OBJECTIVES
As a person with knowledge of strategic alliances, the author has always brought up to his superiors the viability of strategy formation regarding the analysis of this topic and at times fails to understand the reasons or logic behind certain strategic implementations imposed on it.
By delving into this project paper, the author intends to have better insights into how strategic alliances are thought up, formulated and then imparted down into the subsidiaries of the company or organization. The author hopes to have an in-depth understanding as to how the strategic alliance enables companies and organizations to compete effectively and profitably in this era of internationalization where competition is extremely intense.
In order to reinforce the learning objectives, two key focal issues were focused upon i.e. innovation and diversity. Innovation was discussed with regard to strategic alliances among companies and organizations where it was renowned for its developmental capabilities to constantly innovate. Diversity came under strategic thinking and formation as the author considered the diverse culture, political climate, economic surroundings, social environment, technological settings, government policies and legal systems in order to better understand the issues being discussed.
EXECUTIVE BRIEF
This essay utilized Palm, Inc. and Heineken as the model organizations to review its past strategic alliances with various companies and how they dealt with critical situations. From the analysis, key trends in the strategic alliances were then identified, how they worked and their effectiveness in dealing with critical situations was ascertained. The paper then moved on to assess Palm, Inc. and Heineken’s strategic alliance strategies with regard to their suitability to critical situations, during which the internal capabilities of these strategic alliance strategies in relation to the overall strategy being followed by Palm, Inc. and Heineken was determined also. An overall analysis of the performance and effectiveness of Palm, Inc. and Heineken’s strategic alliance strategies was also conducted to assess and compare the capabilities of these strategies with those of others. Gaps in the strategic alliance strategies and environment were then identified.
Finally, several choices of strategies to improve the strategic alliance strategies of Palm, Inc. and Heineken as effective means in critical situations were recommended and evaluated in terms of appropriateness to the issues reviewed, feasibility in carrying out the options and acceptability within the key stakeholders and decision makers. Several key implementation issues related to managing strategic change were also addressed as well.
INTRODUCTION
A strategic alliance happens when two (2) companies come into agreement to combine their operations together, thus forming a new company where both function as equal partners (Datta, 1991). A strategic alliance can also happen when one company buys the full interest in another company with the agreement that the buyer will have the right to determine how the combined operations will be managed. Strategic alliance transactions are commonly smooth along the way. The allied companies are able to solicit bids and thus able to submit into an acquisition voluntarily.
Some businessmen argue that the fast pace of strategic alliances ultimately becomes the driving force behind the formulation of agreements and rules for business conduct. Strategic alliance deals may have the potential to create enormous economic and social consequences. They can easily drive away the major competitors within a country. They can also determine how and where people should work. However, earning the approval of the government for strategic alliance deals would never be easy. But usually, the first step of seeking the government approval is relatively easier than managing the new company. Strategic alliance deals undergo through series of stages. At every stage, the effective management of human resource (HR) and cultural issues is critical. This is initiated by the identification of the HR issues and their significance for the company’s activities.
Important changes in the understanding and management of strategic alliances among multinational companies have been developed in the past 10 to 15 years. Various researchers, practitioners and policymakers now acknowledge that the risks involved in culture and human resources after the strategic alliance and company restructuring can be conceptualized from a functional perspective and that appropriate interventions involve the development of alternative measures to cope up.
Companies today have to be efficient, flexible and profitable. Without these factors, it would be very difficult to compete in the global economy. Aside from participating in strategic alliances to fully enhance the resources they need to become competitive, many companies now evolve and expand through mergers or acquisitions. Among the most important strategic alliances in recent years are Daimler-Chrysler, Chase-J.P. Morgan, SKB-Glaxo, NationsBank-Bank of America, and Deutsche Telekom-Voice Stream. Although global economic and market conditions are unpredictable, the future provides the best conditions for the continuation of strategic alliance processes.
OVERVIEW OF STRATEGIC ALLIANCE CASE 1
Palm, Inc. is a business entity specializing in mobile computing. Its products enable its customers to put the power of computing in their hands, along the process accessing the information they need. Palm, Inc. was established in 1992 by Jeff Hawkins, Donna Dubinsky, and Ed Colligan, which later co-invented the Palm Pilot (Amsden, 2001).
In 1995, Palm, Inc. merged with U.S. Robotics Corporation. In June 1997, Palm, Inc. became a subsidiary of 3Com when the U.S. Robotics Corporation was acquired by 3Com. As its subsidiary, 3Com then made Palm, Inc. an independent company on March 2, 2000 through a public trade under the ticker symbol PALM. In August 2003, the company renamed its hardware division to palmOne, Inc. In April 2005 palmOne was bale to buy PalmSource’s share in the ‘Palm’ trademark for about US million. Then just last July 2005, palmOne launched its new name and brand going back to Palm, Inc. and trading under the ticker symbol PALM (Kim, 1997).
Objectives of Strategic Alliance
Palm, Inc. aims for sustainable growth as a broad market leader in mobile computing as well as for segment leadership. In both cases, the Palm, Inc. brands will play a crucial part. Palm, Inc. is able to establish its broad leadership usually by acquiring other strong mobile computing companies and their products, which are then combined into a new, larger company. Offering training to its employees, improving the company operations, and the introduction of new technologies then reinforces the positions of the various Palm products. This practically results in economies of scale that is able to create a distribution network for both the local and international Palm products. If a market is already in the control of other mobile computing companies, Palm, Inc. devotes its attention towards the development of a premium segment with its various Palm products.
The mission of US Robotics Corporation, on the other hand, is to secure the growth of its business in a sustainable manner, while at the same time constantly improving the company’s profitability. The strategy to achieve this involves four elements:
Benefits of Strategic Alliance
Among the competitive advantages enjoyed by both companies upon merging included the following:
· Economies of Scale and Scope in manufacturing and research and development arising from its numerous facilities situated in the United States and other countries worldwide.
· Unique Quality Technology owing to heavy emphasis on research
Palm, Inc.’s commitment to research & development activities has always been one of its top strategies to remain competitive in the market.
· Differentiated Products
Through the production and marketing of differentiated products originating from their research and development activities, Palm, Inc. is able to create its own firm-specific advantages. The continuous pursuit of research and development processes enables Palm, Inc. to produce a steady stream of originally differentiated products which makes it difficult for competitors to find substitutes. Because of this differentiated approach, Palm, Inc. is able to market their products worldwide, which enables them in turn to maximize the returns on research and development expenditures.
ASSESSMENT OF STRATEGIC ENVIRONMENT
A. Product-Service Market
Palm products include smart-phones and handheld computers. These are equipped with a Personal Information Management (PIM) software and other note-taking applications (Arora et al. 2001). A range of additional features including high resolution coloured screens and wireless capabilities ensure that there’s a Palm product designed to meet the needs of clients anywhere in the world.
B. Design Philosophy
Hand-held computers are different from a laptop. Palm products focus more on the management and access of information rather the creation and editing of documents. For this reason, Palm, Inc. has developed a unique set of guiding principles – simplicity, wearability and mobility. Total commitment to these principles makes Palm products very user-friendly to its customers (Hobday, 1995).
C. Customers
A majority of Palm customers are professionals who rely on mobile gadgets and expect seamless handoffs every time they make calls. For instance, a customer phones in a service request from the New York airport while boarding a plane bound to Paris the same day. The technical people of Palm, Inc. in New York will immediately work on the service ticket of the client. And when that client arrives in Paris, he / she would be able to call the New York service center and pick up exactly where he / she left off (Barlett et al. 1999).
D. Competitors
Palm, Inc. is the world’s leading producer of hand-held computers. Interestingly enough, Palm, Inc. has an even larger share in the market for hand-held computer operating systems. Around eighty (80) percent of hand-held computers in the United States operate on a Palm operating system. Microsoft is the only major competitor with a share of sixteen (16) percent. The hardware market gives Palm, Inc. a market share of sixty (60) % (Hill, 2002). Of the major competitors, Sony Corporation and Handspring are both using Palm’s operating system, and hold about 7% and 14% market shares respectively. Other competitors, such as Compaq and H-P, use Microsoft’s operating system, but both companies have below 10% market share. Palm, Inc. has had so much success in the consumer market, but the future goals include selling more products to corporations (Baumol, 2002).
Performance after the Strategic Alliance
a. Financial Analysis
In the fiscal year of 2003, Palm, Inc. was able to experience a significant progress in several key metrics. The inventory was reduced from million to million and inventory turns rose from 12 to 26. The cost of revenues, excluding the benefit from previous special charges and the applicable portion of the amortization of intangible assets, decreased from 72.3% of revenues to 67.8% of revenues. The combination of sales and marketing, research and development, and general and administrative expenses was reduced from $ 435 million to 9 million, while at the same time improving on the pace of innovation. Palm, Inc.’s total revenue has approximately grown from million in fiscal year 1995 to $ 871. 9 million in fiscal year 2003.
b. Marketing
The retailers in the United States represent Palm, Inc.’s largest sales and marketing channel which encompass national and regional office supply stores and mass merchants. Distributors represent Palm, Inc.’s second largest United States channel and generally sell to both traditional and Internet resellers and retailers. In Europe and Asia, Palm, Inc.’s market share is still relatively high. Palm, Inc. has more than 100 international distributors located worldwide.
The company uses the Palm.com store as a venue to sell its products. This is accomplished through the use of e-marketing campaigns and product bundles. The company is able to build awareness of its products and brands through mass media advertising, public relations efforts and branded Internet properties. The company also makes it a point to receive feedback from its customers through market research. The company then uses these feedbacks to refine its product development efforts and marketing strategies.
c. Operations
Palm, Inc. out-sources all of its manufacturing and hardware designs of its products to third party manufacturers. This outsourcing extends from prototyping to volume manufacturing and includes activities such as material procurement, quality control and delivery to distribution centres. The company is assured that there is an adequate supply of components to manufacture its products. The majority of the company’s products are assembled in China and Mexico. Distribution centers are operated on an outsourced basis in Tennessee, Ireland, and Hong Kong.
d. Human Resources
Palm, Inc. knows that its future depends on the company’s ability to attract new personnel and retain existing personnel in key areas including engineering and sales. None of the company’s employees is subject to a collective bargaining agreement. The company considers its relationship to its employees to be good. As of June 30, 2003, Palm, Inc. has a total of 982 employees operating within a company organization structure. Ed Colligan is the current President and CEO of Palm, Inc., while Jeff Hawkins is the current Chief Technology Officer.
Critical Strategic Alliance Success Factors
Palm, Inc. was able to execute a successful strategic alliance because of the following success factors:
· Financial Stability
Financial stability is crucial especially in the pursuit of strategic alliance and acquisition activities. In the mobile computing industry, it is important to remain updated with the latest technological developments to be able to stay competitive in the market.
· Product Performance and Price
The designing of the best mobile products comes as a result of well-funded research and development activities. The strong performance of mobile products in the market could also be linked to their cost-effectiveness. However, the company has to be aware of the positioning in terms of process so as to maintain satisfactory profits margin and remain competitive in the market.
· Marketing Strategy and Distribution
High brand awareness among the buyers has created the need for aggressive marketing, and access to strong distribution channels is critical for the introduction of new models (Best, 2001).
OVERVIEW OF STRATEGIC ALLIANCE CASE 2
Heineken is one of the world’s leading brewing companies in terms of profit and sales volume. The company has also the widest presence among all international brewing companies. This is made possible through a positioning strategy of global networking of breweries and distributors.
In terms of volume, Heineken is the largest beverage and brewer distributor in Europe. The company also balances stable and profitable markets in Europe and North America. In recent years, Heineken has initiated efforts to solidify its presence in the Asia Pacific Region through the acquisitions of beer markets in China and Russia.
The Heineken brand is one of the world’s most valuable international premium beer brand. Heineken uses the name of both the company and its mainstream beer label, and this strategy has allowed the company to pursue an integrated marketing approach directly related to the company name.
Heineken, as a leader in their industry, has implemented various strategic alliances, most notably with SABMiller to fully adapt to the need to go global. However, it is more important for Heineken to implement a more sober approach to maintain consumer loyalty with their local brands. This is primarily due to the consolidation and globalization that are taking place across most industries, including the brewing industry.
Goals / Objectives of Strategic Alliance
A) Remain one of the top companies in terms of global brewing. Being on top of its industry enables Heineken to command the respect and confidence of its clients. Thus, the company is able to expand its operations through the acquisition of other brewing firms.
B) Gain more profit per hectoliter than other international brewers. The raw materials that are being laid down in the recipes used in Heineken are able to meet high quality standards. As a result of the strategic alliance with SABMiller, the company is able to earn more profit as against other brewing companies.
C) Build the best brand portfolio, with Heineken as the international brand of flagship; and
D) Maintaining its independence. Being an independent company allows Heineken to continue its tradition of excellence in both its products and services by setting new trends and standards.
In order to achieve these objectives, Heineken implements a strategy of selling a combination of local brands and international brands, but maintaining Heineken as the flagship brand. Heineken also aims for broader positions as well as either the top or secondary positions in any market of local beer. Any of these positions would be enough for Heineken to deliver a high level in terms of production, marketing and distribution. Moreover, these positions create a platform from which the company can sell their premium brand Heineken, Amstel and other specialty beers. Heineken’s branches of breweries in the Netherlands and Poland are perfect examples of broad leadership positions. And with a continued focus on the structures of the costs, the above mentioned objectives should undoubtedly be reached.
Impacts of Strategic Alliance
Post-alliance integration of human resources involves a step by step and interactive process in which the individuals from two or more organizations come into agreement in terms of the transfer of strategic capabilities. The post-merger integration occurs at different levels. Here the identified levels are procedural, physical, and managerial/ socio-cultural. On the other hand, another research uses the terms task and human integration (Ivanevich et al. 1987).
Faulty integration of human resources is one of the various significant causes of problems that Heineken and SABMiller encountered following their strategic alliance. This problem can be attributed to factors such as post alliance managerial exhaustion and apathy due to the difficulty of protracted negotiations and insensitivity towards managers/employees (Horwitz et al. 2002). Because of the results of these earlier researches, the human side in the researches about strategic alliances has started to emerge. For example, Hunt found out in his research that the factors for success or failure in strategic alliances had been: (a) strategic fit, (b) cultural fit, (c) the management of a merger or acquisition process, (d) resistance of employees, and (e) other factors, such as: factors related to the environment, turnover management, financing methods, sizes of the organizations and experiences in acquisitions (Hunt et al. 1990).
CONCLUSION
The results of the analysis carried out on the strategic alliances made by Palm Corporation and Heineken with various companies indicated very significant effects for both companies, even amidst the threats of political unrest. Therefore, we could conclude that the company could still be expected to grow faster than average.
The review of both company’s capabilities and resources revealed very little inconsistencies regarding their strategic alliance strategies. This is coherent with their traditional inside-out approach. However, the need to reconcile both the inside-out and outside-in approaches becomes imperative now as part of the strategic alliance process.
The gap analysis among the environment, strategy and capabilities of both companies revealed certain gaps, most of which are biased towards the environment. However, these gaps paved the way towards determining a number of recommended strategic options to secure the company’s international competitiveness.
Also, the company has to find a balance between adherence to internal forces within the company and to the changing forces of the environment in order to implement such strategic options.
Credit:ivythesis.typepad.com
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