Management of Strategic Alliances: Performance Evaluation

Where to Link in the Value Chain?
• Alliance combining same value-chain activities are to gain efficiencies, merge talents, or share risks • In operations alliances firms combine manufacturing activities to reach economies of scale • Operations/marketing alliances provide access to markets Identification of the links in VC forms the basis for performance of the SA

Negotiation & Performance
• The formal agreement is not as important as the ability of managers to get along • Negotiation issues • equity contributions • management structure • “prenuptial” agreements

Selected Questions for a StrategicAlliance Agreement

Design & Performance
• Depends on the type of alliance chosen • Informal CAs often have no formal design issues • Formal CAs may require separate organization unit housed in one company • JV—Parent companies set up separate legal entity

Decision-making Control
• Two areas need to be considered: • Operational decisions (focus on day to day running) • Strategic decisions (focus on long term survival) • Majority ownership does not necessarily control • In JVs, strategic decision making takes place at the level of JV’s board of directors or top management.

Management Structures
• Dominant parent: controls or dominates strategic and operating decision making • Often has majority ownership • Treats the JV as wholly owned subsidiary • Shared management: both parent companies contribute approximately the same number of managers to the alliance organization • Split control management control: partners usually share strategic decision making but split functional decision making

Management Structures (Cont.)
• Independent management structure: alliance managers act more like managers from a separate company • JVs often recruit managers from outside the parent companies •