Prof.

Aniruddha Chatterjee
Source :
Rothaermel(2019)
3
 Strategic alliances are voluntary arrangements between firms that involve the
sharing of knowledge, resources, and capabilities with the intent of developing
processes, products, or services.

 Alliances can involve joint research efforts , technology sharing , joint use of
production facilities , marketing one other’s products, or joining forces to
manufacture components or assembled finished products.
 GM entered the equity-based strategic alliance (NUUMI) to learn the lean
manufacturing system pioneered by Toyota to produce high-quality, fuel-efficient
cars at a profit. Toyota entered the alliance to learn how to implement its lean
manufacturing program with an American work force.

 Airlines increasingly collaborate with each other to gain global economies and
market advantages. They frequently combine routes, terminal services, and
frequent flyer programs.
Strengthen competitive position.
Tesla used alliances strategically to strengthen its competitive standing and to position
itself advantageously in making battery-powered vehicles
Enter new markets.
HP and DreamWorks Animation SKG alliance was motivated by the desire to enter a
new market (videoconferencing), that neither could enter alone.
Hedge against uncertainty.
Pfizer, Novartis, and Roche entered into hundreds of strategic alliances with biotech
startups
Access critical complementary assets.
complementary assets such as marketing, manufacturing, and after-sale service
Learn new capabilities.

NUUMI
Source : Whittington
et al.(2020)
 Type of
Governance
Alliance Type Knowledge Pros Cons Examples
Mechanism
Exchanged

Non-equity Flexible,
Weak tie,
(supply, licensing, Fast,
Contract Explicit Lack of trust and Microsoft-IBM (nonexclusive)
and distribution Easy to initiate and
commitment licensing agreement for MS-DOS
agreements) terminate

Explicit; Less flexible Renault-Nissan alliance based on

Stronger tie
exchange Slower cross equity holdings, with
Equity Trust and
Equity of tacit Can entail Renault owning 43.4% in Nissan;
investment commitment
knowledge significant and Nissan owning
possible investments 15% in Renault

Creation of new Both tacit and Strongest tie Can entail long Hulu, owned by NBC (30%), Fox
entity by two or explicit Trust and negotiations and (30%), Disney- ABC (30%), and
Joint venture (JV)
more parent knowledge commitment significant Turner Broadcasting System
firms exchanged investments (10%)
Licensing
the licensing firm grants rights to another firm in another country or market to
produce and/or sell a product. The licensee pays compensation to the licensing firm
in return for technical expertise. Licensing is an especially useful strategy if the
trademark or brand name is well known but the MNC does not have sufficient funds
to finance it’s entering the country directly.
Joint ventures provide a way to temporarily combine the different strengths of
partners to achieve an outcome of value to all.

For example, Proctor & Gamble formed a joint venture with Clorox to produce food-
storage wraps. P&G brought its cling-film technology and 20 full-time employees to
the venture, while Clorox contributed its bags, containers, and wraps business.
Adverse selection:
Potential partners misrepresent the value of the skills and abilities they bring to the
alliance.

Moral hazard:
Partners provide to the alliance skills and abilities of lower quality than they promised.

Holdup:
Partners exploit the transaction-specific investments made by others in the
alliance.
Acquisition is achieved by purchasing a majority of shares in a target company.
 Friendly
 Hostile

Merger is the combination of two previously separate organizations in order to form

a new company.
1. To provide improved capacity utilization
2. To make better use of the existing sales force
3. To reduce managerial staff
4. To gain economies of scale
5. To smooth out seasonal trends in sales
6. To gain access to new suppliers, distributors, customers, products, and creditors
7. To gain new technology
8. To gain market share
9. To enter global markets
10. To gain pricing power
11. To reduce tax obligations
 M&A Success rate?
1. Integration difficulties
2. Inadequate evaluation of target • Hewlett-Packard paid $1.2 billion for Palm,
3. Large or extraordinary debt
an unsuccessful competitor for Apple’s
4. Inability to achieve synergy
iPad;
5. Too much diversification
• Cisco spent $590 million for Pure Digital,
6. Managers overly focused on acquisitions
7. Too large an acquisition only to shut it down two years later;

8. Difficult to integrate different • In 2013, Microsoft purchased mobile

organizational cultures phone manufacturer Nokia for $7.9 billion,
9. Reduced employee morale due to layoffs
only to write off $7.6 billion of this
and relocations
acquisition less than two years later.
 Alliances M&A

Collaboration & Co-creation Unilateral Planning

Duration Finite Infinite

Benefit & Risk Allocation Shared Individual

Governance Numerous management Teams One Management Team

Culture Different cultures One prevailing Culture

Strategic Alignment Regular Review of alliance Integrate Acquisition

1. There are legal constraints on acquisitions.
2. Acquisitions limit a firm’s flexibility under conditions of high uncertainty.
3. There is substantial unwanted organizational “baggage” in an acquired
firm.
4. The value of a firm’s resources and capabilities depends on its
independence.
18
1. The firm’s overall orientation toward growth, stability, or retrenchment (directional
strategy)
2. The industries or markets in which the firm competes through its products and
business units (portfolio analysis)
3. The manner in which management coordinates activities, transfers resources, and
cultivates capabilities among product lines and business units (parenting strategy).
 Growth strategies expand the company’s activities.
 Stability strategies make no change to the company’s current activities.
 Retrenchment strategies reduce the company’s level of activities.

Source : Hunger and

Wheelenl(2018)
Horizontal growth can be achieved through internal development or externally
through acquisitions and strategic alliances with other firms in the same industry.

Horizontal Integration: the degree to which a firm operates in multiple geographic

locations at the same point on an industry’s value chain.

 Focus- managerial, financial, technological, and functional resources and

capabilities on competing successfully in one area.
 important in fast-growing, changing industries –
 demands on a company’s resources and capabilities substantial, but where the
long term profits from establishing a competitive advantage are also likely to be
substantial.
(1) lowers cost (economies of scale)
(2) increases product differentiation (e.g. product bundling)
(3) leverages a competitive advantage more broadly
(4) reduces rivalry
(5) increases bargaining power over suppliers and buyers.
Vertical Integration is the degree to
which a firm operates vertically in
multiple locations on an industry’s value
chain from extracting raw materials to
manufacturing to retailing.

Vertical growth is a logical when

firm has strong competitive position in a
highly attractive industry—especially
when technology is predictable, and
markets are growing
Forward integration- going forward on an industry’s value chain.
 Amazon is forward integrating into the “installation business.” When you buy, for
example, a ceiling fan or car stereo from Amazon, the company now wants to
install it for you for a Fee.

Backward integration—moving ownership of activities upstream to the originating

inputs of the value chain
 IBM integrated backward into the chip and memory disk industry to produce the
components, and forward into the computer software and consulting services
industries.
 Lowering costs.
 Improving quality. (Facilitating Investments in Specialized Assets)
 Facilitating scheduling and planning.
 Facilitating investments in specialized assets.
 Securing critical supplies and distribution channels.
 Increasing costs.
 Reducing quality.
 Reducing flexibility.
 Increasing the potential for legal repercussions.

Alternative : Quasi-integration/ Tapered Integration

(Apple and Nike, for example, use taper integration: They own retail outlets but also
use other retailers, both the brick-and-mortar type and online)
The choice of a transaction’s governance structure, such as vertical integration
or market transaction, is influenced by transaction costs, including search,
negotiating, contracting, monitoring, and enforcement costs, associated with each
choice.

vertical integration generally reduces transaction costs

Diversification encompasses the variety of products and services a firm offers or
markets and the geographic locations in which it competes. Amazon offers a wide
range of products and services.

Product diversification: What range of products and services should the firm offer?
Geographic diversification: Where should the firm compete in terms of regional,
national, or international markets?
Businesses are said to be related when their value chains possess competitively
valuable cross-business strategic fits
 economies of scale
 economies of scope
(Economies of scope exist when using a resource across multiple activities uses
less of that resource than when the activities are carried out independently.)

 Although PepsiCo operates in multiple businesses around the world, all its businesses
focus on providing snack-type products, either food or beverages. This enables PepsiCo to
exploit at least two economies of scope across all its businesses: common distribution
processes and an emphasis on brands.
 3M leverages its competencies in adhesives technologies to many industries, including
automotive, construction, and telecommunications.
Businesses are said to be unrelated when their value chains are so dissimilar that no
competitively valuable cross-business relationships exist
 Little economies of scale
 Little economies of scope
 no intention of transferring or leveraging competencies between business units
or sharing resources other than cash and general organizational competencies.
But,
 Restructuring
 Internal capital markets
Source :
Rothaermel(2019)
The creation of a new stand-alone business by selling or distributing shares from the
existing business. The parent company will spin off a business if it believes the new
business will be worth more independently.
 opportunity to rest before continuing a growth or retrenchment
 make only incremental improvements
 no obvious opportunities or threats
 Attempt to artificially support profits when a company’s sales are declining by
reducing investment and short-term discretionary expenditures. Rather than
announce the company’s poor position to shareholders and the investment
community
 top management’s passive, short-term, and often self-serving response to a
difficult situation
 Improvement of operational efficiency
 3 phases—Contraction, Consolidation, and Rebirth.
 sell-out strategy, if management can still obtain a good price for its shareholders
and the employees can keep their jobs by selling the entire company to another
firm.
 If the corporation has multiple business lines and it chooses to sell off a division
with low growth potential, this is called divestment.

Whirlpool sold Maytag’s Hoover vacuum cleaner unit after Whirlpool purchased
Maytag
Bankruptcy
- giving up management of the firm to the courts in return for some settlement
of the corporation’s obligations.
- top management hopes that once the court decides the claims on the company, the
company will be stronger and better able to compete in a more attractive industry.

Liquidation
- the termination of the firm.
- used when the industry is unattractive and the company too weak to be sold as a
going concern,
- convert as many saleable assets as possible to cash, which is then distributed to the
shareholders after all obligations are paid.
41
 visualising the different needs and potential of all the diverse businesses within
the corporate portfolio
 warns corporate parents of the financial demands
 reminds corporate parents that stars are likely eventually to wane.
 provides a useful discipline to business unit managers, underlining the fact that
the corporate parent ultimately owns the surplus resources they generate and
can allocate them according to what is best for the corporate whole
 Simplistic
 link between market share and profitability is questionable
 Growth rate is only one aspect of industry attractiveness AND Market share is only
one aspect of overall competitive position.
 Product lines or business units are considered only in relation to one competitor: the
market leader. Small competitors with fast-growing market shares are ignored.

 Also refer
 https://thinkinsights.net/strategy/ge-mckinsey-
matrix/#:~:text=The%20GE%2DMcKinsey%20Matrix%20(a.k.a.,business%20unit%20i
nto%20a%20matrix.
 It encourages top management to evaluate each of the corporation’s businesses
individually and to set objectives and allocate resources for each.
 It stimulates the use of externally oriented data to supplement management’s
judgment.
 It raises the issue of cash-flow availability for use in expansion and growth.
 Its graphic depiction facilitates communication.
 Defining product/market segments is difficult.
 It suggests the use of standard strategies that can miss opportunities or be impractical.
 It provides an illusion of scientific rigor, when in reality positions are based on subjective
judgments.
 It is not always clear what makes an industry attractive or where a product is in its life
cycle.
 Naively following the prescriptions of a portfolio model may actually reduce corporate
profits if they are used inappropriately.
 little focus on intangible resources and capabilities
 Market share does not necessarily generate profit e.g. airlines industry

 Fit with parent capability not considered

 No emphasis on synergy and co-operative arrangements
 tends to primarily view matters financially, regarding business units and product
lines as separate and independent investments
 fails to deal with the question of what industries a corporation should enter or
how a corporation can attain synergy
47
 views a corporation in terms of resources and capabilities that can be used to
build business unit value as well as generate synergies across business units.
 If there is a good fit between the parent’s skills and resources and the needs and
opportunities of the business units, the corporation is likely to create value.

 corporate headquarters seeks to obtain synergy among the business units by

providing needed resources to units, transferring skills and capabilities among
the units, and coordinating the activities of shared unit functions
 corporate parents must show that they have parenting advantage , on the same
principle that business units must demonstrate competitive advantage.

By
 Envisioning
 Facilitating synergies
 Coaching
 Providing central services and resources
 Intervening

Not by
 Adding management costs
 Adding bureaucratic complexity
 Obscuring financial performance
 Stand Alone Influence
 Linkage Influence
 Functional and service Influence
 Corporate development and restructuring
 Integration
Diversification
Growth
Spin-Off
Global Expansion
No-Change Strategy
Pause/Proceed-With-Caution
Stability
Strategy
Directional Strategies
Profit Strategy
Corporate Strategies Turnaround Strategy

Captive Company Strategy

Retrenchment
Sell-Out/Divestment Strategy

Bankruptcy/Liquidation
BCG Matrix/GE McKinsey
Portfolio Analysis
matrix
Corporate Parenting
 Functional Strategy
▪ Marketing
▪ Operations
▪ IT
▪ Finance
▪ HR
 Operational Strategy
Forecasting
 predicting the future based upon past and present trends.

Scenario Planning
 when historical data is not useful to predict future movements
 “what if” questions
 addresses both optimistic and pessimistic futures
54
 Organizational design
▪ Hierarchy

▪ Organizational structure

 Organizational culture
 Strategic leadership
Rothaermel(2019)
57
 Focus on coordination rather than on control
 Reliance on informal coordination where mutual adjustment replaces rules and
directives
 Individuals in multiple organizational roles

Leading to …
 Delayering, network structures, permeable organizational boundaries
• Visible and invisible components of culture
• Values and norms

• Culture as a control mechanism

Grant & Jordan (2015)

64
 Strategic Audit
 Identifying cost, and revenue centers
 Benchmarking
 Strategic information systems
▪ Enterprise resource planning
68
 Blending Theory with Practices/ Situation/
Experience
 Think EXAMPLES
 Reflection - identify the WHYs, HOWs,
FACTORs
 Theory

Definitions Situation /
Models Your ANSWER Case/
Explanations  case
Experience/
Typology Application
Factors
Have I read each word of the question carefully ? Yes/ No

Have I defined the key concepts ? Yes/ No

Have I blended theory with the application component ? Yes/ No

Have I applied critical thinking ?

Have I explained the WHYs and the HOWs?
Yes/ No
Have I identified the multiple stakeholders ?
Have I considered the issue from multiple perspectives ..(positive AND
negative effects)?
Have I included Examples where suitable ? Yes/ No
Have I checked the formatting ? spellings/ line spacing/ sentence and
Yes/ No
paragraph length ?
Is my writing Clear and Coherent ? Yes/ No

I have NOT copied from/ plagiarised from ANY source.

 Knowledge
 Application of knowledge
 Identification and analysis of core issues
 Consistent demonstration of subject understanding
 Presentation, clarity, language
Managing Contradictions
Micro vs Macro

Short Term vs Long Term

Internal vs External

Static vs Dynamic

Tacit vs Explicit

Individual vs Collective

Quantitative vs Qualitative

Incremental and Radical

Exploration vs Exploitation

Integration vs Disintegration

…………………..and so on