Week 4 Application Assign - Cathy Williams

Employee Entrance Only: Strategic Alliances as Stepping Stones to Future Expansion

When Gulati (1998) proposed the idea that strategic alliances should be considered from “a social network perspective,” he took into account previous work by Gomes-Cassares and Barney & Hansen, as indicated by his references (p. 293, 313-314). Although not cited by Gulati, the Harvard Business Review article by Moss Kanter (1994), focusing on collaboration, suggested that a social network paradigm is essential because “successful partnerships manage the relationship, not just the deal” (p. 96).

As the digital revolution has evolved in the years following Gulati’s assertions, social networking has become so widely understood – and lived – that laying out its benefits and challenges from a business perspective may, at first, seem outdated. However, as this week’s readings demonstrated, the nuanced role of the social network as it relates to strategic alliances encompasses the “how-tos” and recommended practices for collaborating (Moss Kanter, 1994), managing alliances (Gomes-Cassers, 1993), and establishing trust between partners (Barney & Hansen, 1994).

While these concepts are demonstrated in the Walmart (Watson, 2009) case study of its strategic alliance deal with Bharti (Bose, Banerjee, & de VriesRobbe, 2009), an upcoming set of strategic alliances are in the works at Tiny T, a specialty designer and manufacturer of upscale products, that also serve as excellent illustrations. Though not headquartered in Los Angeles, Tiny T has a shop in a trendy part of town.

When employee Dustin Rovner agreed to be interviewed for this assignment, neither he nor I had any idea that Tiny T would be an excellent example of this week’s readings. In securing the interview, I explained that my highest hope was that this stylish retail store, attached to an upscale brand, would have domestic examples of strategic alliances from which I could draw parallels to international alliances along the lines of the Walmart and Bharti deal. In fact, my first question was: have any of the other companies for which you have worked ever had an international component to them? 

“No,” said Dustin, “but Tiny T does. Or it will soon.” The quick pivot to a discussion about an international alliance with Side-bar Sam proved to be enlightening, as did the subsequent discussion about the Big Box deal, also to be announced. Perhaps needless to state, but due to the unexpectedly confidential nature of the conversation, all names and identifying information have been changed because none of the deals described in this post have been made public. (The legend at the end of the post provides basic background information about the actors).

Tiny T’s international strategic alliance illustrates at least one of “three fundamental aspects of business alliances” described by Moss Kanter (1994, p. 97). The company’s strategic alliance with Big Box offers a real-life example of the “key issues in alliance management” outlined by Gomes-Casseres (1993). Taken together, both alliances illustrate the importance of trust as “source of competitive advantage” (Barney & Hansen, 1993) and social networks (Gulati, 1998; Moss Kanter, 1994; Gomes-Casseres, 1993).

Tiny T’s alliances fulfill key strategic goals for each party involved – the first rule in forming alliances (Moss Kanter, 1994, p. 97), while also fully recognizing the “cost/benefit trade-offs” Gomes-Casseres, 1998, p. 3). Each one also passes the test assessing the logic behind entering into such an alliances (Gomes-Casseres, 1998, p. 2).

The international alliance began when Side-bar Sam, a fan of Tiny T products, approached the upscale retailer with an offer to open a branded store his home country (Rovner, 2012). Side-bar Sam’s core business is consulting, so he is, therefore, in a position to benefit from the deal in two ways. First, he has secured a contractual arrangement to purchase Tiny T products, then he will open a store where they will be sold, and in so doing will earn a percentage of the sales (Rovner 2012). Second, he is in a position to recommend Tiny T products to his clients, who very likely value his opinion and eagerly align themselves with anything he promotes (Rovner, 2012). (Please note that the approach to conflict of interest was not a topic covered in this interview).

From Tiny T’s perspective, the brand expands to an entirely new market, “something the company was interested in doing, but it was cost prohibitive,” said Rovner (2012). The deal is structured such that Side-bar Sam purchases the products directly from Tiny T, including the costs of international shipping, holds them in a warehouse, and then operates the store with access to local distribution (Rover, 2012). Sam’s intimate knowledge of his culture and local purchasing habits means that Tiny T breaks through the barriers that prevented it from doing this in-house, which is described as one of the “alliance options” put forth by Gomes-Casseres (1998, p. 4; Rovner, 2012).

In the second deal, Tiny T is in the process of changing its strategic alliance with Big Box (Rovner, 2012). Currently Tiny T produces “private-label products” for Big Box (Rovner, 2012). The products are “the highest quality for the price point that Big Box needs” but one of the trade-offs is Tiny T brand is invisible (Rovner, 2012). Tiny T designers worked with Big Box to create quality versions of the products at a lower price point, and now Big Box is going to allow Tiny T to create a mini specialty store inside Big Box that will display the Tiny T brand (Rovner, 2012).  This scenario provides an example of how “productive relationships usually require and often stimulate changes within the partners” (Moss Kantner, 1994, p. 107).  The logic for Tiny T is brand expansion at a major retailer, and the logic for Big Box is affiliation with an upscale brand that is going to create price-point worthy quality so as not to compete with Big Box, and yet, offer customer satisfaction; each has its own goals and objectives (Rovner, 2012; Gomes-Casseres, 1998, p.3).

Interestingly, both deals illustrate the value of trust and social networks (Barney & Hansen, 1994; Gulati, 1998). Trust plays a role in the Side-bar Sam deal because the consultant wanted to prove his trustworthiness to Tiny T, so he flew himself to the United States and spent time working at one of the specialty stores; “he learned the brand, the aesthetic of the store, the customer concerns, and the company culture” (Rovner, 2012). This move on Sam’s part takes the relationship’s “semi-strong form trust through governance” and infuses it with an element of “strong form trust,” suggesting “the alliance could evolve further and enable each partner to determine whether or not strong form trust is present” (Barney & Hansen, 1994, p. 177, 186). Another “signal of strong form trust” is that “transaction-specific investments” occurred – Tiny T allowing a “stranger” to enter its world and the “stranger” working for free to learn about the company (Barney & Hansen, 1994, p. 187; Rovner, 2012). “If strong form trust is present between both parties, it becomes a source of competitive advantage” (Barney & Hansen, 1994, p. 186).

Trust and social networks are integrated into Tiny T’s Big Box alliance. The headquarters for both companies are located in the same city. “They have strong personal relationships. A lot of employees have worked for both companies; and they have social interactions as well as personal business dealings” (Rovner, 2012). This suggests that even if there are contractual arrangements between them, there are bonds of Barney & Hansen’s (1994) “strong form trust” (p. 184). For Tiny T, it appears that Big Box opened many doors to its expansion, and social networks within this relationship included “rich information exchanges” and, once the deal becomes public, the ability to “attract a larger number of alliances” and “superior terms of trade” (Gulati, 1998, p. 298). Though, of course, this aspect of the benefit remains to be seen.

Again, the interview format poses the challenge of “when to stop,” but I would be remiss if I failed to ask a 20-year retail veteran what Walmart’s impact has been on the industry. Rovner (2012), because of his focus on upscale retail, responded, “streamlining of product delivery logistics and inventory through technology haven’t been nearly as impactful as the cultural shift in how Americans view price.”

“[General consumers] don’t understand that well-made pieces are not inexpensive. You’re getting low prices because the quality isn’t high. That shift in mindset is directly because of Walmart, in my opinion” (Rovner, 2012).

Legend

Dustin Rovner

Pseudonym for the employee interviewed. His career spans two decades of retail management and in-store sales.  Although he does not currently hold a management position at Tiny T, which has headquarters in another state, he works at the Los Angeles store.

Tiny T

Designs and manufactures TT-branded product line, which is available for sale at upscale shops in trendy neighborhoods of major cities. This line of products is also sold at Big Box. (Think Nike Town v. running shoes at Sears). However, the products referenced in this post are not in the shoe category.

Side-bar Sam

A consultant, his core consulting business is, let’s say, acquiring and renovating gyms. So Side-bar Sam would have the opportunity to recommend Nike-branded products to his clients for their in-store product lines. While he is not (until this deal) a retailer per se, he is considered an influencer of taste and style.

Big Box

Major retail brand

References

Barney, J.B., & Hansen, M.H. (1994). Trustworthiness as a source of competitive advantage.

Strategic Management Journal, 15, 175-190. Retrieved from http://www.mcm.usc.edu

Bose, I., Banerjee, S., & de VriesRobbe, E. (2009). Wal-mart and Bharti: transforming retail in

India (Report HKU845). Asia Case Research Centre, The University of Hong Kong. Retrieved from Harvard Business Publishing course pack: CMGT 500DL FA12.

Gomes-Casseres, B. (1993, May). Managing international alliances: conceptual framework

(Report 9-793-133).  Boston, MA: Harvard Business School

Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19, 293-317.

Retrieved from http://www.mcm.usc.edu

Moss Kanter, R. (1994, July). Collaborative advantage: successful partnerships manage the

relationship, not just the deal. Harvard Business Review. Retrieved from Harvard Business Publishing course pack: CMGT 500DL FA12.

Rovner, D. (2012, October 7).  CMGT 500 week 4 application assignment interview. Phone

conversation recorded with permission by Cathy Williams.

Watson, B. (2009, August 14). Wal-Mart – or is it Walmart? – tries to shed its hyphen. AOL

DailyFinance. Retrieved from http://www.dailyfinance.com