Academic journal article SAM Advanced Management Journal

Strategic Alliances in Technology: Key Competitive Weapon

Academic journal article SAM Advanced Management Journal

Strategic Alliances in Technology: Key Competitive Weapon

Article excerpt

Introduction

The need to integrate technology into the strategic plans of a firm is widely recognized as vital to the health and longevity of the company.(1) The firm's technologies and the research for advancing them will be more effective if they are linked to market needs and customer demands.

The major factor that prevents many firms from achieving their technical objectives and, therefore, their strategic objectives, is the lack of resources. For technology research and development (R&D), the insufficient resources are usually capital and technical "critical mass." The costs of building and sustaining the necessary technical expertise and specialized equipment are rising dramatically. Even for the largest corporations, such as Fortune 100 firms, leadership in some market segments they have traditionally dominated cannot be maintained because they lack sufficient technical capabilities to adapt to fast-paced market dynamics.

In response, technology partnerships between and in some cases among organizations are becoming more important and prevalent. From 1976 to 1987, the annual number of new joint ventures rose six-fold; by 1987, three-quarters of these were in high-technology industries.(2) As the costs, including risk associated with R&D efforts, continue to increase, no company can remain a "technology island" and stay competitive.(3)

Today's strategic planners must broaden their view of their business environment from the traditional perspective of individual firms competing against each other. The formation of strategic alliances means that strategic power often resides in sets of firms acting together. Because competitors are capitalizing on the benefits of partnerships, they must be considered an option in the planners' array of alternatives.

Strategic Alliances

A strategic alliance, broadly defined, is a contractual agreement among firms to cooperate to obtain an objective without regard to the legal or organizational form the alliance takes.(4) This definition accommodates the myriad arrangements that can range from handshake agreements to licensing, mergers, and equity joint ventures. Thus, strategic alliances extend to all relationships within the marketplace. Firms can strengthen current relationships with customers, suppliers, distributors, academia, and even competitors, as each plays a major role in whether a firm meets its strategic objectives. Alliances to achieve common objectives accentuate intercompany dependencies. A growing interdependence among key strategic partners is vital to continued participation and prosperity in the global economy.

Alliances permit smaller firms to leave the niche markets to which they have been relegated and face the dominant market players head-on. By aligning themselves with firms that possess a resource needed for expansion, small firms can capitalize on their own strengths to a much greater extent. Stiff entry barriers to new markets can be overcome as alliances gain access through complementary internal assets. Generally, firms must first define what "core" technologies give them the greatest competitive advantages.(5) Then, to achieve the maximum leverage of these strengths, they must seek peripheral capabilities from the external environment. In today's environment, few firms can afford the luxury, and possibly the resources, to build or develop adequate internal technologies or capabilities necessary to seize all new market opportunities. This is especially true in a global marketplace where response times are extremely short.

Different guidelines and reasons for partnership development with various strategic partners must be considered by management. A later section will focus on selected business relationships and why a firm would consider a specific alliance.

The success or failure of a strategic alliance lies directly with the management competence in the allied firms.(6) Alliances involve shared risks grounded in mutual objectives and trust. …

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