alliance between Canon and Kodak, who jointly developed the Advanced Photo System. An additional example, illustrated by Tidd (2001), would be the alliance between Phillips and Sony, where they developed, produced and commercialised the CD. Phillips had developed the prototype for the CD by 1978, after 6 years of development but recognised it would be difficult for the company to turn the concept into a world standard. Therefore, they approached Sony in 1979 to form a strategic alliance.
Sony was chosen because it had the requisite development and manufacturing capability, and provided access to the Japanese market. Together, they quickly moved to establish their technology as the international standard, both by official and de facto means. The alliance between Phillips and Sony had many motives, including access to complementary technologies, economies of scale in production, establishment of international markets. It was a success because in each case the motives of the respective partners were complementary, rather than competitive.
After looking at the examples more closely, it might be concluded that the formation of strategic alliances are especially crucial in technology-intensive industries. Almost all innovations demand some form of collaborative arrangement, for development or commercialisation, but the failure rate of such alliances remains high. Unfortunately, one is not able to give examples of strategic alliance failures, because journals and books are reporting a lot about successes, but never about failures. This is most probably the case, as companies enjoy talking about successes, but try to hide failures.
However, Ernst has found out that between 30 and 60 percent of alliances do not succeed (Shearer, 2002). Therefore, the second question was with regard to what companies have to consider in order to make an alliance a success. Although there is no such thing as a simple formula for success, a few factors are important to consider in order to reduce the risk of failure. The group responded to this question by saying that the selection of the right partner is crucial to the success of any alliance and without the proper partner, a company should never enter an agreement.
Kanter (1994) emphasises that a company should know itself and the industry in order to be able to choose the right partner. When selecting a partner, one has to look out for companies which not only share the same values, but also target similar consumer segments to which value added packages will appeal (Temporal, 2000). Another raised issue was concerned with trust. A member of the seminar group underlined the importance of mutual commitment and trust to keep the alliance together. The literature is taking this point further by saying that only people can trust each other, not companies.
Therefore, alliances need to be formed to enhance trust between individuals. Many alliances have failed due to the lack of trust causing unsolved problems, lack of understanding, and despondent relationships (Emulti and Kathawala, 2001). Lastly the seminar group said that to be successful, strategic alliances must achieve equal value for all parties. No relationship in which one of the two parties has a better deal can survive. In order to accomplish the mentioned issues, numerous managerial skills are required.
Henry Mintzberg classifies the activities which constitute the essential functions of a manager into ten roles. He divides these ten roles into interpersonal, informational and decisional roles. In order to be able to manage strategic alliances, some of the roles are particularly in demand. In terms of decisional roles, the negotiator role is very important when forming alliances. Managers should establish an agreement right from the beginning as to who does what, and the roles of each of the partners and the control mechanism that will ensure that such an agreement is maintained to the satisfaction of all parties.
Further, the entrepreneurial role is required as the manager has to adapt the organisation in a controlled way to changes in its environment. He/she has to phase in the relationship between the partners, and blend the two cultures. Planning and patience are necessary to mesh the different organisational cultures and business philosophies to avoid an i?? us versus them` situation. In terms of interpersonal roles, this demands the manager to be active in his liaison role and act as a key link between the organisation and its partner. The manager has to build trust between the companies.
Through the liaison role, he/she has to transmit external information into the organisation. In this disseminator role, an informational role, the manager acts as the nerve centre of information. Equally, the spokesperson role requires the manager to transmit information to its partner (Mullins, 2002). As one can see, alliances require highly skilled managerial skills. Without deft management of the integration of corporate cultures, the coordination of responsibilities, and the building of trust between the partners, innovation will hardly take place (Slowinski, 1992).