strategic alliancing critical success factors ce 726 term assignment prepared by (in alphabetical...

STRATEGIC ALLIANCINGCRITICAL SUCCESS FACTORS

CE 726 Term AssignmentPrepared by(in alphabetical order):

Gianni Kubin – Levend Kalaç – Ovic Mbi Mabiala

OUTLINE

1. What is strategic alliance?2. Characteristics of Strategic Alliance3. Why Strategic Alliances are Formed?4. Types of Strategic Alliances5. Stages of Alliance Formation6. Advantages and Disadvantages 7. The Critical Success Factors

1. What is strategic alliance?

• A strategic alliance is an agreement between two companies which join their resources and activities in the expectation of higher benefit than if they were operating alone.

• Companies who enter strategic alliances remain independent organizations

Definition

• A strategic alliance involves at least two partner firms that:

• (1) remain legally independent after the alliance is formed;

• (2) share benefits and managerial control over the performance of assigned tasks; and

• (3) make continuing contributions in one or more strategic areas, such as technology or products

Evolution of Strategic Alliances

2. Characteristics of Strategic Alliances

1. Duration longer than the project

That characteristic is the one that makes the distinction between project alliance and strategic alliance.

Characteristics of Strategic Alliances

2. Heterogenic partnersEven though two companies can never be identical it is important that companies find partners which are strategically as well as culturally fit for themselves


3. Sharing rewards and risks

When the risks are shared, the cost of the losses resulting from the actions of one of the partners will be shared equally with all the other partners.


4. Interdependence


5. Management plan

The management plan should address the followings Responsibilities Decision-making Technology Processes Control Dispute resolutiın


6. Leadership and TrustThe partners within the alliance should be considered as equals and none of them should feel in a lower level in the hierarchy or undermined in its possibility to take initiatives.

Leadership by key individuals among the partners is essential in order to find common values and satisfaction in the work performed by the alliance.


7. Roles and responsibilities

Roles and responsibilities should be well detailed and the work division as well.


8. Process

Incentives to partners who perform better than the others should be put into place.

It is not always easy to define milestones in the development phase

3. Why Strategic Alliances are Formed?

1. Providing higher value to clients Strategic alliances allow companies to provide higher value

to clients since it is not common to find companies in the construction sector which possess the qualities to meet all the clients’ needs.

A complex project is best performed by a strategic alliance

of companies.

Why Strategic Alliances are formed

2. Decrease competition Strategic alliance is one form of competitive advantage a

contracting firm can use to be differentiated from its competitors.

Strategic alliances can sometimes be the only way for small companies to stay competitive and even to survive since the business world nowadays is technologically advanced and constantly changing


3. Acquire resourcesBy partnering up with other companies, a firm makes intangible investments.


4. Penetrating new marketsThe key to a fast and successful entry to a new market for a construction company is to partner up with another company which is already well implemented in that market.


5. Access to new technologies and/or the best quality or the lowest cost

By forming alliances with firms which possess these resources or technologies they are able to keep their position in the market.

Outsourcing is another reason for creating alliances


6. Reduce Risks

Some companies may find it very risky for them to venture into a new market they know little about. In such cases, two or more companies can come together and decide to share the risks among all of them.

RISKS AND PROBLEMS IN STRATEGIC ALLIANCES

1. Clash of cultures and “incompatible personal chemistry”

Language Work culture


2. Lack of Trust

Strategic alliances should be formed in order to enhance trust between individuals.

It is important that in case of any failure in the project, one party doesn’t point his finger at another


3. Lack of clear goals and objectives

Some companies will form alliances as a mean to tackle competitors.

It is necessary that partners cooperate at every level of the operations and that managers are familiar with the principles of cooperation


4. Lack of coordination between management teams Top level management should be aware of the actions

taken by the subordinates and these actions should be in accordance with the spirit of the top management.

Partners should comply with the rules established while forming the alliance and shouldn’t in any circumstance operate on their own in a manner that could be detrimental to the alliance.


5. Differences in operating procedures and attitudes among partners

When one company’s operating procedures impact negatively the performance of another partner, problems may arise


6. Relational risk

Relational risk is the risk that partners may not fully be committed to the alliance or that they put their own interests before the ones of the group.


7. Performance risk

Performance risk is the risk that an alliance may fail, even though the members are fully committed to the alliance.

Sources of performance risk are:• Environmental factors• Market factors• Internal factors


8. Strategic alliances may create a future competitor When companies enter into alliance, they learn from

each other Some partners use the alliance only to test the market

and prepare to venture into a new sector or to launch a new subsidiary. ,

Each company takes the risk to possibly be threatened in its area of business in the future.


8. Other problems

Breakdown in trust Change in strategy Value not materialized Cultures that did not mesh Systems not integrated

Alliances can be classified according to:

1. Their market position2. Their organizational structure

4. Types of Strategic Alliances

The market position can

1. Vertical Alliances2. Horizontal Alliances3. Inter-sectoral Alliances

Types of Strategic Alliances

• formed between organizations in different industries

• collaboration of expertise • offering complete solutions

1. Vertical Alliances

• formed between organizations in same industries

• especially common in the construction industry

• to achieve scale, share risk, use combination of power

2. Horizontal Alliances

• formed between organizations neither in the same industry nor related through the vertical chain

• aim is usually to use the distribution links or to reach the client portfolio

3. Inter-sectoral Alliances

The organizational structure can

1. Joint ventures2. Consortia3. Networks4. Franchising5. Licensing

Types of Strategic Alliances

• A legally distinct new organization is created while partner companies remain independent

• Shares may vary• Aim is to have a powerful independent

body for a certain type of work

1. Joint Ventures

• Joint ventures are grouped in two types:

a. Project-based Joint Ventureb. Full-blown Joint Venture

1. Joint Ventures

a. Project-based Joint Venture

• For to carry out a specific project• May last longer after the project if

successful and similar projects are ahead

1. Joint Ventures

b. Full-Blown Joint Venture

• expected to remain a viable entity • requires significant resource input and

effort

1. Joint Ventures

• Partner companies do not form a separate entity

• Partner companies do not share the complete responsibility of the whole project

• Each company is responsible of what they undertake

2. Consortia

• Loose partnership without formal agreements

• Usually appear as collaborations that make mutual advantage

• Not common in construction sector

3. Networks

• Franchising- Using a brand name, its reputation,

its delivery channels, manufacturing capabilities etc.• Licensing

- Taking a right to produce a certain product

Other types of Strategic Alliance

1. Strategy Development2. Partner Assessment3. Contract Negotiation4. Alliance Operation5. Alliance Termination

5. Stages of Alliance Formation

• Defining scope, tasks and vision• Deciding if an alliance is necessary• studying the alliance’s feasibility,

objectives and rationale• Obstacles and challenges

1. Strategy Development

• analyzing a potential partner’s strengths and weaknesses

• Defining how to manage an alliance with a certain partner

• preparing appropriate partner selection criteria

• Understanding partner’s motives for entering to alliance

2. Partner Assessment

• Arranging negotiation meetings• forming capable negotiating teams• Defining responsibilities, equities,

partnership type, penalties• Defining how to solve possible problems

3. Contract Negotiation

• A senior management team to be established to monitor, assess and control the operations

• linking of budgets and resources with strategic priorities

• measuring and rewarding performance

4. Alliance Operation

• termination according to the rules defined on the contract

• Partnership may be terminated before the project ends if disputes can not resolve

• Sometimes alliance may continue if it is successful

5. Alliance Termination

• A long term agreement• Debts and profits shared between

partners• Partners are responsible for the

company’s actions• Partnership agreements cover the

termination policy of the agreement

6. Advantages and Disadvantages

PARTNERSHIP

• Temporarily partnership that two companies form to gain mutual benefits

• Companies use joint ventures to; speed up the expansion of the company to share costs, risks and rewardsgain experience from bigger and experienced

firms• Companies enter into several different

markets

Joint Venture

Partnerships are;Long term

agreementsAgreement

covers the distribution of shares, responsibilities of each partner

The Difference Between Partnership and Joint Venture

Joint Ventures are;Short Term agreements Joint Venture Agreement outlines the purpose of the joint venture

Advantages of Joint Ventures

• Access to greater resources, including staff • Allow companies to enter new geographical

markets and related businesses• Sharing of risks with a partner firm• Allow companies to gain new technological

knowledge• Allow companies to gain experience

Disadvantages of Joint Ventures

• Limited timeframe: the temporary partnership between firms is a short term agreement therefore, there is a limited time to finish the project and there are usually some penalties when the project isn’t finished on time.

• Liability: partners in a joint venture have unlimited liability for company debts and obligations. This may cause some troubles such as pursuing the other partner’s automobile, home or bank account.


• Profit and loss sharing: The profits earned are shared between the partners. In other words, the partners are equally accountable in success and the failure of the business.

• Different objectives: It is possible that the partners of the joint venture will have a different goal through the joint venture.


• Different cultures and management styles: different cultures or different set of values will result in poor integration and weak team spirit.

Advantages of Partnerships

• Partnerships are relatively easy to establish

• Partnerships provide moral support and the brainstorming among the partners bring several different ideas and thoughts about the upcoming projects. Decision making may be much easier.

Advantages of Partnerships

• Combination of complementary skills and perspectives can be beneficial and will result in a wider pool of knowledge, skills and network.

• Partnerships provide greater borrowing capacity. The expenses and debts are shared between the partners of the firm

• The ability to raise funds may be increased with the partnership.

Disadvantages of Partnerships

• There is also unlimited liability. All the partners are responsible for the debts of the company. All the partners are responsible to clear the debts.

• There is a risk of disagreements among the partners about the management of the firms.

Disadvantages of Partnerships

• Unexpected things can happen such as the death of a partner. Partners are liable to one another and the death of a partner may terminate the company.

• Inflexibility of decisions. It is not possible to make decisions without consulting to the other partners.

7. Critical Success Factors

• Top 500 firms in US participated in this survey

• Not all the firms are completely successful

• Some firms that are completely unsuccessful

• There are trends, ways, measurements to increase the success rates of joint venture firms

Success Rates of Strategic Alliances

Success Factors of Strategic Alliances

1. Partner relationship:how the partners get alongRespect and synergy

between partners are important

Effective communication, commitment and cooperation between partners

The degree of trust


2. Host Country Factors

Host country conditions (political risk)

Cultural differences

Language barriers

Operational differences between partners


3. Structural characteristic of the partner companies Management control Ownership distributions Completeness of the project

4. Project related factors: Payments by the client Availability of resources Technical complexity of the project Effectiveness of the project management functions

Other Success Factors

• Management of the firm is crucial• Employees must be motivated in order to

perform fully.• There are several motivational factors such as;

Salary increases of the employeesPromotionsCreating the neccessary team spiritAwarding employees will help motivate them and

the other employees

Other Success Factors

Project manager should not favor the employees of his or her own firm over those of the other companies involved in the project

Favoritism is a very common mistake made by managers of Joint Venture firms.

Risk Measurement Tools

• It is important to identify the potential risks before partnering with a firm

• Tools can be used to minimize IJV’s failure chances by evaluating the upcoming overall risks

Risk Measurement Tools

• Risk measurement tools are important because;Increase the effectiveness of IJV project schedulingDecrease the amount of uncertainty of IJV partners

about the environmental risk factors.Break down the risks in a more systematic ways in

order to have a more effective risk assessmentHelp the decision maker to minimize the chances of

failure and lead partners to meet the construction project objectives

Factors Preventing The Success Of Strategic Alliances

Lack of understanding between the partners

Cultural differences

Language barriers

Different structural charactiristics of partner firms

Factors Preventing The Success Of Strategic Alliances

Operational difficulties due to geographical locations of the partner firms

Lack of motivation and patience among the partners and the employees

Benefits lower than the goals and the expectations of partners

THANK YOU!any questions?

strategic alliancing critical success factors ce 726 term assignment prepared by (in alphabetical...

Documents

clients strategic alliances

types of strategic alliances

strategic areas

competition strategic

project alliance

interdependence slide

development phase slide

stages of alliance formation