Alliances and Acquisitions

&

Strategy formulation tools

and techniques

 Alliances and Acquisition

Alliances(which includes a merger) and acquisition considerations are

important elements of any modern corporate strategy( Almassy and Baatz,
1992; Cave,1996; GuideLines, 1996; Hamel et al.,1989).

They both have an equal chance of success, which is about 50% (Bleeke
and Ernst,1991).

Generally alliances are more successful if they are used to enter markets in
new geographical areas, or to develop products that are not core to either
partys business strategy ( Bleeke and Ernst, 1995).

Acquisition should be in geographical areas where the company already has

a string presence or where the product is core to its operation.

Existing
Geography

Prime
Business
New
Business

Acquisition

Alliance
(Acquisition)

Fig. 5.7 The alliance-acquisition matrix

New
Geography

Alliance
(Acquisition)

Alliance

Reasons for Alliances

2/3 of cross-border alliances run into serious problems in the first two years
of their existence ( Bleeke and Ernst,1991) and 1/3 result in failure.

Strategic alliances can involve several groups of companies ( GomesCasseres, 1994) and may be set up to develop new products ( Bidault and
Cummings, 1994)

Sometimes a large firm will form an alliance with a much smaller company ,
and tap into the smaller partners innovative and entrepreneural skills, while
the smaller company gains access to world markets, volume manufacturing
and much greater resources ( Peridis, 1993).

Reasons for forming alliances depend largely on the activities of the

partners ( Lorange et al.,1993).

Market
Leader

Prime
business

Secondary
business

Market
follower

Defend lead
position

Drive for lead

position

Maintain
status quo

Change
position

Fig. 5.8 Reasons for forming alliances

 Strong Alliances

Alliances formed between two partners of equal strength have the

greatest chance of success.

Alliances are formed for the wrong reasons

1. Weak company will chose a stronger partner in the hope that this
will help it to get out of its problems.
2. Stronger company will accept the weaker partner, since it believes
that it can then dominate the partnership and get its own way.

An alliance needs to use the skills of both companies in equal

amounts and both must be willing to share in its investment and not
lumber any one company with an unfair share of the burden ( Kanter,
1994).
Joint venture is the ultimate form of alliances.

Strategy formulation tools and techniques

Advantages in the use of formal tools and techniques :
They ensure a systematic thought process and
consideration of the pros and cons and a rigorous
approach towards the problem.

Ensure that the emphasis is placed on facts rather than

on hunches.

Ensure a more detailed analysis of the problem yields to

better decision making.

Provides fall-back strategies.

Planning tools and techniques

1. Value Analysis

Driving forces in the business are itemized and analyzed. Activities which
add value need to be itemized and clearly identified.
Ex. Manufacturing
Marketing sales
R and D
Customer satisfaction

2. Market Analysis

Competitor
Analysis

Company
Company strengths
strengths
and
and competitive
competitive
advantage
advantage
Benchmarking
Benchmarking

Sensitivity
Sensitivity
Analysis
Analysis

Product life
life cycle
cycle
Product
Technological and
market forecasting

3. Gap Analysis

Gap analysis is the technique for the identifying the difference between
the aims of the corporation and the expected results if no action is
taken ( Ansolf, 1972).

Gap analysis deals with :

Corporate aims
Expected results
Size of the gap
Method of filling the gap

Fig. 5.9 Gap analysis

4. Financial analysis

This is a well-established technique and several exist ( Day, 1986) .

Tools are also available for cost and control mechanisms and to plan
operating budgets ( Varadarajan, 1894).

5. Group decision making

Decision making by groups is often more effective than by individuals

( Delbeeq et al., 1975; Johnston Mendleson, 1982 ).

Point of view are developed, debated, analyze, refined and finally

accepted by the group.