MANAGING STRATEGIC ALLIANCES AND CHANNEL PARTNERSANDREWS ADUGUDAA AKOLAA

February 2012

PRESENTATION OVERVIEWy WHAT ARE STRATEGIC ALLIANCES AND y y y y y y

PARTNERSHIPS WHY ALLIANCES HAVE BECOME THE NORM TYPES OF ALLAINCES WHAT BENEFITS DOES ALLIANCES OFFER? SELECTING THE RIGHT ALLIANCE PARNERS MANAGING ALLIANCES FOR SUCCESS STRATEGIC ALLIANCES,THE STARBUCKS COFFEE EXPERIENCE.

WHAT ARE STRATEGIC ALLIANCES?y Strategic alliances are voluntary independent

relationships, collaborations and partnerships of firms to develop and enhance business operations for competitive advantage (Gulati 1998) y According to (Enrst 2004), By the turn of this century, most large companies had 20% of their assets and 30% of their research funds tied in alliances of one form or the other.

What are Alliances?y Another research conducted by Partner Alliances

indicate that most CEOs(80%) of fortune 1000 companies believe that by 2008, 26% of their business revenues will come from strategic alliances.

So why are alliances becoming the norm?y Source of competiveness and firm growth paths

strategy y Efficiency in management y Innovation driver y Knowledge pool for industry y Valuable resource availability y Market entry and penetration mechanism

TYPE OF ALLIANCESy THERE ARE TWO BASIC FORMS OF

ALLIANCES 1.HORIZONTAL INDUSTRY LEVEL ALLIANCES 2. VERTICAL FIRM LEVEL INDUSTRY ALLIANCES

HORIZONTAL INDUSTRY ALLIANCESy This refers to the collaborations and network

alliances between competitive firms within a specific industry to maximize the use of resources for efficiency and to cooperate for competitive advantage. y Examples are the alliances in the airline industry. Skyteam Alliance, The Star alliance and one world that enable them to operate globally in a coordinated manner.

Vertical Firm Level Alliancesy The vertical firm level alliances are partnerships,

agreements, collaborations signed with other value system partners to deliver a service or product competitively. y They could be upstream, down stream or horizontal alliances of strategic value to the firm.(Rothaermel & Deeds 2006) y They include; Distribution agency, franchising, licensing, joint venture, contract production etc

WHAT BENEFITS DOES INDUSTRY LEVEL ALLIANCES OFFERy Collectivism in action y Increasing economic and market power y Increased balance of power to negotiate y Operational resource sharing y Reduced operational cost y Organizational learning and knowledge sharing y Access to critical resources and capability

WHAT BENEFITS DOES FIRM LEVEL ALLIANCES OFFERy Opportunity to enter new markets faster and

cheaper. y Shared risk in business development y Loyalty in operations y Representation at low cost y Provide timely relevant industry information requirements for decisions. y Provide key services that competitors may not have access.

MANAGING ALLIANCES FOR SUCCESSy Many alliances have fail to meet expectations and

disintegrated within shorts spans. y According to research,30%-70% of alliances do not deliver the benefits that they purport to offer. y Alliance termination rates exceed 50%. y However empirical evidence indicate that well managed alliances be it firm level or industry level has created competitive advantage for players involved.

Managing Alliances for successShah & Swaminathan (2008) indicates 3 KEY success factors1. Partner complementarity 2. Partner commitment 3. Partner compatibility or fit

Managing Alliances for successThe successful management of Alliances must begin with the process leading to the formation. Schreiner, Kale & Corsten (2009) identify 3 phases The formation, the design and post formation phases 1. The selection of alliance partners must be based on a robust criteria that matches both parties. 2. There must be outcome commonality of interest, though varied in some ways.

Managing Alliances for successThe agreement and statement of articles that establishes the alliance must be clear, concise and spell out the responsibilities of each partner. 4. Each firm must build its capacity to manage alliances. 5. Each partner must view the alliance with a positive sense of importance3.

SELECTING THE RIGHT ALLIANCE PARTNERSINDUSTRY LEVEL ALLIANCESy Size y Facilities y Resources y Status y Local identity y Capabilities and competence

Selecting Alliance PartnersVERTICAL FIRM LEVEL ALLIANCES

y Distribution network y Size y Financial resources y Sales force strength y Image y Logistics

Key success factors in Alliances

Formation phase Design & governance Post formation

Partner complementarity Partner commitment Partner compatibility and fit

Contractual agreements Relationship governance structures Use and type of coordination mechanism Development of trust and relational capital Conflict resolution mechanism

The Starbucks coffee experience

y These were firm level strategic alliances

developed to explore new products and channel space for competitive advantage across industry and markets. y They worked successfully for Starbucks

STARBUCK EXPERIENCE-Backgroundy Company founded in 1971, Seatle USA y Designed an innovative way to sell canned roasted

coffee beans in a specialty store. y Company was taken over by Haward Schultz in 1987 and introduced the Italian style coffee bars espresso coffee and currently operate over 9000 stores in over 28 countries.

Starbuck experience-The success!y Starbuck net earnings was 391.7 million in 2004

with a turnover of about 5.3billion. compared to 181.2 million net earnings in 2001

Graph of net earningsStarbucks Net Earnings 1992-2004400 350 300 250 $M 200 150 100 50 0 4.5 8.3 10.2 26.1 42.1 57.4 68.6 101.6 94.5 181.2 251 268.3 391.7

year

International expansiony September 1995 First Starbucks retail store opened

within an existing and newly opened state-of-the-art Star Markets. y October 1995 Signed an agreement with SAZABY Inc., a Japanese retailer and restaurateur, to form a joint-venture partnership to develop Starbucks retail stores in Japan. The joint venture was called Starbucks Coffee Japan, Ltd. The first store opened in Tokyo in the summer of 1996 and marked Starbucks first retail expansion outside of North America.

The star buck experiencey October 1995 A long-term joint venture with

Dreyers Grand Ice Cream was formed to market a premium line of coffee ice creams. Nationwide distribution to leading grocery stores occurred in the spring of 1996. y November 1995 Formed a strategic alliance with United Airlines to become the exclusive coffee supplier on every United flight.

The starbuck experiencey January 1996 The North American Coffee

Partnership was formed between Pepsi-Cola and Starbucks New Venture Company, a whollyowned subsidiary of Starbucks. The partnership announced its plan to market a bottled version of Starbucks Frappuccino beverage.

The starbucks experiencey February 1996 Formed an agreement with

Aramark Corp. to put licensed operations at various locations marked by Aramark. The first licensed location opened in the end of 1996. y September 1996 Introduced Double Black Stout a new dark roasted malt beer with the aromatic and flavorful addition of coffee with the Redhook Ale Brewery.

The starbucks experiencey October 1996 Formed an agreement with U.S.

Office Products Company, a nationwide office products supplier to corporate, commercial, and industrial customers. The alliance will allow Starbucks to distribute its fresh-roasted coffee and related products to the workplace through U.S. Office Products extensive North American channels.

The star buck experiencey 1998 Formed a joint venture with Intel

Corporation. The venture will help push Starbucks into the market of cybercafes. y 1998 Formed an alliance with eight companies to enable the gift of over 320,000 new books for children through the All Books for Children Holiday Book Buy.

The star buck experiencey 1998 Formed a joint venture with Mack

Johnsons Johnson Development Corporation to develop Starbucks locations in underserved, inner-city urban neighborhoods. y 1998 Formed long-term licensing agreement with Kraft Foods to accelerate growth of the Starbucks brand into the grocery channel across the United States.

The star buck experiencey 1999 Acquired Portland, Oregons Tazo Tea

company and Hear Music. Formed alliance with Conservation International for environmental friendly coffee-growing procedures.

The Starbucks experiencey 2001 Introduced Starbucks card. y 2004 Introduced in-store CD burning, formed

licensing agreement to distribute Tazo Tea in U.S. grocery

The future of Starbucksy To open 800 stores across the globe 2012 y To open 1500 Starbuck shops in mainland China

by 2015

Conclusiony Although failure rates are said to be high between

30%-70%, Alliances can be key strategic tools if; 1. They are well cut out and engineered with the right focus 2. If the step approach is adopted to ensure clarity 3. If partners are committed to the outcomes 4. If the governance structure is spelt out concisely and clearly.

Conclusiony If the partners benefits mutually form the alliance y If resource and organizational knowledge is

spread across the partners y If there Equity and fairness in the processes involved in setting up the alliance.

Referencesy Ernst, D. (2004). Envisioning collaboration. In J. Bamford,B. Gomes-Casseres, & M. y y y y

Robinson (Eds.), Mastering alliance strategies. San Francisco: Jossey-Bass. Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19(4), 293317. Schreiner, M., Kale, P., & Corsten, D. (2009). What really is alliance management capability and how does it impact alliance outcomes and success? Strategic Management Journal. Rothaermela, F.T, Deeds D.L.(2006). Journal of Business journal vol. 21 Shah, R., & Swaminathan, V. (2008). Factors influencing partner selection in strategic alliances: The moderating role of alliance context. Strategic Management Journal,29(5), 471 494.