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AlliancesHow 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
BYU, Marriott School
Professor Jeff Dyer
Alliances Growing as a Source of Revenue
Alliances as a Percentage of Revenue for
Top 1,000 U.S. Public Corporations
30%
25%
20%
15%
10%
5%
0%
1980
1985
1990
1995
1998
Source: Columbia University, European Trade Commission, Studies by BA&H,
AC.1983-1987, 1988-1993, 1994-1996, 1999
BYU, Marriott School
Professor Jeff Dyer
Total business conducted
through alliances
50%
40%
40%
30%
30%
20%
20%
10%
3-5%
0%
1990
2000
2005
2010
Source: EIU Global Executive Survey
Andersen Consulting, Warren Company
BYU, Marriott School
Professor Jeff Dyer
AlliancesHow 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)
BYU, Marriott School
Professor Jeff Dyer
Corporate Evolution
and Alliances
 Moving
from Managing a Portfolio
of Products...
 To Managing a Portfolio of
Businesses...
 To Managing a Portfolio of
Relationships
BYU, Marriott School
Professor Jeff Dyer
AlliancesHow 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)
BYU, Marriott School
Professor Jeff Dyer
Growth in Mergers & Acquisitions
vs. Alliances
14,000
12,000
M&A
Alliances
10,000
8,000
6,000
4,000
2,000
0
1996
1997
1998
M&A Transactions
JV/Alliances
Strategic Alliances are More Important for Growth
-Forbes
1999
2000
Source: Thomas Financial, reported in Forbes, May
21, 2001, p. 27.
BYU, Marriott School
Professor Jeff Dyer
Alliances vs. Acquisitions: Stock Market
Response to Announcements
Average Stock Market Gains
(Average over 10 day window following announcement)
1
.84 percent
0.8
0.6
0.4
0.2
0 percent
0
Alliances*
* Source: Dyer, Kale & Singh, 2001
Acquisitions**
(Acquirers)
** Source: Bradley, Desai, & Kim, 1988
BYU, Marriott School
Professor Jeff Dyer
IN TODAY’S NEWS, OUR
COMPANY HAS DECIDED
TO BUY ANOTHER DYING
COMPANY IN A
BUSINESS WE DON’T
FULLY UNDERSTAND.
BYU, Marriott School
OUR STOCK ROSE
FIVE POINTS ON
THE
ANNOUNCEMENT
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
THE STATUS OF
OUR STRATEGIC
ALLIANCE IS
“DOOMED.”
BYU, Marriott School
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
The Scope of Inter-firm
Relationships
Contractual Agreements
Traditional
Contracts
Nontraditional
Contracts
Equity Arrangements
No New Firm
Arm’s-length
Buy/Sell
Contracts
Joint Research
Minority
Equity
Investments
Franchising
Joint Product
Development
Equity
Swaps
Licensing
Long-term
Sourcing
Agreements
Crosslicensing
Joint Manufacturing
Creation of Entity
Dissolution
of Entity
Nonsubsidiary JV
JVs
Subsidiaries
of MNCs
Mergers and
Acquisitions
Fifty-fifty
Joint Ventures
Unequal
Equity
Joint
Ventures
Joint Marketing
Shared
Distribution/
Service
Strategic Alliances
Standard Setting/
Research Consortia
Based on: Yoshino and Rangan, 1995
BYU, Marriott School
Professor Jeff Dyer
Strategic Alliances

Benefits:
–
–
–
–
Speed (vs. acquisition
or greenfield)
Access to key
complementary assets
Removal of potential
competitor
Maintain incentives for
partner management
BYU, Marriott School

Drawbacks:
–
–
–
Lack of control; must
share decision making
Potential spillover of
knowledge and
capabilities
Organizational clashes
may impede ability to
collaborate
Professor Jeff Dyer
Mergers & Acquisitions

Benefits:
–
–
–
–
Speed (vs. greenfield)
Full control over
complementary assets
Removal of potential
competitor
Upgrade corporate
resources &
capabilities
BYU, Marriott School

Drawbacks:
–
–
–
–
Cost of acquisition
(premiums)
Unnecessary adjunct
businesses
Organizational clashes
may impede
integration
Major commitment
Professor Jeff Dyer
Cumulative abnormal returns
M&A Returns-Acquiring Firms
0.035
0.03
0.025
0.02
0.015
Single Bidder
Multiple Bidders
0.01
0.005
0
-0.005
-15 -10 -5
0
5
10
15
20
25
30
-0.01
-0.015
Event day
Source: Bradley, Desai, & Kim, 1988
BYU, Marriott School
Professor Jeff Dyer
M&A Returns-Targets
Cumulative abnormal returns
0.5
0.45
0.4
0.35
0.3
Single Bidder
Multiple Bidder
0.25
0.2
0.15
0.1
0.05
0
-15
-10
Source: Bradley, Desai, & Kim, 1988
BYU, Marriott School
-5
0
5
10
15
20
25
30
Event day
Professor Jeff Dyer