Alliances
Acceleration of R&D efforts and the development of internal capabilities are no longer sufficient to cope with the increasing cost, speed and complexity of developments in hightech industries. Increasingly, even the largest companies are obliged to access external sources of new knowledge through activities such as licensing, alliances or mergers and acquisitions (Vanhaverbeke et al. 2002). Strategic global alliances continue to increase and reflect the knowledge-based nature of global competition (Narula 2004). Freeman (1991) suggested there is a positive correlation between technological progress in an industry and the number of alliances being established.
Babarinsa (2011) proposed that increased global competition and advances in technology have altered the environment in which organisations compete. This is leading to an increase in corporate alliances between organisations with similar products or services but dissimilar or complementary characteristics in other areas. Technological discontinuities can cause enormous difficulties for mature organisations, (e.g. the impact of the Internet on terrestrial retailing). Therefore, since the 1970s, large firms have gradually increased their collaboration activities (Schilling and Phelps 2007). This is largely because radical innovation requires a large amount of resources and new knowledge. Few firms have the necessary expertise for radical innovation. This had led to a rise in alliance formation between firms with complementary knowledge areas (Grant 1996). Taking advantage of complementarities in key knowledge areas through collaboration has been specifically important for innovation in sectors with high levels of complexity (e.g. biotechnology and new materials) (Blomqvist and Levy 2006).
Anderson and Tushman (1990) opined that organisations are increasingly facing technological changes that may result in creative destruction. Each technological discontinuity brings about a new technological cycle. Some discontinuous innovations are competence-destroying, while others are competence-enhancing. The former create a new process or product by building on existing technical knowledge. The latter drives out old technology and knowledge and replaces them with new experiences and skills. For example, digital photography virtually destroyed most firms in the analogue film sector.
Babarinsa posited that competence-enhancing innovations can protect industry know-how and this works to the advantage of mature organisations. Through competence-based innovation, it may be feasible to consolidate industry leadership. Competence-enhancing innovations can also raise barriers to entry, thereby protecting incumbents from competition from new entrants. In contrast, competence-destroying innovations may remove entry barriers and increase the intensity of competition.
Mature organisations may obtain needed technology through (a) merger or acquisition, (b) internal development or (c) alliances. Rothaermel (2002) posited that alliances are increasingly preferred because of both urgency and industry uncertainty. In part this is because responding to shorter product life cycles has become a key determinant of an organisation’s success or failure. The need for rapid introduction of new products often rules out internal development, thereby making technology acquisition through alliance attractive. Alliances allow organisations that lack needed technology to leverage partners’ capabilities to accelerate NPD. For example, Sun and Google formed an alliance to promote and distribute each other’s products. Sun was to make Google’s products such as the Toolbar, browser and search software available as an option in its Java Runtime Environment" and thereby expand the number of people using Google’s services (Roberts 1987).
Babarinsa proposed that alliances may be chosen over mergers because the window of opportunity is too short to permit a merger. Also, in mergers there may be the risk of a lack of synergy emerging between the two organisations. Furthermore, an acquisition may be more costly because the acquiring organisation may end up purchasing technology which is of little use. An alliance, on the other hand, allows organisations to avoid acquiring what is not needed (Hamel and Prahalad 1994).
Babarinsa posited that the following four phases in the technology life cycle influence the nature of alliances:
- 1. The fluid phase is the earliest stage and is marked by product and market uncertainty. R&D activities continue at a frenetic pace.
- 2. The transitional phase is when the dominant design begins to emerge, market uncertainty begins to lessen and the R&D focus turns to improving the dominant design.
- 3. The mature phase is where the dominant design products expand and the focus moves from product innovation to process innovation.
- 4. The discontinuation phase is where the technology may be rendered obsolete by the next innovation, markets become volatile and new products emerge based on new technology.
Babarinsa noted that technological discontinuities often are the catalyst for new alliances being formed. One example is VMware, a US technology company that specialises in virtualisation software that has been a catalyst for expanding applications that can be made available through cloud computing. VMware has formed alliances with leading software companies such as IBM, AMD, BMC, HP, CA, Cisco, SAP, Dell, EMC, NEC, Intel, Novell, Red Hat, Stratus, Symantec, Trend Micro and Unisys. The alliances give VMware partners the benefit of offering customers a more rapid deployment of cloud-based applications. The aim of VMware and its alliance members is to define industry standards that becomes the dominant design; thereby acquiring a competitive advantage and a pathway to market dominance (www. vmware.com).
Lambe and Spekman (1997) posited that more alliances are established when urgency and uncertainty are high. The major motivations for alliance formation during this stage are technological changes and market uncertainties leading to a rapidly changing business environment. Once product and market uncertainty begin to lessen, alliances may become less critical because the ongoing activity is further improvement to the dominant design. At this stage, once the path of technological discontinuity ceases to be important, organisations may opt for investing in internal development. Major players may then begin to build their own vertically integrated facilities and dissolve their alliances. One such example is the Blu-ray disc alliance, which was created in 2004 and included Sony, Apple, Sharp, HP, Hitachi, Intel, LG, Mitsubishi Electric, Panasonic, Pioneer, Philips Electronic, Samsung, Warner Bros. and Dell. The alliance was disbanded in 2010 after Blu-ray had become the dominant design (den Uijl and de Vries 2013).
During the mature phase of the technology life cycle, acquisitions or mergers may be more attractive than alliances, because the partners may be competitors and have equal access to the technology. During this phase, the focus is often on process innovation and the formation of new alliances tends to be low. Typically those alliances that are formed are usually concerned with non-technical advantages, such as market access or economies of scale (Inkpen and Ross 2001).
During the discontinuation phase current technology may be rendered obsolete by new technology. At this juncture, markets are usually volatile as innovations and next-generation products destroy demand for prior-generation goods. New organisations may appear and, as the nature of the emerging technology is uncertain, the number of new alliances tends to increase. As understanding grows concerning the potential and implications of the new technology some organisations begin to consider the creation of alliances. Their decision to enter into new alliances is influenced by the increasing stability of the technology or increasing competitive pressures within their current markets (Agarwal et al. 2002).
