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Long Range Planning

38/2 April 2005

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Charles Baden-Fuller Editorial

Alliance management
Alliances are one of the fastest growing dimensions of firms, and they are used for many purposes including developing new products and services, accessing specific types of knowledge for current operations, and outsourcing non-core activities. A practice problem arises because many firms have a large number of alliances formed on an ad-hoc or dyadic basis. The costs of managing the portfolio and the tensions that exist between different partners can result in negative outcomes due to a lack of a strong strategic approach.

Werner Hoffmann examines how to manage the alliance portfolio, and draws on the practices of 25 leading European companies to come up with practical advice. He explains how an overview of the whole portfolio and the application of standardised tools and perhaps a centralised approach can result in significant gains. His approach consolidates much past academic writing and stresses implementation issues, so important for many of our readers.

Carol Yeh-Yun Lin and Jing Zhang use the Taiwan publishing industry as an example to discuss how SMEs can approach alliances to create competitive advantage and develop a strong national presence in an otherwise fragmented industry. They trace the development of network formation in this industry over many years to explain how different structures are relevant to different problems. One design, the ‘Spider-Web’ structure is particularly effective in creating a robust network that is capable of creating big competitive advantages for all its members. This heavy emphasis on the structural and design aspects of alliances reinforces the points made by Hoffmann that a strategic approach to alliances is needed, even by SMEs.

Cross border alliances pose particular management challenges. Alexander Mohr and Jonas Puck use a sample of German-Chinese alliances to explore and explain how to improve the performance of multi-cultural cross border relationships. Like many others before them, they stress that trust, communication and commitment are key dimensions to success and that these require continuous effort.

Responding to threats
How should firms respond to new entrants? In particular, how should domestic firms in smaller economies respond to the entry by a large multinational. Eugene Jaffe, Israel Nebenzahl and Israel Schorr examine how local firms responded to such threats when Israeli markets were opened up to foreign competition after the Oslo accord. Building on past work in this journal, they examine the trade off between responding aggressively or defensively to the threats, and use case examples to show what kind of response is most effective for particular situations and why many companies get it wrong.

Our final piece by Ian Worthington and Dean Patton looks at the threat from the environmental lobby. Using the example of UK screen printing, they find that few British SMEs are pro-active in dealing with environmental issues. They suggest that whilst environmental legislation often ends up being costly, a more strategic approach will find potential gains as well. They advocate that SME managers move towards a more proactive stance to keep a good balance between costs and opportunism.

Werner H. Hoffmann How to Manage a Portfolio of Alliances werner.hoffmann@wu-wien.ac.at

Competitive pressures have forced many companies into relationships with other companies to access resources or markets, or to co-ordinate capabilities on large projects. However, just as a company is multifaceted, so it can find itself bound up in a large network of alliances. The management of such a network or portfolio should be seen as distinct from the management of each individual alliance as it is crucial to the company’s competitiveness and financial health. This paper researches the question of what management tasks arise in companies with multiple alliances, and how they deal with these tasks. It bases its findings on a study of the management practices of 25 leading European companies operating in a variety of industries. The study identified four tasks of portfolio management. The first, portfolio strategy, is necessary to develop a main direction for all alliances in the business and establish general rules for their management. The second, portfolio monitoring, requires performance measurement to find out if strategic goals are being attained. The third task, portfolio co-ordination, is necessary to ensure that synergies are being achieved and that alliances are not in conflict with each other. Finally comes the task of institutionalising multialliance management so that a system is in place to support all the requirements of managing individual ventures as well as the portfolio. This task provides the greatest challenge and the author urges companies to set up specialised roles and positions, as well as standardised tools and formal processes. Critical for success is the establishment of a centre of competence which can itself build up alliance management competence before the management of individual alliances is decentralised. The paper concludes with some suggestions for further research into this increasingly important field for companies.

 

Carol Yeh-Yun Lin and Jing Zhang Changing Structures of SME Networks: Lessons from the Publishing Industry in Taiwan yenyonln@nccu.edu.tw

Companies that seek to survive in the competitive environment often reach out to other companies or individuals to forge links. These networks can allow organisations to enjoy economies of scale as well as knowledge transfer. Networking has been of particular benefit to Taiwanese companies, many of which are classified as small or medium sized enterprises, but which nevertheless have powered Taiwan’s economy into the global arena. This paper takes one sector of Taiwanese SMEs, the publishing industry, to describe how companies modified their network structures to meet the demands of the changing competitive environment. The authors based their study on interviews with managers and network experts and uncovered six patterns of network structure. They found that company networking behaviour has become more strategic, aggressive and flexible. Based on their findings of Taiwan’s publishing SMEs they constructed a three-stage model of network structural change, which they call Centre-Satellite, Co-optition, and Spider-Web. The first of these, which prevailed in the 1980s to mid 1990s, describes the relationship between a centre company and the satellites it gathers for corporate co-operation. The second, co-optition stage, describes how even local rivals can collaborate for mutual benefit when faced with global competition. The third stage, spider-web, describes the evolution of a more fluid form of partnership where members support each other in flexible relationships. The authors draw out some implications for managers in other industries who seek to improve the effectiveness of networking but stress that networking behaviour needs to be understood from the perspectives of economic, social, cultural and industrial factors.

 

Alexander T. Mohr and Jonas F. Puck Managing Functional Diversity to Improve the Performance of International Joint Ventures a.t.mohr@bradford.ac.uk

Companies embark on joint ventures with international partners as a way to expand their operations, enter new markets or gain expertise. However, they do not always work. Conflicts in culture have been cited in the past as having negative consequences for IJVs, but the authors of this paper suggest that it is more helpful to examine functional differences and their impact. With reference to the responses to questionnaires that were sent to managers of German-Chinese IJVs the authors formed five hypotheses which were then tested empirically. One of the conclusions reached was that adaptation, trust and commitment act as moderator variables on the relationship between functional diversity and IJV performance.

 

Eugene D. Jaffe, Israel D. Nebenzahl and Israel Schorr Strategic Options of Home Country Firms Faced with MNC Entry ej.marketing@cbs.dk

How do domestic firms react when faced with competition from encroaching MNC’s ………… and how should they react? The authors test research models with actual data from Israeli firms’ reactions to increased competition following the Oslo agreement, and then cross-check with expert judges’ predictions to see how the two parameters of globalised/localised pressures and strong/weak FSA’s affected outcomes in practice and in theory. Seeking to develop a model to predict optimum response, they use a 2x2 grid to characterise responses as contenders, cooperators, contesters or defenders for firms wishing to avoid the other obvious choice of being forced out of the market, underpinning their argument with two case studies showing the results of ‘correct’ and ‘incorrect’ decisions.

 

Ian Worthington and Dean Patton Strategic Intent in the Management of the Green Environment within SMEs: An Analysis of the UK Screen-Printing Sector iwcor@dmu.ac.uk

Companies are increasingly accepting responsibility for the environment and putting in place measure that meet the green demands of customers, shareholders and politicians. Only a few however tout these environmental measures as their unique selling point and seek to gain a competitive advantage from instituting them. The small and medium-sized enterprise (SME) sector in the UK makes up the majority of businesses and accounts for more than half of turnover. However little attempt has been made to examine the degree to which SME managers make a conscious and deliberate intent to utilise environmental performance as a potential source of competitive advantage. This paper studies one sector under the SME umbrella: the screen-printing industry. It investigates the motivations that underpin the responses of screen-printers in the UK to the pressures to improve their environmental performance and finds that the managerial mindset tends to be reactive, compliance-based and operationally-focused. The paper discusses the possible explanations for this cautious approach and indicates how a more proactive stance might provide a competitive edge. The authors conducted their study through questionnaires and interviews returned from a sample of 65 screen-printing companies in the UK. While some companies identified potential gains from going beyond mere compliance measures, these tended to be couched in operational rather than strategic terms. The authors say that the findings of their study could be applied across the entire SME sector and therefore for many small businesses the environment tends to be seen primarily as a cost imposed by regulatory authorities, rather than as a value-adding activity. The authors warn that given the expectation that environmental regulation will increase, managers should establish a strategy of moving away from a focus on regulatory compliance and towards a position where enhanced environmental action becomes part of the company’s competitive profile.

 

This issue is available in full on-line at www.sciencedirect.com

 
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