Strategic alliances have gained substantial attention over the recent years. Previously, firms focused on mergers and acquisitions, but strategic alliances are slowly replacing this trend owing to the various benefits associated therein. Historically, strategic alliances have been associated with increased firms’ productivity.
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For instance, although Nike does not manufacture shoes, it is recognized as the key athletic footwear producer following successful strategic alliances with manufacturers (Das 705). Elmuti and Kathawala (205) underscore that a strategic alliance is a mutual agreement between two or more businesses whereby they come together to achieve common goals. Initially, economists has mostly focused on dual alliances, but lately multi-company alliances have increased both in popularity and numbers (Elmuti & Kathawala 205).
The latter authors expose that, the most obvious reasons for entering into such agreements is to share knowledge, costs during international ventures, gain competitive advantage and to share technological expertise (206). Furthermore, through strategic alliances former rivals have ended up creating long term partnerships thus increasing their profitability and market share (Das 709).
On the same note, this essay will focus on a multi-company strategic alliance between Cisco and its’ key partners (Accenture, Microsoft and IBM) in an attempt to understand the key factors and pitfalls arising from such alliances. Moreover it is imperative to mention that, though Cisco is quite popular with strategic alliances, its’ partnership with Motorola and Ericson failed to achieve the desired results (Arndt par. 4).
Mosad and Bredenlöw (449) underscore that, although most businesses would eschew from strategic alliances, if effectively executed, the strategy eliminates some business operational costs. However the authors note that, most businesses have been slow in recognizing the crucial benefits of alliances such as capital pool investment and market share expansion. Nonetheless, Cisco has been consistent in its’ decision to create and maintain numerous strategic alliances in an attempt to increase its capital base (Watenpaugh par. 4).
Consequently, Cisco has been recognized as a key player in strategic alliances and recently the company achievement have been tremendous. According to Watenpaugh (par. 4), Cisco has approached strategic alliances with great expertise, and by so doing, it has managed to turnaround these partnerships into profitable ventures.
For instance, Cisco has recorded a steady growth over the last two years whereby most of its’ revenues have been realized from strategic alliances ventures (Arndt par. 4). In the fiscal year ended July 2003, the company showed a 12% increase in revenue generation that was obtained though its alliance partners.
However, it is imperative to mention that Cisco success in strategic alliances was not an overnight achievement; rather it was a gradual process meddled with instances of failure and partnership break ups (cisco.com). Although Cisco’s movement towards fully fledged alliances has been gradual, partnering has been part and parcel of the company’s culture (cisco.com).
Nevertheless, the company’s milestone move towards heightened strategic alliances began in 2001 when senior management implemented some key decisions that saw the absorption of over 6000 employees and 2500 contractors into the company’s workforce in a move aimed at embracing new strategic alliances. During the same year, the company budget on human resources was frozen, but was later to be revived two years later.
According to Das (708), strategic alliances are undertaken to fulfill various roles. The key benefits arises from shared expertise and knowledge. Furthermore, the synergistic effect arising from sharing market knowledge, assets and other skills is only achievable through strategic alliances (Das 713).
On the same note, Cisco collaboration with Accenture was aimed at broadening its business solutions in order to reap the benefits of customer value. Apparently, in order to succeed in the provision of business solutions, a provider must posses’ top-notch capability and expertise to facilitate the delivery of effective business processes that are capable of transforming organizations (cisco.com).
However, most IT companies do not posses two crucial fundamentals (technology and business collaboration solutions) that are necessary to facilitate successful delivery of tailor-made technological solutions. Consequently, Cisco realized this shortcoming and its decision to partner with Accenture was purposed to fill this void (cisco.com).
The agreement behind this alliance was crafted such that the partners could provide customers with technological deployment and transformational collaboration. Apparently, this would have been impractical had either of the two firms decided to go it alone. Following this mutual agreement, Watenpaugh (par. 10) accentuate that the alliance realized numerous benefits most of which are customer orientated.
Firstly, through knowledge and expertise sharing, the partners have managed to minimize the risks involved in technological deployment and support. This has enabled the partners to achieve considerable success due to increased customer satisfaction.
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Secondly, through combination of IT expertise, the partners are able to understand and solve their customers business needs effectively, thus increasing their profitability. In addition, the two companies utilize established internal methodologies to fulfill their independent financial goals. The above implies that, in strategic alliances, the shortcoming of one partner might be beneficial to the other and vice versa.
On the same note, Cisco strategic alliance with Microsoft has yielded positive benefits to both partners. Watenpaugh (par. 16) accentuate that, Cisco and Microsoft products exhibit both complementary and competitive elements. This is because the two companies offer various communication and business solutions applications that are more similar than different.
As aforementioned, firms may enter into strategic alliance to minimize the effects of unhealthy competition, and more often than not, strategic alliances have turned around former rivals to key business partners. Correspondingly, Cisco and Microsoft realized that they would reap most benefits while working as partners instead of acting as competitors.
According to Elmuti and Kathawala (208), the main purpose behind this deal was the realization that customers often preferred receiving communication services from Microsoft and business solutions from Cisco. Therefore, a deal was struck whereby the two companies would work as partners to fulfill their customer needs. Following this alliance, the two companies have experienced considerable success through market share expansion and revenue generation.
Similarly, Cisco has realized that transformational collaboration needs are not uniform across its various customers (cisco.com). To solve this quagmire, Cisco was quick to court IBM into formulating a mutual agreement following the realization that IBM was an experienced partner in delivering industry oriented solutions.
According to Mosad and Bredenlöw (450), companies might opt for strategic alliances in order to achieve a competitive edge above its competitors. On this note, Cisco realized that without IBM , its’ reputation in certain industries such as health sector, financial services and higher education institutions was at stake because it could not single handedly deliver some specified solutions.
Therefore, the Cisco vs. IBM strategic alliance was devised with an initiative of achieving competitive edge as well as sharing technological knowledge and expertise (cisco.com). Consequently, in collaboration with IBM, Cisco has succeeded in developing tailor-made solutions for specific industries including telepresence, Video conferencing and unified communications technological innovations.
Das (710) accentuates that most of the pitfalls associated with strategic alliances can be attributed to incompatibility of organizations goals. However, of great importance to note is that, Cisco and IBM business goals are synchronized leading to successful partnership.
To mention just but a few, the companies’ business dealings are synchronized in terms of services, global presence, specialization and executive composition (Watenpaugh par. 12). Against this backdrop, this strategic alliance has been successful leading to the realization of numerous benefits both for the partners and their customers.
Firstly, by exploiting IBM favorable brand image, Cisco has managed to penetrate new markets both in the US and in emerging markets of China and India (cisco.com). Das (712) accentuates that, through strategic alliances firms can take advantage of partners brand image to gain market share for their products.
Secondly, Cisco has taken advantage of IBM expertise in information technology plus its wide global distribution network to accelerate its’ objectives. In addition, the two partners’ benefits from IBM’s advancement in research and development, thus the firms are able to meet their costumers’ needs effectively. This success translates to increased revenues and market share expansion for Cisco and IBM.
In a nutshell, Cisco approach to strategic alliances is an exemplar to be emulated across the various business sectors. In spite of the few pitfalls and alliances failures, Cisco case study indicates that strategic alliances are crucial in achieving businesses success.
Arndt, Michael. “Cisco’s Failures in Corporate Alliances.” Boomerang Business Week, 5 Dec. 2009. Web.
Cisco. Microsoft and Cisco. Cisco, 2011. Web.
Das, Timothy.K “Deceitful Behaviors of Alliance Partners: Potential and Prevention.” Management Decision 43.5(2005): 706-719.
Elmuti, Dean & Yunus Kathawala. “An Overview of Strategic Alliances.” Management decision 39.3 (2001): 205-217.
Mosad, Zineldin & Torbjörn Bredenlöw. “Strategic alliance: synergies and challenges: A case of strategic outsourcing relationship “SOUR””, International Journal of Physical Distribution & Logistics Management, 33.5 (2003): 449 – 464.
Watenpaugh, Norma. Cisco Systems Case Study in Alliance Best Practices: Leveraging Alliances for Economic Performance in a Challenging Economy. Phoenix Consulting group, 2009. Web.