Alliances and Network first week of April M. Tariq Yousafzai S Intro Partnerships and alliances and supply (chain) networks Why What When Where In what form Intro The content 1. Background and 3.Alliances as networks purpose and supply chain Trends and motives Types of networks Benefits of alliances Network changes Network effects 2.Alliances as dyads 4. Managing alliances as Type of alliances dyads and networks Different perspectives Performance Dimensions Positioning Changes of alliances Development Handling effects Part I Some changes influencing the need of alliances • Internationalization and globalisation • International competition • Outsourcing and reduction in suppliers • R&D and shorter product life cycles • Time to market Give me examples of alliances! Susanne Hertz, SSE,2000 Global logic of alliances • To compete on the global arena you have to incur fixed costs • With enough time, money and luck, you can do everything yourself. But who has enough? • Having control does not necessarily mean better management K. Omae, HBR, March-April,1989 Part I Basic motives of alliances • Transaction costs - bargaining • Enhance competitive positioning and market power • Quest for organisational knowledge and learning Gulati, 1998 Part I Classification of alliances 1. Degree of commitment and integration low, medium, high 2. Function based i.e. product development, distribution, production, purchasing 3. Formal- informal 4.Symmetry-assymmetry ( including the power issue) 5. Type of actors involved (competitors,buyer-seller, distributors ) 6. Geographical spread ( local, national, regional, global) Hertz, 2000 Alliances simplication • Firm - Firm • Net - Firm • Net -Net Alliances as dyads Alliance definition ”A long term relationship where participants cooperate and willingly modify their business practices to improve joint performance” Whipple and Frankel, JSCM, Summer 2000 Part II What is an alliance/partnership? Based how it is mostly used in literature Strategic. Alliance include. J/V and part- alliance ownership Partnership Transaction Relationships Degree of commitment Part II Relationships/ alliances Degree of commitment Economic exchange Frequency of exchange Type of interaction Adaptation Trust Alliances from different perspectives • Supply Chain Management • Industrial Marketing • Purchasing • Marketing • Service marketing • Relationship marketing • Social networks • Organisational and management literature Part II Supply chain network consisting of a a number of relationships Single relationship Focal firm Upstream Downstream Part II Interacting dimensions of relationship Social Communication Legal /IT Knowledge Physical Technical Economic Part II How? Relationship life cycle dissolution termination? Enlargement/ Disintegration Commitment dissatisfaction stable stage closer cooperation Institutionalization Dissolution expansion Termination Formation Revival Pre-relationship Formatio or awareness stage Prerelationship stage Individual alliances will not easily break- Why? • Investments • Costs of breaking • Trust • Knowledge • This creates inertia Part II Global logic of alliances (K. Omae) • Nine times out of ten you will want to stay in the alliance if you can • The way to wreck an alliance is to become a check casher, a coupon clipper Part II When and why to switch • Marketing forces • Internal conflicts • Acquisitions and mergers • New opportunities Different roads to dissolution • Who is breaking • Direct or indirect • Dissolution quality ( intracomp. exit, aftermath) • Task related, actor related or network related Part II Gradual way - the most common way Three different ways • relationship of lower importance - less volumes • break but stay in the supply chain • break but stay in the firm network • leave the network Alliances as networks Part III Definition of a network • A network is a set of connected exchange relations between actors. • Exchange relations are defined as connected if exchange in one of relation is contingent upon exchange in other relations Part III Firm network The firm Relationships and supply chain network simplified C1 Customers C1 C1 C2 C1 C1= consumer C1 C1 D C2= org. customer D C2 C2 D A A Distributor D D P D or agent D=distributor A= agent P A B P Partners P= partner S1 S1 S1 S1 S3 S1 S2 S1 Supplier 1 tier S1=supplier 1tier S2 S2 S2 Supplier 2 tier S2 S3 S2= supplier 2 tier S3 S3 Other suppliers S3= Other supplier What could this alliance mean to downstream and upstream partners? Part III Supply chain network change patterns • Supply chain network formation/ joining • Supply chain development include closer cooperation and enlargement • Supply chain closing up • Supply chain splitting- leaving • Supply chains drifting closer/away Joining of networks Closing up Horizontal and vertical alliance networks Horizontal network Transport firms representing each other in different countries Vertical networks include customers and suppliers Alliance network development a study from J. Ludvigsen, 2001 doctoral dissertation • E1 a network formed of transport alliances • To meet European transport MNEs • In order to reach operational and strategic fit • Developing from smaller networks to a joint network • Development from close cooperation to closing up • Solving crises together cause of higher integration • Institutionalisation in EEIG common grouping What? Overlap or complementarity? in alliances of supply chain networks Type of products/services Different Same Different Fully complementary Overlap Geographical / complementary coverage Complementary/ Full overlap overlap Same Part III Network effects • Externalisation effects (ex.telecom) • Forrester or bullwhip effects amplication of demand changes ( dynamic performance -info and physical systems - small disurbance large effects • Domino effects Overlapping supply chains and firm networks Firms are part of several supply chains Movement between supply chains in firm network Once you are in, you have a bigger chance Effects of overlap Overlapping supply chain networks a) increase b) decrease a) Decrease a) Decrease b) increase b) increase Supply chain Supply chain network 1 network 2 Domino effects C1 B1 A B2 C2 D2 E2 A radical break often a result of strategic change at network level Exemple of strategic change strategic alliances, mergers and acquisitions Dynamics of alliances and market restructuring Competitor alliance Customers processes Network processes Internal developm. focal alliance Processes Relationship processes breaking/dissolving Customer- focal firm Hertz& Mattsson relationships SJM 2006 Management of alliances as dyads and networks Part VI Management of alliances • Performance • Development • Positioning • Handling effects Part IV Performance Problems to be handled • Missions and domains • Job division • Expectations • Cultural differences • Power distribution ( Ludvigssen, 2001 ” The international networking between European Logistics Operators” Doct dissertation, SSE Performance Cultural fit? • Main stream culture • Organisational culture • Managerial style • ( autocratic,democratic • Individualistic-collectivistic • Trust) Part IV Performance From management to leadership Financing Communication Projects Commitment Measurement Behaviors Science Creativity Tools Overcoming resistance Consulting Self leadership etc etc Dissatisfied? Intra-alliance fit? Inhibitors Stimulators • Disparate benefit of • Types of tasks performed alliances in concert • Lack of willingness to • Relational bonds and accept unpopular functional co-dependency decisions • High level of mutual • Lack of propensity to control due to reach consensus standardisation • Lack of willingness to • Trust and commitment to contribute to resources alliance welfare and alliance missions Ludvigsen, 2001 Inter- alliance fit? Before forming alliance? • Degree of overlap or complementarity? • Corporate cultural differences and management practices? • Power balance? • Differences in strategic interests? • Development - speed and direction? • Access to network partners? • Effects and costs of a change? Part IV performance Different types of strategies dyads and / networks • Dyad - establish, develop, break or switch • Supply chain network - changing your position • Increasing/ decreasing integration • Conflict/ cooperation- group work • Changing direct and indirect relationship • Leave/ enter • Industry network • Overlapping/ complementary • Moving in or out or supply chains Making use of relationship lifecycle pattern Positioning ? • Your firm´s position in the alliance- Related to actors-resources and activities • Your position in the network -horizontal or vertical (supply chain network) • Your network in comparison to others Handling the effects? • How to prepare for the domino effects? • Where can we expect large acquisitions or mergers • How would such an alliances influence us? Directly -indirectly? • What can we do to prepare? Alternative solutions? • How to make use of the externalisation effects? • Extension of the number of actors in the network • Interaction between actors Category of alliances? Prerequisites? Part VI Success factors expressed as ”8 i´s for successful alliances” (Rosabeth Moss-Kanter” Collaborative advantage- The art of alliances HBR 2:4 July Aug 1994) • Individual • Information excellence • Integration • Importance • Institutionalisation • Interdependence • Integretity • Investment What have you learnt? When and why do you need alliances? Alliances of different types? How do partnerships or alliances change? Network of relationships - a supply chain network Strategies for alliances The industry networks and alliances dynamics Management and implications New Knowledge? The ASG- Danzas case Questions • What are the main objectives of the alliance • What were the strengths and weaknesses before when forming the alliance ? • How have these strength and weaknesses changed? • How would you as a new CEO cope with the situation? What different problems have you solved with your suggested solutions?