Strategic

Alliances in Project Management

Strategic alliances are partnerships in which two or more companies work together to
achieve objectives that are mutually beneficial. Companies may share resources, information,
capabilities and risks to achieve this.

A common reason for entering into a strategic alliance is to obtain the advantage of another
company's innovations without having to invest in new research and development. This may be
true in a verity of scales, and may be of great benefit for both companies- particularly bearing in
mind the cost-effectiveness of the solution.

Forms of Strategic Alliances, commonly used in the Construction Industry locally:

JOINT VENTURES
Two or more firms create a jointly owned legal organization that serves a
limited purpose for its parents (EG: City Gate Contractors BIB Joint
Venture)
EQUITY
INVESTMENTS

A majority or minority equity holding by one firm through a direct stock

purchase of shares in another firm (EG: Concrete plant owners often own
shares in companies which import cement)

COOPERATIVES

A coalition of small enterprises that combine, coordinate, and manage their

collective resources
Contractual business networks based on joint multi-party strategic control,
with the partners collaborating over key strategic decisions and sharing
responsibilities for performance outcomes

STRATEGIC
COOPERATIVE
AGREEMENTS
FRANCHISING

SUBCONTRACTOR
NETWORKS

CARTELS

LICENSING

A franchiser grants a franchisee the use of a brand-name identity within a

geographic area, but retains control over pricing, marketing, and
standardized service norms (EG: Typically found in restaurant chains)
Inter-linked firms where a subcontractor negotiates its suppliers long-
term prices, production runs, and delivery schedules. (EG: Finishing works
to new buildings are often subcontracted to trusted companies)
Big companies can cooperate unofficially, to control production and or
prices within a certain market segment or business area and constrain
their competition. (EG: Tile importers can discuss implementing set costs to
for specific tiling types, to ensure they all make a profit, instead of competing
against one another)

One company grants another the right to use patented technologies or
production processes in return for royalties and fees. (EG: EVG-3D system
of construction was licenced to JMV Vassallo to use locally)

Goals of a Strategic Alliance:

All-in-one solution
Flexibility
Acquisition of new customers
Add strengths, reduce weaknesses
Access to new markets technologies
Common sources
Shared risk

Risks of Forming a Strategic Alliance:

Partner experiences financial difficulties

Hidden costs
Inefficient management
Activities outside scope of original agreement
Information leakage
Loss of operational control
Partner product or service failure
Partner unable or unwilling to supply key resources
Partner's quality performance
Partner takes advantage of its position


Life Cycle of a Strategic Alliance: Formation Operation End / Development
Formation:
Strategy Development: In this stage the possibility of a Strategic Alliance is examined with
respect to objectives, major issues, resource strategies for production, technology and people. It
is necessary that objectives of the company and of the alliance are compatible.
Partner Assessment: In this phase potential partners for the Strategic Alliance are
analyzed, in order to find an appropriate company to cooperate with. A company must know the
weaknesses and strengths and the motivation for joining an alliance of another company.
Besides that appropriate criteria for the partner selection are defined and strategies are
developed how to accommodate the partners management style.
Contract Negotiations: After having selected the right partner for a Strategic Alliance the
contract negotiations start. At first all parties involved discuss if their goals and objectives are
realistic and feasible. Dedicated negotiation teams are formed which determine each partners
role in the alliance like contribution and reward, penalties and retaining companies interests.

End / Development

Natural End: When the objectives, the Strategic Alliance was founded for have been
achieved, and no further cooperation is necessary or beneficial for the involved enterprises
the alliance can come to a natural end. An example for such a natural end is the alliance
between Dassault and British Aerospace which was founded to manufacture the Jaguar
fighter aircraft. After the end of the program no further jets were ordered so the involved
companies ended their cooperation.
Extension: After the end of the actual reason for the alliance, the cooperating enterprises
decide to extend the cooperation for following generations of a respective product or expand
the alliance to new products or projects. Renault for example worked together with Matra on
three successive generations of their Espace minivan, whereas Airbus expanded its
cooperation to include a complete family of airplanes.
Premature Termination: In this case the Strategic Alliance is ended before the actual
objectives of its existence have been achieved. In 1987 Matra-Harris and Intel broke up
their Cimatel partnership before one of the planned VLSI chips was manufactured.
Exclusive Continuation: If one partner decides to get out of the alliance before the common
goals have been achieved, the other partner can decide to continue the project on its own.
This happened when Saab decided to continue with the designing of a commuter aircraft
(SF-340), after the partner Fairchild had to cancel the alliance because of internal problems.
After Fairchild left the project it was named Saab 340.
Takeover of Partner: Strong companies sometimes have the opportunity to take over
smaller partners. If one firm acquires another the Strategic Alliance comes to an end. After
almost ten years of cooperation in the field of mainframe computers a British computer
manufacturer, named ICL, was taken over by Fujitsu in 1990.