Innovation Strategy Management Lecture 16

Programme Part 1 – The basis of Innovation Part 1 – The basis of Innovation Part 2 – Innovation and New Product Development Part 2 – Innovation and New Product Development Part 3 – Innovation and Technology development Part 3 – Innovation and Technology development Part 4 – Innovation and Intellectual Property Part 4 – Innovation and Intellectual Property Part 5 – EU Green paper of Innovation Part 5 – EU Green paper of Innovation Part 6 – Innovation policies in different countries Part 6 – Innovation policies in different countries

Part 4 Innovation and Intellectual Property

Lecture 16: Strategic alliances Defining strategic alliances Defining strategic alliances Forms of strategic alliances Forms of strategic alliances The use of Game theory to analyze strategic alliances The use of Game theory to analyze strategic alliances

Chan and Heide (1993) define a strategic alliance as follows: A strategic alliance is a contractual agreement among organizations to combine their efforts and resources to meet a common goal A strategic alliance is a contractual agreement among organizations to combine their efforts and resources to meet a common goal A strategic alliance is an agreement between two or more partners to share knowledge or resources, which could be beneficial to all parties involved. A strategic alliance is an agreement between two or more partners to share knowledge or resources, which could be beneficial to all parties involved.

Intel to develop microchip technology Toshiba to develop LCD technology DEC to develop operating system technology Apple to develop operating system technology Hewlett-Packard to develop operating system for workstation Siemens to develop memory technology Microsoft to develop software IBM The alliances formed by IBM

Forms of strategic alliances Strategic alliances can occur intra-industry or inter-industry Strategic alliances can occur intra-industry or inter-industry Alliances can range from a simple handshake agreement to mergers, from licensing to equity joint ventures Alliances can range from a simple handshake agreement to mergers, from licensing to equity joint ventures Faulkner (1995) identifies 3 generic types of strategic alliance: Faulkner (1995) identifies 3 generic types of strategic alliance: Joint ventures Joint ventures Collaboration (non-joint ventures) Collaboration (non-joint ventures) R&D consortia R&D consortia

Joint venture Joint venture A joint venture is usually a separate entity, with the partners to the alliance normally being equity shareholders. A joint venture is usually a separate entity, with the partners to the alliance normally being equity shareholders. Collaboration Collaboration The absence of a legal entity means that such arrangements tend to be more flexible. The absence of a legal entity means that such arrangements tend to be more flexible. This provides the opportunity to extend the co- operation over time if so desired. This provides the opportunity to extend the co- operation over time if so desired. Consortia Consortia A consortium describes the situation where a number of partners come together to undertake what is often a large-scale activity. A consortium describes the situation where a number of partners come together to undertake what is often a large-scale activity.

Reasons for entering a strategic allianceReasonsExamlpes 1 Improved access to capital and new business European Airbus to enable to comtete with Boeing and McDonnell Douglas 2 Greater technical critical mass Industry alliance formed between US microchip manufacturers to compete with Japanese 3 Shared risk and liability GEC-Alsthom, a joint venture between UK and French power generator manufacturers 4 Better reletionships with strategic partners European Airbus 5 Technology transfer benefits Customer supplier alliances, e.g. VW and Bosch

6 Reduce R&D costs GEC and Siemens 60/40 share of telecommunications joint venture GPT 7 Use of distribution skills Virgin Cola and Tesco 8 Access to marketing strengths NMB, Japan and Intel: NMB has access to Intels marketing 9 Access to technology IBM gained access to Apples user interface technology 10Standardisation Attempt by Sony to get Betamax technology as industry standard 11 By-product utilization Glaxo-Wellcome and Matsushita, Canon, Fuji 12 Management training Rover management genaral expertise from experience with Honda

The process of forming a strategic alliance Selection of suitable partner Negotiations of each otherss needs Management towards collaboration

3 barriers to successful alliances: 1. Failure to understand and adapt to new style of management required for the alliance. 2. Failure to learn and understand cultural differences between the organizations. 3. Lack of commitment to succeed. Vyas et al. (1993)

The use of game theory to analyze strategic alliances The use of game theory to analyze strategic alliances the prisoners dilemma the prisoners dilemma (for partners of SA) (for partners of SA)

Prisoners dilemma

The repeated game