Innovation Management and New Product Development PDF

Innovation Management and New Product Development Seventh Edition Part 2 Turning technology into business Chapter 8 Strategic alliances and networks © 2021 Pear...

Innovation Management and New Product Development Seventh Edition Part 2 Turning technology into business Chapter 8 Strategic alliances and networks © 2021 Pearson Education Limited. All Rights Reserved. © 2021 Pearson Education Limited. All Rights Reserved.  Introduction How strategic alliances can help innovation; Examples of effective strategic alliances; Reasons for entering a strategic alliance; Types of strategic alliance; The role of trust; Risks of strategic alliances; The prisoners dilemma and repeated game; Key points © 2021 Pearson Education Limited. All Rights Reserved.  Definition of strategic alliance A strategic alliance is an agreement between two or more partners to share knowledge or resources, which could be beneficial to all parties involved (Vyas et al., 1995). © 2021 Pearson Education Limited. All Rights Reserved. Silicon valley – the best example of an innovation network © 2021 Pearson Education Limited. All Rights Reserved.  Co-operation/alliance integration Technical/assistance agreements Increasing interdependence Production/assembly/buyback Product licensing Franchising Know-how licensing Management/marketing service Non-equity cooperation (contract) Equity joint venture © 2021 Pearson Education Limited. All Rights Reserved. Figure 8.2 The alliances in the automotive industry Autoliv Alibaba TomTom Volvo Bosch Daimler Panasonic Tesla nVIDA Audi BMW Qualcomm Continental VW Apple Ford © 2021 Pearson Education Limited. All Rights Reserved. Table 8.1 Assembling the component parts to make an iPhone © 2021 Pearson Education Limited. All Rights Reserved. Table 8.2 Reasons for entering a strategic alliance Sources: Littler, D. A. (1993) ‘Roles and rewards of collaboration’, in Tidd, J., Besant, J. and Pault, K. (eds) (2001) Managing Innovation, Wiley, Chichester, p. 51; Chan, P.S. and Heide, D. (1993) Strategic alliances in technology: key competitive weapon, Advanced Management Journal, vol. 58, no. 4, 9–18; Harney, A. (2001) Ambitious expansion loses its shine: analysts change their tune about Sony’s dreams and begin to count the costs of the new mobile phone alliance with Ericsson, Financial Times, 2 October; Budden, R. (2003) Sony- Ericsson seeks success with new phones, FT.com, 3 March. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance Licensing – Common way to acquire technology Supplier relations – An informal alliance, based on cost benefits Outsourcing – Delegation of non-core operations, for example, outsourcing of IT services Joint venture – Legal entity, partners share responsibility, costs and benefits from R&D project shared https://www.youtube.com/watch?v=g6UdB0f7zzg https://referralrock.com/blog/strategic-alliance-examples/ © 2021 Pearson Education Limited. All Rights Reserved.  Collaboration (non-JV) – Absence of legal entity, flexible relationship, for example, universities working with local firms on research projects R&D consortia – Number of firms work together to undertake activity, share risk, costs, expertise, equipment, etc. Industry clusters – Geographic concentration of interconnected companies Innovation networks – Series of supplier and customer relationships © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 1) Licensing Licensing is the granting of permission to use the IP rights such as trademarks, patents, and technology under defined conditions. It is a relatively common and well-established method of acquiring technology. It may not involve extended relationships between firms but increasingly licensing another firm’s technology is often the beginning of a form of collaboration. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 1) Licensing It has an element of learning required by the licensee and frequently the licensor will be the ‘teacher’. The advantages are the speed of entry to different technologies and reduced cost of technology development. The drawback is the neglect of internal technology development. E.g. the videocassette recording (VCR), JVC licensed its VHS technology to Sharp, Sanyo, and Thompson. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 2) Supplier relations Working with suppliers is a form of informal alliance. Many manufacturing firms are entering into long-term relationships with their suppliers because of several advantages: Lower production costs if supplier modifies its component to fit the company’s product. Reduced R&D expenses based on information from suppliers. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 2) Supplier relations – continued Several advantages: Improved material flow brought by reduced inventories Reduced administration costs through integrated information systems. Provide additional discounts and better services for good customer. Share experience, expertise, knowledge and investment, such as developing a new product. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 2) Supplier relations – continued Several disadvantages: Good supplier relations is difficult to obtain It is costly in terms of time and effort. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 3) Outsourcing It refers to the delegation of non-core operations from internal provision or production to an external entity specialising in the management of that operation. It involves transferring or sharing management control and/or decision making of a business function to an outside supplier. Such relationships involve a degree of two- information exchange, coordination and trust. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 3) Outsourcing – continued It has few advantages: The interests of lowering firm costs, redirecting or conserving energy directed at the competencies of a business. To make more efficient use of worldwide labour, capital, technology and resources. E.g. Microsoft outsource its IT functions to India. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 3) Outsourcing – continued There are risks involved in outsourcing: Dependence on the supplier Hidden costs Loss of competences Lack necessary capabilities Social risk Inefficient management Information leakage © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 4) Joint venture A JV is usually a separate legal entity with the partners to the alliance normally being equity shareholders. They usually established for a specific project and will cease on its completion. E.g. Sony- Ericsson mobile phone. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 5) Collaboration (Non-joint ventures) The absence of a legal entity means the arrangements are more flexible. This provides the opportunity to extend the cooperation over time if desired. This often happens between firms and their suppliers, but recently firms collaboration with university faculty has become common. While firms are interested in a material, the university can help to test the properties of the material. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 6) R&D consortia A consortium describes the situation where a number of firms come together to undertake a large-scale activity. It is usually centred on trading company, suppliers, distributors, and final product producers. It may involve up to 20-50 companies in a consortium. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance The advantages include the ability to: reduce costs and risks of research access technologies pooling scarce expertise and equipment, influence industry standards on new technology. The disadvantages include: potential to reduce competition firms operating as cartel one party may not gain any technological benefit. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 7) Industry clusters Clusters are geographic concentrations of interconnected companies, specialised suppliers, service providers and associated institutions in a particular field that are present in a nation or region. Clusters arise because they increase the productive with which companies can compete. Several industrial clusters have emerged, driven by the private sector and supported by the government, in different parts of the country. Thus, for example, electronics industries tend to cluster in Penang, furniture and palm oil in Johor, and ICT and machinery in the Klang Valley. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 7) Industry clusters – continued Porter (1998) explains how clusters affect competition in three broad ways: By increasing the productivity of companies based in the area By driving the direction and pace of innovation By stimulating the formation of new businesses with the cluster. © 2021 Pearson Education Limited. All Rights Reserved.  Forms of strategic alliance 8) Innovation networks Networks are those linked organisations that create, acquire, and integrate the diverse knowledge and skills. Some called it ‘virtual organisation’ For example, Nike owns and manages the brand and relies on an established network of relationships to produce and distribute its product. It does not own manufacturing plant or retail outlets. It undertakes research, design and development but network with manufacturers and retailers throughout the world. https://www.hlb.com.my/en/personal-banking/news-updates/hlb-forms- strategic-alliance-with-mida-ensuring-malaysia-remains-an-investment- © 2021 Pearson Education Limited. All Rights Reserved. destination-of-choice.html Figure 8.3 The process of forming a strategic alliance © 2021 Pearson Education Limited. All Rights Reserved.  Competition or collaboration? Can we achieve our goals/objectives independently? What benefits could collaboration bring? What form might collaboration take? What are the risks in collaboration? How should collaboration be managed? How can we emerge from collaboration more competitive than when we entered it? © 2021 Pearson Education Limited. All Rights Reserved. Table 8.3 Types of trust © 2021 Pearson Education Limited. All Rights Reserved. Table 8.4 Main risks identified in the literature Source: Adapted from Quélin, B. and Duhamel, F. (2003) Bringing together strategic outsourcing and corporate strategy: outsourcing motives and risks, European Management Journal, Vol. 21, No. 5, 647–61. © 2021 Pearson Education Limited. All Rights Reserved.  Eating you alive from the toes up Firms have turned to outsourcing in an attempt to deliver improved profits. This began with outsourcing periphery activities. Outsourcing to China and India was attractive because of the low labour costs. Even the R&D and NPD firms use outside for help to: obtain additional expertise; put together additional resources; reduce development costs; reduce time to market; and develop new areas of competencies. The outsourcing firm has slowly eaten the client firm from the toes up, and finally consumed it. © 2021 Pearson Education Limited. All Rights Reserved. Figure 8.4 Prisoner’s dilemma © 2021 Pearson Education Limited. All Rights Reserved. Figure 8.5 The repeated game © 2021 Pearson Education Limited. All Rights Reserved.  Key points to take away Increased competition, rapidly evolving/complex technologies, shorter product lifecycles and so on all contribute to the need for collaboration. A variety of strategic alliances are possible, with varying risks involved in each. Selecting and managing the right partnerships is critical to success. © 2021 Pearson Education Limited. All Rights Reserved.  HOMEWORK Identify and explain any recent infringement cases in Malaysia (1 case for each group) © 2021 Pearson Education Limited. All Rights Reserved.