Strategic alliances occur when two or more businesses work together to create a win-win situation. A strategic alliance describes cooperation between two or more organizations to achieve a result a single party could not achieve alone.
Understanding strategic alliance
In understanding strategic alliances, it can be helpful to differentiate them from more conventional alliances.
Strategic alliances are a type of joint venture designed to bolster a core business strategy, create a competitive advantage, or otherwise enable individual companies to achieve more together than they could on their own.
The act of forming a strategic alliance is closely aligned with coopetition, or the act of cooperation between two or more competing companies.
Conventional alliances, on the other hand, describe business relationships.
These alliances encompass personal networks that complement strengths while supplementing weaknesses.
Importantly, each organization in a conventional alliance remains separate and independent as they work toward mutually beneficial goals.
Several more criteria help differentiate a strategic alliance from a conventional alliance. Generally speaking, an arrangement is said to be strategic if:
It is critical to the success of a core business goal or objective.
It blocks a competitor from entering a market or from gaining a more competitive position.
It creates or maintains strategic choices for the organization.
It mitigates significant risk, and
Is critical to the development of a core competency or indeed any other potential competitive edge.
Strategic alliance types
There are three types of strategic alliance:
Joint venture
Where two parent companies come together to form a child company with shared resources and equity in a binding agreement.
Joint ventures have a clear objective, with profits split equally between each party.
Google announced a joint venture with pharmaceutical company GlaxoSmithKline in 2016 to research the treatment of disease with electrical signals.
The child company, Galvani Bioelectronics, is now itself a large company engaged in various partnerships to further its goals.
Equity strategic alliance
This occurs when one company purchases equity in another (partial acquisition), or when each party purchases equity in the other.
One notable example of an equity strategic alliance can be seen in the relationship between Panasonic and Tesla.
Panasonic invested $30 million in Tesla to accelerate battery technology innovation for electric vehicles, which then progressed to a manufacturing facility in Nevada.
Non-equity strategic alliance
As the name suggests, this alliance is characterized by both parties pooling resources without creating a separate entity or sharing equity.
These alliances tend to be less formal than the other types and comprise the majority of strategic alliances around the world.
In the first example, we hinted at some of the partnerships Galvani Bioelectronics subsequently made after becoming a child company.
These partnerships are non-equity strategic alliances, enabling organizations to share their resources in pursuit of the common goal of creating a comprehensive and precise human health map.
Key takeaways
A strategic alliance describes cooperation between two or more organizations to achieve a result a single party could not achieve alone.
A strategic alliance is distinct from a conventional alliance, which is characterized by business relationships and personal networks designed to complement strengths and lessen the impact of weaknesses. Furthermore, both organizations in a conventional alliance remain separate and independent entities.
The three types of strategic alliances are joint venture, equity, and non-equity. The vast majority of strategic alliances are of the non-equity type, where organizations share resources but do not create a separate entity.
Business modelinnovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovationmanagementmodel based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable businessmodel. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the businessmodel. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
