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POWERPOINT SLIDES 1–5
In this chapter, we study the corporate strategy of mergers, acquisitions, and strategic alliances. We also look at horizontal
integration and the three different governance mechanisms for managing alliances. We begin the chapter with a discussion of
the practical application of the build, borrow, or buy framework. Firms can grow by using mergers and acquisitions (M&A);
however, M&A requires a high degree of dedication of resources and managerial changes, which may induce inflexibility due
to the potential asset specificity that might occur after the M&A. Strategic alliances provide alternatives for firms’
diversification objectives because they allow firms to focus on their core competencies while outsourcing non-core activities
from partners.
Learning Objectives
LO 9–1 Apply the build–borrow–or–buy framework to guide corporate strategy.
LO 9–2 Define strategic alliances, and explain why they are important to implement
corporate strategy and why firms enter into them.
LO 9–3 Describe three alliance governance mechanis ms and evaluate their pros and
cons.
LO 9–4 Describe the three phases of alliance management and explain how an alliance
management capability can lead to a competitive advantage.
LO 9–5 Differentiate between mergers and acquisitions, and explain why f irms would
use either to execute corporate strategy.
LO 9–6 Define horizontal integration and evaluate the advantages and disadvantages of
this option to execute corporate –level strategy.
LO 9–7 Explain why firms engage in acquisitions.
LO 9–8 Evaluate whether mergers and acquisitions lead to competitive advantage .
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ChapterCase
POWERPOINT SLIDES 54–55
CONSIDER THIS DISCUSSION QUESTIONS
Do you think focusing on billion-dollar franchises is a good corporate strategy for Disney? What are pros and cons of
this strategy?
Given the build-borrow-or-buy framework discussed in the chapter, do you think Disney should pursue alternatives
to acquisitions? Why or why not?
Why do you think Disney was so successful with the Pixar and Marvel acquisitions, while other media interactions
such as Sony’s acquisition of Columbia Pictures or News Corp.’s acquisition of Myspace were much less successful?
Call attention to Disney’s ability to create value, the resources acquired from these targets through multiple channels; not
only movies, but theme park rides, toy sales, and television series. Many of these synergistic opportunities were not available
Given Disney’s focus on creating and milking billion-dollar franchises, some industry observers now view Disney
more as a global consumer products company like Nike rather than a media company. Do you agree with this
Extended Discussion
POWERPOINT SLIDES
A six-minute video by The New York Times on “behind the scenes” activities at Pixar headquarters in Northern California
might add some context to this discussion.
Do you think Disney’s acquisition-led growth strategy is sustainable? Are there sufficient “Mini-Disneys” that
Disney can acquire? Students will have multiple viewpoints on this question. Two key points to bring out are whether
there are many more rich storehouses of popular characters out there to acquire and whether competition authorities will
allow Disney to continue to grow in this arena through acquisitions. Either of these issues, along with the disruptive
forces in the media industry discussed below, should prompt increased attention to organic growth by leveraging existing
assets.
What effects do you expect from the continued disruption of the media industry on Disney? How should Disney
respond? In the summer of 2013, Disney and its partners put Hulu on the market, but later decided not to sell it. Invite
students to discuss how Disney might use its minority ownership of Hulu to adapt its movie business to the new external
environment. (See “Hulu’s parents call off sale” 7/12/13 CNBC.com.) AACSB 2015 Standard 9 Making sound decisions
and exercising good judgment under uncertainty
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Disney’s financial performance is still highly dependent on media, especially ESPN. If it were only a consumer products
company, it would be less at risk from the disruption to cable and broadcast television by video streaming. You might ask the
judgment under uncertainty
9.1 How Firms Achieve Growth LO 9–1
POWERPOINT SLIDES 6–13
Strategy Smart Video Lecture
POWERPOINT SLIDES 64 AND 8
Prof. Laurence Capron discusses the build, buy, or borrow alternatives.
EXAMPLES
illustrates the propensity of tech firms to diversify into adjacent industries when growth tapers off in a more mature tech
POWERPOINT SLIDE 13
Another example of a significant merger that failed to deliver value and was written down to near zero was Microsoft’s
acquisition of Nokia’s mobile phone business.
POWERPOINT SLIDE 13
Some firms possess better capability than others in using M&As to establish a competitive edge such as Cisco acquiring
Linksys and WebEx to enjoy complementary assets. Draw students attention to the fact that acquisition negotiation, due
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If you are planning to re-create Exhibit 9.1 on the board in your classroom, here are some alternative ways you might
construct it.
As a horizontal decision tree:
6
As a vertical stream:
7
As a vertical decision tree:
END OF CHAPTER SMALL GROUP EXERCISE 1
POWERPOINT SLIDES 8 AND 57
In this chapter, we studied horizontal integration and the build-borrow-or-buy framework. One industry currently anticipating
a wave of consolidation is the furniture manufacturing industry, with thousands of manufacturers and suppliers.
Manufacturers range from large recognizable brands such as Baker, Steelcase, and La-Z-Boy, to small family-owned
companies. Demand for both office furniture and residential furniture is beginning to experience post-recession growth.
Analysts have observed that companies are shopping for acquisitions just as consumers are shopping for furniture. The
Charter Group in Grand Rapids, Michigan, is a mergers and acquisitions adviser helping companies initiate, negotiate, and
close deals on one company’s purchase of another. To take advantage of the increase in M&A activity in the furniture
manufacturing industry, The Charter Group launched a dedicated furniture practice in 2013. Western Michigan is home to the
feels a sense of loyalty to the workers and the community. The firm has had steady sales over its history, although it
experienced a slight dip in sales during the recession. The company is aware that other office furniture manufacturers are
beginning to integrate technology into the furniture. For example, one competitor is building wireless technology into desk
surfaces to power several devices at one time and avoid the need to plug them in. The owner sees the integration of
technology as a game changer.
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9.2 Strategic Alliances LO 9–2
POWERPOINT SLIDES 14–23
EXAMPLES
POWERPOINT SLIDE 17
NEWER FACULTY: A strategic alliance is a voluntary arrangement between firms. It is a relational view of the firms’
competitive advantage. Firms enter strategic alliances for the following reasons: strengthen competitive position, enter new
markets, hedge against uncertainty, access critical complementary assets, and learn new capabilities. Strategic alliances allow
firms to enjoy flexibility, which is not granted from M&As. By cooperating and collaborating with partners, firms co-evolve
with each other and form what Michael Dell called “virtual organization.”
POWERPOINT SLIDE 17
If you have MBA students they should be able to relate to the benefits and disadvantages to Thunderbird of a strategic
partnership with a for-profit university. While they might see the sale/leaseback of the campus as having a relatively benign
effect on the students and on the university’s reputation, the joint venture has far deeper implications. Ask students to analyze
the market for full-time MBA students. How might such a strategic alliance help the two firms to compete more effectively in
that market? One partner brings money and the other brings reputation. Which partner is getting the more valuable resource?
(See “Struggling Thunderbird Business School finds a for-profit lifeline” M Korn 7/9/13 The Wall Street Journal.)
Thunderbird’s financial position continued to worsen and in December 2014 they were acquired by Arizona State University
(see “ASU/Thunderbird announce plan to combine” R Wiles 7/9/14 Arizona Republic). How might this partnership work to
Thunderbird’s advantage? What does ASU get from this relationship?
Research Update
Moatti, V., Ren, C. R., Anand, J., and Dussauge, P. (2015), Disentangling the performance effects of efficiency and bargaining
power in horizontal growth strategies: An empirical investigation in the global retail industry.
Strat. Mgmt. J.
, 36: 745–757.
doi: 10.1002/smj.2244
EXPERIENCED FACULTY: These researchers compare “buy” versus “build” strategies in a longitudinal empirical study and
find that M&A improves bargaining power in the short term and that organic growth enhances operating efficiency in the
long term.
INTEGRATION
Drag-and-Drop: Strategic Alliances
This activity builds student comprehension of the role of strategic alliances in today’s business environment. The student
will read the brief case and then move the labels listing reasons to have a strategic alliance to their correct locations. Then
the student will complete a set of three questions to further build understanding. Difficulty: Medium Blooms: Analyze
AACSB: Analytic
Follow-Up Activity: The instructor can build on these concepts by having student groups choose their own large firms
and do some Internet research on the alliances their firm is engaged in. Ask the students to determine what value these
alliances and partnerships may provide for competitive advantage.
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Strategy Highlight 9.1
POWERPOINT SLIDE 19: IBM AND APPLE: FROM BIG BROTHER TO ALLIANCE PARTNERS
Strategy Smart Video Lecture
POWERPOINT SLIDE 61
At 16 minutes, the video in this slide may be too long to show in class, but it does provide excellent background for
discussing this example. You may want to assign it for viewing before class. For an online course, you could assign the video
and then ask the students to post discussion board comments analyzing the IBM/Apple alliance.
EXERCISE
POWERPOINT SLIDE 15
“Global Alliance Game” is an exercise that demonstrates many of the principles of strategic alliances. It can be found on
Russ Coff’s Carpenter Strategy Toolbox site.
9.2 Strategic Alliances LO 9–3
POWERPOINT SLIDES 26–27
Strategy Smart Video Lecture
POWERPOINT SLIDES 63 AND 26
This brief video discusses finding the right partner. Its focus is small business.
EXAMPLE
POWERPOINT SLIDE 26
NEWER FACULTY: Partner selection, alliance design, and post-formation alliance management are essential to a successful
alliance. Many alliances fail due to problems in post-formation management.
DISCUSSION TOPICS
POWERPOINT SLIDE 30
EXPERIENCED FACULTY: IKEA is the world’s largest furniture retailer. It has many non-equity alliances with suppliers and
manufacturers around the world. IKEA also makes strategic use of non-equity alliances and stakeholder partnerships to
participate in finding solutions to social and environmental challenges. For example, IKEA has had longstanding
relationships with Save the Children, UNICEF (United Nations Children’s Fund), and the WWF (World Wildlife Fund, the
global conservation organization). Ask students to go to IKEA’s website to find more information about these and other
active partnerships. In what ways does IKEA participate? What projects have shown success? How do these partnerships
relate to maintaining IKEA’s competitive advantage as the world’s largest furniture retailer? This discussion can tie into
corporate social responsibility and firm value discussions from earlier in the course. In particular, when asking about project
success, press students to define what constitutes success for IKEA and success for the nonprofit partner. What resources and
capabilities does each party bring to the alliance? Refer to Exhibit 9.4 and ask students to consider which of these governance
considerations would be most important to this particular type of non–equity alliance.
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STRATEGY SMART VIDEO LECTURE
POWERPOINT SLIDES 62 AND 27
The Tata/Starbucks example in this slide’s video is an example of a cross-border alliance and can be tied into the Tata
example from Chapter 8. It can be used to start a discussion of the advantages that the JV brings to each firm.
9.2 Strategic Alliances LO 9–4
POWERPOINT SLIDES 28–30
EXAMPLES
POWERPOINT SLIDE 28
NEWER FACULTY: Students need to understand that any relationships must be managed well in order to prolong the life
expectancy of it. Careful selection of partners to see if they have cultural fit, complementary assets, and willingness is
important. Once entered into the alliance relationship, firms need to establish trust by acquiring information and knowledge
from each other so participating firms will have the chance to enhance their understandings of one another.
POWERPOINT SLIDE 29
International Paper’s strategic alliance with a Russian partner in Siberia offers a good opportunity to discuss the advantages
of having local partners when entering a new, unfamiliar geographic territory. Ask students what benefits this investment
brings to Russia, to the Russian partners, and to International Paper. In what ways are the interests of the partners aligned?
What factors should IP consider in managing the alliance? (See “International Paper’s big pulp bet hits a frosty Siberia”
7/17/13 The Wall Street Journal.) The example also illustrates operating challenges in one of the important BRIC countries.
There is a video associated with the article that discusses the reasons behind the investment in Siberia as well as the
challenges of doing business in Siberia. You could follow this video with a discussion about how a Russian partner might
help manage and mitigate some of these risks.
POWERPOINT SLIDE 30
Star Alliance provides an example to illustrate the importance of balancing cooperation and competition in a strategic alliance
of competitors. Lufthansa invited Turkish Airlines to join the alliance to access passengers in its Istanbul hub. The alliance
spurred rapid growth at Turkish and Turkish is now aggressively competing with Lufthansa on European routes. You can use
this example to discuss the importance of compatible strategic goals among the partners and also the challenges of managing
alliances among firms that compete actively with each other. (See “At airline alliance, competition heats up” 11/29/12 The
Wall Street Journal.)
Research Update
Diestre, L. and Rajagopalan, N. (2012), Are all ‘sharks’ dangerous? New biotechnology ventures and partner selection in R&D
alliances.
Strat. Mgmt. J.,
33: 1115–1134. doi: 10.1002/smj.1978
EXPERIENCED FACULTY: This research article would be a nice complement to a discussion of the risks of knowledge
appropriation in an alliance, sometimes referred to as “swimming with the sharks.” It looks at the dilemma new
technology firms face when choosing an alliance partner between needing access to the resources offered by larger,
established firms (value creation) and risking that their own knowledge will be appropriated by their larger alliance
partner (value appropriation) and how this tension influences alliance formation. The researchers find that the likelihood
of an alliance formation is positively influenced by the technological relatedness of the work of the new business and the
larger incumbent and by the product development experience of the larger firm (value creation opportunity). This positive
effect is negatively impacted by the applicability of the new business’ knowledge to the larger firm and the diversity of
the larger firm’s products (the incentive of the larger firm to appropriate the knowledge of the new business).
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POWERPOINT SLIDE 30
The Daimler/Renault alliance to produce the Smart Car is an example of the importance of building and maintaining trust
between the partners. For a description of how trust has developed over time in this alliance formed in 2010, see “Daimler to
reboot its Smart Car” JD Stoll 9/4/15 The Wall Street Journal. Ask students why trust takes so long to build and whether they
believe that a merger in lieu of an alliance would solve this problem. Clearly there are examples, such as the
United/Continental merger, where mutual trust is lacking for years even in a merger.
DISCUSSION TOPICS
END OF CHAPTER DISCUSSION QUESTION 1
POWERPOINT SLIDE 28
NEWER FACULTY: The chapter identifies three governing mechanisms for strategic alliances (non-equity, equity, and
joint venture). Provide the benefits and downsides for each of the mechanisms.
END OF CHAPTER DISCUSSION QUESTION 2
POWERPOINT SLIDE 30
An alliance’s purpose can affect which governance structure is optimal. Compare a pharmaceutical R&D alliance
with a prescription-drug marketing agreement, and recommend a governing mechanism for each. Provide reasons for
your selections.
In 2009, Seattle Genetics entered an agreement with Millennium Pharma for R&D on the drug for lymphoma. It is an equity
Research Update
Schilke, O. and Cook, K. S. (2015), Sources of alliance partner trustworthiness: Integrating calculative and relational perspectives.
Strat. Mgmt. J.,
36: 276–297. doi: 10.1002/smj.2208
EXPERIENCED FACULTY: This research integrates two approaches to trust development in strategic alliances, a calculative
approach based on rational assessment and a relational approach based on social interactions. They find that calculative
approach that stresses contracts is more predictive of trustworthiness when the partner has a negative reputation and the
relational approach is more predictive when the partner is familiar.
INTEGRATION
Case Analysis: Alliance Management at Starbucks
This case analysis explores Starbucks’ extensive use of alliances in running and growing its business. The case is a
complement to the textbook discussion of Eli Lilly’s skills in alliance management. Students will read the case and then
answer the four questions following it. Difficulty: Medium Blooms: Apply AACSB: Analytic
Follow-Up Activity: The instructor can expand on the concepts from this case analysis by having students discuss drivers
that a successful alliance management requires. Discussion question 5 in the end of chapter material suggests that the
level of strategy (business or corporate) can play a role in the success or failure of alliance management.