Corporate Strategies: Companies use acquisitions and alliances for growth, especially in

developed countries.

Acquisition Trends: A significant wave of acquisitions and alliances was seen among American
companies from 1996 to 2001, with a combined value of $12 trillion.

Challenges in Acquisitions and Alliances:

● Most acquisitions and alliances tend to fail in adding shareholder value.
● Acquiring companies often experience stock price declines after acquisition
announcements.

Differences Between Strategies:

● Acquisitions are competitive, market-based, and risky.
● Alliances are cooperative, negotiated, and less risky, often used for market expansion.

Lack of Comparison:
● Companies often fail to thoroughly compare the merits of acquisitions and alliances
before choosing a strategy.
● Organizational barriers, like separate teams, hinder effective strategy comparison.

Lack of Understanding:
● Companies sometimes make alliance decisions that puzzle investors, indicating a lack
of understanding of when to acquire or ally.
● Intel's Acquisition Misstep: Intel's acquisition of DSP Communications faced stock price
decline and challenges, raising questions about whether an alliance might have been a
better choice.

Framework for Decision-Making:

A systematic framework is proposed for companies to choose between alliances and

acquisitions based on desired resources, marketplace dynamics, and collaboration
competency.
Competitive Advantage in Strategy Choice:

Knowing when to use acquisitions or alliances can be a source of competitive advantage,

highlighting the importance of decision-making over execution.
This summarizes the key points and insights from the article regarding the challenges and
considerations in choosing between acquisitions and alliances in corporate strategy.

Resources and Synergies:

 ● Companies collaborate to profit from synergies by combining resources, including
human, intangible, technological, physical, and financial resources.
● There are three types of synergies: modular, sequential, and reciprocal, depending on
how resources are combined and customized.
● Modular synergies involve managing resources independently and pooling results, often
achieved through nonequity alliances.
● Sequential synergies occur when one company completes tasks and passes on results
to a partner, requiring careful resource customization and often involving equity
alliances.
● Reciprocal synergies involve close collaboration and iterative knowledge-sharing, best
achieved through acquisitions when resources require significant customization.

Nature of Resources:
● The nature of resources influences the choice between acquisitions and alliances.
● For synergies involving hard resources (e.g., manufacturing plants), acquisitions are
preferable as they are easier to value and integrate.
● Soft resources (e.g., people) may be better suited for equity alliances, as acquisitions
can lead to employee disengagement and departures.

Extent of Redundant Resources:

● Companies must consider the amount of redundant resources when choosing between
acquisitions and alliances.
● Large amounts of redundant resources favor acquisitions, providing full control and
opportunities for cost-cutting.
● Equity alliances can be a better choice when dealing with moderate redundancy and
resources that are mostly soft.

Market Factors:
● External factors, such as market uncertainty and competition, should be considered in
collaboration decisions.
● High uncertainty in the collaboration's outcome favors nonequity or equity alliances over
acquisitions, as they limit exposure and provide flexibility.
● Competition for potential partners may necessitate acquisition but should be avoided
when business uncertainty is very high.

Examples of Smart Collaboration Choices:

● Bristol-Myers Squibb made a wise decision by investing in an equity alliance with
ImClone instead of acquiring it when FDA issues arose, saving substantial costs.
● Pfizer's alliance with Warner-Lambert for Lipitor marketing, followed by a successful
acquisition, demonstrates a strategic approach to collaboration.
Collaboration Capabilities:
● A company's experience in managing acquisitions or alliances influences its decision-
making.
● Some companies have developed core competencies in managing acquisitions or
alliances through specialized teams, processes, templates, and training programs.
● Specialization can lead to bias in strategy selection, as companies may favor what they
are good at, even if it's not the most appropriate choice.
● Smart companies develop skills to handle both acquisitions and alliances for flexibility
and better decision-making.

How Cisco Manages Both Acquisitions and Alliances:

● Cisco exemplifies a successful dual growth strategy, combining acquisitions and
alliances effectively.
● One senior vice president oversees corporate development, including M&A, strategic
alliances, and technology incubation.
● Cisco's decision-making process begins by considering internal development options
before evaluating acquisitions or alliances.
● The company assesses whether a target company's technology aligns with its core
products and can meet customer demand.
 ● Cisco prefers acquisitions for technologies located nearby and avoids deals that require
employee relocation.
● For technologies with high uncertainty or non-critical importance, Cisco often starts with
small equity investments in alliances before considering acquisitions.
● Building trust with partners through equity relationships takes time, typically 12 to 18
months.
● Cisco uses acquisitions and alliances strategically based on its assessment of when to
use each approach.

Applying the Framework to Previous Cases:

● Applying the framework to the Coke and P&G alliance suggests that acquisitions were
more suitable due to resource redundancy and the desire for reciprocal synergies from
hard resources.
● Intel's acquisition of DSP Communications might have been better suited for an equity-
based alliance given the goal of generating modular synergies, soft resources involved,
and the absence of resource redundancy.
● Market uncertainty and competition factors also play a role in determining the
appropriate strategy.

In summary, the article highlights the importance of a company's collaboration capabilities,

using Cisco as an example of effectively managing both acquisitions and alliances. It applies

the framework to previous cases like Coke and P&G and Intel's DSP acquisition to demonstrate

how a strategic approach can lead to better collaboration choices.