Principles of Collaborative Alliances Creating Capacity through Strategic Collaboration Development Impacts Pty Ltd 2012 www.devimp.com
Principle 1 Collaboration is an imperative Collaboration drivers Collaboration realities Dwindling resources & increased emphasis on sustainability Need to minimize duplication Globalization Playing field is everywhere, with few boundaries Growing complexity of challenges Multiple & intertwined cause & effects ICT Improvements Information sharing and rapid communication If you think you can go it alone in today s global economy, you are highly mistaken Jack Welch, Ex-CEO of GE Microsoft can t make it alone, but together anything is possible Bill Gates, Chairman of Microsoft I think it is impossible, even for a company of HP s size, to have competence in every area. It is very important to find alliance partners Lewis Platt, Ex-CEO of Hewlett-Packard Source: Adapted from Houlihan Lokey Howard & Zukin (1999) In sum: We live in a time when no organization can succeed on its own
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Number of Deals Growth of collaborative alliances CAGR 1 12000 2.5% 19.5% 15.2% 4.6% 10000 8000 6000 4000 2000 0 Year The value of alliances is estimated between $30-50 trillion Note: Equity Alliances only 1 Compound Annual Growth Rate Source: Thomson Financial Securities Data
ROI (%) Why such growth in collaborative alliances? 30 Individual company ROI 1 Alliance ROI 1 25 20 15 10 17.5 16 24 29 5 0 US Asian/European Successful Alliances Firms Breakout Firms In sum: Companies are achieving higher ROIs on collaborative alliances than their core businesses Source: Adapted from Booz Allen & Hamilton Analysis Note: Breakout firms: early stage, growth stage, and smaller mature companies 1 Average ROI, pre-tax & pre-interest
Principle 2 Collaboration is known by many names Networks, Coalitions, Consortiums, Associations, Partnerships, Task forces, Alliances, Clusters etc Low Level of formal integration High Cooperation Shared information & mutual support Coordination Common tasks & compatible goals Collaboration Integrated strategies & collective purpose Mergers & acquisitions Unified structure & combined cultures Contractual arrangements Equity arrangements Source: Adapted from Gajda (2004)
Collaborative alliances come in a variety of forms Contractual arrangements Equity arrangements Traditional contracts Non-traditional contractual partnerships No creation of new firms Creation of separate entity Dissolution of Entity Arm s length buy/sell contracts Joint R&D, joint manufacturing, joint marketing Minority equity investment Majority joint ventures Wholly owned subsidiary Merger or acquisitions franchising licensing Cross-licensing Arrangements to access mutually complementary assets or skills Standard setting or R&D firm consortia Equity swaps Collaborative alliances 50-50 joint ventures Unequal joint ventures Source: Kale and Singh (2009)
Success Rate Principle 3 Effective collaboration is a skill set High 80% 75% 30% 55-70% of collaborative alliances fail 30-45% of collaborative alliances succeed Size of bubble = Number of firms that succeed in collaborative alliances, N = 1000 firms 10% Low 25% 35% Alliance Skills 75% 85% High Superior alliancing skills are a core competency Source: Columbia University (1989), Houlihan Lokey Howard & Zukin (1999), Kale & Singh (2009)
But, which collaborative alliance skills? Partner Selection Governance Capitalization & Voting rights Transferring Assets Management Operations Alliance Form Alliance Governance Co-opetition Issues Tax & Accounting Other Issues With collaboration, the personal is as important as the procedural Source: Houlihan Lokey Howard & Zukin (1999)
Improving the odds of collaboration success Key drivers High success alliance organisations Low success alliance organisations Greater alliancing experience A dedicated alliancing function Processes to learn and accumulate alliancing know-how Worse Better Source: Kale and Singh (2009)
Airlines Automotive Computers and Communication Consumer Energy Entertainment Financial Health Care Industrial Transportation Competitor Intensity (%) Principle 4 Collaboration or Competition? 100 80 Competitors Non-Competitors 60 40 20 0 Half of collaborative alliances are among competitors Source: Adapted from Booz Allen & Hamilton Analysis
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