Forging Strategic Alliances To Gain Durable Competitive Advantage

Running Head:  ORGANIZATIONAL ALLIANCES

Organizational Alliances

By: Troy Johnson

Argosy University

MSM program

12/15/09

Gaining support from allies is effective in the political arena as well as the corporate world.  In business companies are constantly looking for the right opportunities to expand business and product lines.  “Teva Pharmaceutical Industries on July 25 acquired Ivax for $7.4 billion in cash and stock, marrying two of the world’s top makers of generic drugs. Nearly $40 billion worth of branded drugs are slated to go generic in the next two years, and Israel-based Teva is now in prime position to grab a chunk of the new business. The newlyweds could get a big boost from insurance companies and the upcoming Medicare prescription-drug program — both of which are expected to push the idea of inexpensive generics to patients.” (Gagnier, 2005)  Typically partnerships and acquisitions like these are successful and help to broaden diversification strategies.  Executives should seek partnerships and consolidation of companies that will improve upon the parent company’s core objectives and products.  During the planning process and research phase for the purchase of any new company the firm should pay attention to costs associated with integrating communication software and human resources.  Making sure management of both firms are on the same page will help reduce cost and increase profits.  The seasonal rental service Snowbirdseeker.com LLC is presently looking for alliances that will strengthen its core product lines and increase its market share domestically.

Forging strategic alliances can often help diversify a company’s product line.  It can also increase production capacity which contributes to its economies of scale.  Looking at the structure of companies in manufacturing it is easy to define benefits for strategic alliances, but it can also be beneficial for service companies.  “Since the supply chain of a service provider does not always provide the customer

with a physical good, its supply chain does not focus as much on the flow of physical

items (material, parts, and subassemblies) through the supply chain. It instead may focus more

on the human resources and support services necessary to provide its own service.” (Russel, 2009)  For example a service company like a law firm may not have suppliers, but they have marketing departments which help inform the public of their services.  Forming strategic alliances with other law firms that do not compete or practice the same type of law could be mutually beneficial.  This concept is carried out daily through the use of a link online.  Link managers contact other webmasters with similar website services and they exchange links to build more traffic.  Occasionally people searching through links will find other useful websites, but more importantly finding plenty of link allies will improve page rank on Google’s search engine.  Google’s search algorithm gives those sites that have the most inbound links higher page rank because it knows those are the name brand websites.

Since it is less expensive to purchase materials in bulk quantities establishing joint ventures can often improve margins.  Acquisitions are particularly helpful when demand is exceeding the firm’s production capacity and adding the new firm can provide the needed supply cushion.  Acquiring companies that are in similar industries is a crucial part of the mix because the marketing and product knowledge is already set up for the existing product lines.  Straying too far from the original mission and product line may mean ineffective marketing and increased job training costs.  In the case of Teva Pharmaceuticals they have increased their market share and production capacity in generic drugs by acquiring other leaders in this market.  Companies today need to strike alliances to stay competitive especially when markets are nearing maturity.

Organizational Alliance Concepts:

–           Strategic alliances build production capacity

–          Alliances can diversify product lines

–          Alliances help achieve economies of scale

–          Linking can build trust and increase sales via Google’s page rank

–          Firms should be aware of acquisition costs like integration of the two company’s communications systems

–          Partnerships should be forged with similar companies for optimized marketing

References:

Gagnier, Monica

In Biz This Week.

BusinessWeek; 8/8/2005, Issue 3946, p40-40, 2/3p, 1 graph, 1 color

Russell, R. & Taylor, B. (2009). Operations Management: Creating Value along the Supply Chain (6th ed.). Hoboken, NJ: John Wiley & Sons.

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