Post on 18-Jan-2016
transcript
Corporate Strategy: Acquisitions, Alliances,
and Networks
Joe Mahoney
Facebook: From Dorm Room to Dominant Social Network
• Facebook: “most powerful and transformative social change”
Started by Mark Zuckerberg in 2004
Overcame the first-mover advantage held by MySpace
True global strategy: more users first, profits later
Adding different functions to go after a wide-range of users
Innovative network marketing approach
Word of mouth through online social network
• Frequently attacked for insufficient protection of users’ privacy
• Needs a sustainable business model
• Implications for alliances and networks
Global Users of Facebook and MySpace
Facebook passes MySpace on number of users in 2008 and continues exponential growth
9–3
Integrating Companies: Mergers and Acquisitions
• Merger: combining two companies
Friendly approach
Example: Disney & Pixar
Generally similar in size
• Acquisition: purchase or takeover a company
Can be friendly or unfriendly
Hostile takeover
Example: Vodafone buys Mannesmann
Horizontal Integration: Merging with Competitors
• Horizontal integration: process of merging and acquiring competitors HP buys Compaq in 2002 Pfizer buys Wyeth in 2009 Live Nation buys Ticketmaster in 2010
• Benefits: Reduce competitive intensity Lower costs Boost differentiation Access to new markets and distribution channels
9–5
Source of Value Creation and Costs in Horizontal Integration
9–6
Reduction in Competitive Intensity
• Changes underlying industry structure Taking out excessive capacity from rivals Increased industry consolidation
Example: U.S. airlines in recent years
• Increasing bargaining power vis-à-vis suppliers and buyers
• Stable industry and more profits
• Usually need government’s approval Example: FTC rejected Office Depot and Staples merger
9–7
Horizontal Integration: Lower Costs
• How? Through economies of scale Enhancing economic value creation
• Crucial to the industries with high fixed costs Example: pharmaceutical industry Large sales force = fixed cost
Need $1billion in drug revenues to cover these costs
9–8
Horizontal Integration
• Increased differentiation Strengthen competitive positions
Differentiation of products and services– Example: Oracle buys PeopleSoft ($10B in 2005)
• Joined enterprise software with HR management software
• Access to new markets and distribution channel Enter new markets by M&A
– Example: Kraft buys Cadbury• New distribution in emerging markets & domestically
Mergers and Acquisitions
• Many M&As actually destroy shareholder value! When there is value, it often goes to the acquiree
Acquirers tend to pay a premium
• Why still desire M&As?
1. Overcome competitive disadvantage
2. Superior acquisition and integration capability
3. Principal–agent problems
9–10
Value Destruction in M&A: The Worst Offenders
Shareholder value destroyed based on up to 3 years post-merger analysis compared to overall stock market 9–11
• Desire to Overcome Competitive Disadvantage Adidas acquired Reebok in 2006
Benefits from economies of scale and scope Compete more effectively with #1 Nike
• Superior Acquisition and Integration Capability
• Some firms have superior M&A abilities They identify, acquire, and integrate target companies
Example: Cisco Systems • Sought complementary assets
• Bought over 130 firms since 2001, including large firms: Linksys, Scientific Atlanta, & WebEx
Mergers and Acquisitions
Mergers and Acquisitions
• Principal–agent problems Managers have incentives to diversify through M&As to
receive more prestige, power, and pay. Not for shareholder value appreciation This is principal—agent problem
• Managerial hubris Self-delusion
Beliefs in their own capability despite evidence to the contrary
“Exception to the rule” Example: Quaker Oats purchase of Snapple Sony purchase of Columbia Pictures
Strategic Alliances: Causes and Consequences of Partnering
• Strategic alliances: voluntary arrangements between firms Sharing knowledge, resources, and capabilities Leading to gaining and sustaining competitive advantage
• Relational view of competitive advantage VRI resources are embedded in alliances
(VRIO framework)
• HP’s alliance with DreamWorks SKG Resulted in Halo Collaboration conferencing
Number of R&D Alliances
Explosive growth since the 1980s yields faster products at lower costs and aids globalization.
9-15
Why Do Firms Enter Strategic Alliances?
• Strengthen competitive position Apple vs. Amazon
• Enter new markets Local partner for global growth Microsoft partners with Yahoo on search
• Hedge against uncertainty Real options approach
Roche invests in Genentech 1990 and buys it in 2009
• Access critical complementary assets Pixar partners with Disney
• Learn new capabilities GM & Toyota (NUMMI) – formed in1984
9–16
1–17
Pixar and Disney: From Alliance to Acquisition
• Pixar and Disney
• Early strategic alliance
• Successful products: Toy Story, Monsters, Inc., Finding Nemo, etc.
• In 2005, Disney acquired Pixar for $7.4 billion
• Steve Jobs became the largest shareholder of Disney
• Early alliance serves as a vehicle to match two parties’ complementary assets and eventually led to the acquisition
• Disney later acquired Marvel Entertainment, which made Spiderman, Iron Man, The Incredible Hulk…etc.
9–17
Governing Strategic Alliances
• Governing mechanisms:
Contractual agreements for non-equity alliances Based on contracts
Equity alliances One firm takes partial ownership in the other
Joint ventures Stand-alone organization owned by 2 or more firms
9–18
Non-Equity Alliances
• Most common forms of contracts Supply agreements Distribution agreements Licensing agreements
• Vertical strategic alliances Firms tend to share explicit knowledge that is codified Licensing agreements, partners exchange codified
knowledge regularly Ex: Genentech and Eli Lilly
• Genentech R&D focused
• Eli Lilly manufacturing & FDA approvals
Equity Alliances
• At least one partner takes partial ownership position Stronger commitment toward the relationship
• Allow the sharing of tacit knowledge Tacit knowledge concerns the “know how”
• Partners exchange personnel to acquire tacit knowledge 1984 Toyota + GM = NUMMI
(New United Motor Manufacturing Inc.)
2010 Toyota + Tesla to use the NUMMI plant
• Corporate venture capital is another equity source Established firms invest in new startups
• Tends to produce stronger ties and greater trust
9–20
Joint Ventures
• Created and owned by two or more companies Hulu owned by NBC, ABC, and Fox
• Long-term commitment Exchange both tacit and explicit knowledge Frequent interaction of personnel
• Stepping stone toward full integration of the partnership
• “Try before you buy” concept
• Used to enter foreign markets 9–21
Key Characteristics of Different Alliance Types
Alliance Management Capability
9–23
Alliance Management Capability
• Partner selection and alliance formation Ascertain that expected benefits exceeds costs Must select the best possible alliance partner
Partner compatibility Partner commitment
– Willingness to share resources & long-term view
• Alliance design and governance Choose and agree upon governance structure
Non-equity contractual agreement Equity alliances Joint venture
Inter-organizational trust is critical9–24
Alliance Management Capability
• Post-formation alliance management
• To effectively manage the ongoing relationship Tips:
Make relationship-specific investments Establish knowledge-sharing routines Build interfirm trust
Example: HP’s dense network of alliances vs. DEC
• Dedicated alliance function Coordinate alliance-related tasks – at corporate level Knowledge base about how to manage alliance
Ex: Eli Lilly is a clear leader in alliance management
Best to develop a relational capability
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How to Make Alliances Work
9–26
Strategic Networks
• Social structure with multiple organizations Network nodes – the organizations Network ties – the links between organizations
• Network achieves goals that cannot be done by only one firm
• Example - Star Alliance 1st global airline network
Air Canada, Air China, Continental Airlines,
Lufthansa, Singapore Airlines, United Airlines, etc. Seamless travel on 25 international airlines
9–27
Analyzing Strategic Networks
• Enable us to understand the benefits and costs of a network Quality of the tie: strong or weak?
• Firm’s position in a network Network centrality Knowledge broker
Ex: IDEO design consultancy
Structural holes
• Small-world phenomenon Network in local cluster High degree of centrality of each firm
9–28
Firms Embedded in Strategic Networks
A hypothetical strategic network. Firm B is in a key position - knowledge broker 9–29