Professor Jeff Dyer

BYU, Marriott School

Alliances-Alliances-How far have we come?How far have we come?

“Alliances are mere transitional devices and because of this they are destined to fail”

Michael Porter

“Many so-called alliances between Western companies and their Asian rivals are little more than sophisticated outsourcing arrangements -- the traffic is almost entirely one way”

Hamel, Doz, and Prahalad

“Avoid alliances like the plague.”Reich and Mankin

Professor Jeff Dyer

BYU, Marriott School

Alliances Growing as a Source of RevenueAlliances Growing as a Source of RevenueAlliances as a Percentage of Revenue forTop 1,000 U.S. Public Corporations

Source: Columbia University, European Trade Commission, Studies by BA&H, AC.1983-1987, 1988-1993, 1994-1996, 1999

0%

5%

10%

15%

20%

25%

30%

1980 1985 1990 1995 1998

Professor Jeff Dyer

BYU, Marriott School

Total business conducted Total business conducted through alliancesthrough alliances

20%

30%

40%

0%

10%

20%

30%

40%

50%

2000 2005 2010

Source: EIU Global Executive SurveyAndersen Consulting, Warren Company

3-5%

1990

Professor Jeff Dyer

BYU, Marriott School

Alliances-Alliances-How far have we come?How far have we come?

“If you think you can go it alone in today’s global economy, you are highly mistaken” (Jack Welch, CEO of GE)

“Microsoft can’t make it alone, but together anything is possible.” (Bill Gates, Chairman of Microsoft)

“Our approach is to develop long term relationships with companies that offer a unique advantage with General Motors. The Alliance Strategy is our major thrust.” (John F. Smith, Jr., Chairman & CE of General Motors)

Professor Jeff Dyer

BYU, Marriott School

Corporate EvolutionCorporate Evolutionand Alliancesand Alliances

Moving from Managing a Portfolio of Products...

To Managing a Portfolio of Businesses...

To Managing a Portfolio of Relationships

Professor Jeff Dyer

BYU, Marriott School

Alliances-Alliances-How far have we come?How far have we come?

“Goodbye mergers and acquisitions. In a global market tied together by the Internet, corporate partnerships and alliances are proving a more productive way to keep companies growing.”

“This may be the most powerful trend that has swept American business in a century. Strategic alliances are hot.” (Mathew Schifrin, Editor, Forbes.com’s Best of the Web Magazine)

Professor Jeff Dyer

BYU, Marriott School

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1996 1997 1998 1999 2000

Strategic Alliances are More Important for Growth-Forbes

M&A Transactions JV/Alliances

Source: Thomas Financial, reported in Forbes, May 21, 2001, p. 27.

M&A

Alliances

Growth in Mergers & Acquisitionsvs. Alliances

Professor Jeff Dyer

BYU, Marriott School

Alliances vs. Acquisitions: Stock Market Response to Announcements

Average Stock Market Gains (Average over 10 day window following announcement)

.84 percent

Per

cen

t S

tock

Mar

ket

Gai

ns

Fol

low

ing

Ann

ounc

emen

ts(in

per

cen

tag

es)

0

0.2

0.4

0.6

0.8

1

0 percent

Alliances* Acquisitions** (Acquirers)* Source: Dyer, Kale & Singh, 2001

** Source: Bradley, Desai, & Kim, 1988

Professor Jeff Dyer

BYU, Marriott School

OUR STOCK ROSE FIVE POINTS ON

THE ANNOUNCEMENT

IN TODAY’S NEWS, OUR COMPANY HAS DECIDED TO BUY ANOTHER DYING COMPANY IN A BUSINESS WE DON’T FULLY UNDERSTAND.

WHY DOES OUR STOCK GO UP EVERY TIME WE DO SOMETHING BONEHEADED?

I LIKE TO THINK OF IT AS OUR COMPETITIVE ADVANTAGE.

Professor Jeff Dyer BYU, Marriott School

THE STATUS OF OUR STRATEGIC ALLIANCE IS “DOOMED.”

OUR PONDEROUS AND INEFFICIENT MANAGEMENT SYTLE CAUSED THEIR BEST PEOPLE TO QUIT AND CREATE A COMPETING COMPANY.

WE MUST FIND A WAY TO DESTROY THAT NEW COMPANY.

I’LL SEE IF THEY’RE INTERESTED IN A STRATEGIC ALLIANCE.

Professor Jeff Dyer

BYU, Marriott School

Strategic Alliances

Based on: Yoshino and Rangan, 1995

The Scope of Inter-firm Relationships

Contractual Agreements Equity Arrangements

Traditional Nontraditional No New Firm Creation of Entity DissolutionContracts Contracts of Entity

Arm’s-length Joint Research Minority NonsubsidiaryJV Mergers and Buy/Sell Equity JVs Subsidiaries Acquisitions Contracts Investments of MNCs

Franchising Joint Product Equity Fifty-fifty Development Swaps Joint Ventures

Licensing Long-term Unequal Sourcing Equity Agreements Joint

Ventures Cross- Joint Manufacturing licensing

Joint Marketing

Shared Distribution/ Service

Standard Setting/ Research Consortia

Professor Jeff Dyer

BYU, Marriott School

Strategic Alliances

Benefits:– Speed (vs. acquisition

or greenfield)– Access to key

complementary assets– Removal of potential

competitor– Maintain incentives for

partner management

Drawbacks:– Lack of control; must

share decision making– Potential spillover of

knowledge and capabilities

– Organizational clashes may impede ability to collaborate

Professor Jeff Dyer

BYU, Marriott School

Mergers & Acquisitions

Benefits:– Speed (vs. greenfield)– Full control over

complementary assets– Removal of potential

competitor– Upgrade corporate

resources & capabilities

Drawbacks:– Cost of acquisition

(premiums)– Unnecessary adjunct

businesses– Organizational clashes

may impede integration

– Major commitment

Professor Jeff Dyer

BYU, Marriott School

M&A Returns-Acquiring Firms

-0.015

-0.01

-0.005

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

-15 -10 -5 0 5 10 15 20 25 30

Event day

Cu

mu

lati

ve a

bn

orm

al r

etu

rns

Single BidderMultiple Bidders

Source: Bradley, Desai, & Kim, 1988

Professor Jeff Dyer

BYU, Marriott School

M&A Returns-Targets

0

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

-15 -10 -5 0 5 10 15 20 25 30

Event day

Cu

mu

lati

ve a

bn

orm

al r

etu

rns

Single BidderMultiple Bidder

Source: Bradley, Desai, & Kim, 1988