How Alliances Can Drive Innovation: Which Alliance Type Is Right For You?

Innovation is the process whereby organizations transform ideas into improved products, service or processes, in order to advance, compete and differentiate themselves successfully in their marketplace.

Alliances can have a defining role in this process. Cooperation between vendors, suppliers, consumers and  competitors provide complementary know-how and skills. However, not every alliance type supports innovation. For the purpose of this blog post, the METISfiles distinguishes four types of alliances. These four types are on the one hand defined by the propensity of alliance members to either protect or share key assets. The other defining factor is the level of control that alliance members desire. (This approach was introduced by Lawrence & Nohria, HBS, 2001, in the context of human drives in leadership, and refined by Robert Porter Lynch in the context of trust and leadership). The figure below lays it out with the horizontal axis defining control and the vertical axis the willingness to share assets. As a result, four types of alliances emerge.  

Functional Acquisitions. An acquisition is the most extreme form of an alliance in which maintaining control and protection are the defining factors. This actually is where most of the money goes. It does not do anything for innovation though.

Marketing Alliances. The vast part of alliances announced are some sort of marketing alliance, where vendors either focus on combined marketing power, leveraged resources, additional distribution capacity, new product introductions, and added functionality. For the major part of these alliances, vendors do not share intellectual property. Their investment in the alliance is based on defending and protecting current market and mind share. Marketing alliances do not do much for innovation either.

Joint Ventures, or business alliances are partially focused on innovation. There remains, however, a small element of control and an element of ownership.  Avanade and VCE are (global) examples of joint ventures focused on combining complementing skills, experience, and resources. Of another scale, but also important to note here are venture investments, for example from Intel Capital, or Cisco’s investment funds. These funds are aimed to foster innovation, however the element of control still plays a large role. Joint ventures and business alliances foster innovation, but the element of control remains important.

R&D alliances. This is the area where most of the action comes from. This is where potential partners actually complement each other, have no control or ownership over each other, and work together to innovate. Examples include SAP and Intel, planning to establish a ‘smart grid’ R&D operation in Ireland. Nokia and Intel, who will be establishing a collaborative research laboratory with a joint Innovation Centre in Finland. Microsoft and Toyota Motor Corp. (TMC), who plan to participate in an approximately $12 million investment to help develop and deploy telematics applications on the Windows Azure platform. Though the above mentioned alliances initially will benefit the participating vendors, the ultimate goal is to develop industry wide solutions, to be adopted and deployed by third parties. Cross-sector alliances, like Microsoft and Toyota in particular will be important for IT adoption and spur innovation for Europe’s larger industries.

In the European IT industry, we do not see many R&D alliances. The ones that do appear are usually heavily funded by the European Union. Apparently there is no urge for R&D alliances from the vendor side – they mainly introduce marketing alliances aimed at joined business planning, new product introductions, and creating economies of scale.

So why consider R&D alliances?

  • The return of R&D alliances may be difficult to measure in dollar terms, they do help to increase visibility, improve positioning or expand on mind share.
  • Many employees prefer an innovative, creative environment. A working environment that supports interaction, stimulates collaboration and actual knowledge transfer. This environment is easier to create in an innovative alliance, than within any other type of cooperation.
  • From a channel perspective, many partners prefer to work with innovative vendors and vendors who invest in joint product development. This creates new opportunities for the installed partner base, making it more likely that partners invest in a vendor with R&D alliances, than one who prefers to invest in acquisitions (and associated installed partner base).
  • In the case of R&D alliances one plus one equals three. Vendors sharing capacity and knowledge and intellectual property can actually create products, processes and services beyond the vendor’s self interest.
  • The European Union has significant funds available for R&D alliances. It makes sense to investigate whether creating an R&D alliance, partially EU funded, is in fact less costly than a single vendor R&D investment.

The benefits of R&D to innovation are clear. The benefits of an alliance (when designed and implemented correctly) are also proven. Combining the two makes sense business wise. Outside the IT industry we have seen some very good examples of innovative alliances (Daimler-Benz and Swatch creating the Smart, Philips and DE introducing the Senseo). Do you have any thoughts on possible innovative alliances within the European IT sector?  Let us know!

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About Simone de Bruin