Networks and alliances

1
Arecibo radio telescope the worlds largest
radio telescope
Source SETI website
2
Building networks

• SETI_at_home
• A project launched by the University of
  California at Berkeley to search for
  extraterrestrial life
• Radio signals received by the telescope are
  carved into 330-kilobyte work units and
  distributed over the Internet to PCs around the
  world
• Network makes it possible to pool the
  intelligence residing in millions of computers
  across the globe into an ad hoc system with
  massive computing capability

Source Seti_at_home website
3
SETI network growth
4
Apsternays network

• Peer to peer networking
• Individual computers work together in powerful
  ways
• Bypassing central exchanges
• Napster
• Gnutella

Source HBR
5
Network effects

• Increasing returns on each new investment
• More is better!
• First fax machine worth nothing, but each one
  that followed increased the value of all existing
  fax machines.
• Operating system for personal computers
• Setting standards

Source Bernstein, 1998
6
The Bush network
Source NY Times, Ted Rall
7
The Six Degrees of Kevin Bacon

• Six degrees of separation paradigm
• Move in six steps from Donald Sutherland,
  Stockard Channing, an Indonesian shepherd or Will
  Smith
• Oracle of Bacon
• (www.cs.vriginia.edu/
• oracle/

Source CNN, National Post
8
Delta Skymiles Partners

• Airline partners
• Hotel partners
• Car rental partners
• Other partners

9
Delta Skymiles Airline Partners
10
Delta Car Partners
11
Delta Hotel Partners
12
Delta Other partners
13
Implications for companies

• Different companies can combine their
  capabilities and resources into temporary
  alliances to capitalize on market opportunities
• Cisco, Hewlett-Packard evolving into intelligent
  hubs that coordinate the interactions among a
  network of channel partner, suppliers and
  customers.

14
SOME OF AOLs ALLIANCES
HACHETTE FILIPACCHI

• E-commerce

• Content
• and traffic

• Geographic expansion

• CHINA INTERNET CORP

• Technology

• Digitalcity

• NETWORK COMPUTER INC.

15
STARBUCKS
Philippines
Korea
Rustan
Shinsegne
Japan
To a large degree our international expansion
will be driven by JV offers we receive Founder
Licensee
Licensee
Singapore
China
Bonvests
JV stores
BAIC Beijing
Licensee stores
Geographic partners
JV-distributes to hotels, embassies
Cobranding partners
Customer alliances
70 million passengers per year, worldwide
Retail formats
Host
In-store stores
Canada bookstores
Worldwide airport kiosks
Note Starbucks Coffee, Sazabys, ITT Sheraton,
United Airlines, Chapters, Host Marriott
Services, Barnes Noble Inc.,Dreyers Grand Ice
Cream, and Pepsi are proprietary trademarks,
other partners include Nordstrom, Costco
16
A typical network Reality bites!
17
Valley keiretsu Beware alliances

• Do powerful alliances and interlocking networks
  work?
• Learning from the Japanese experience
• Strategies adopted by Kleiner Perkins, Softbank
  Venture Capital, Internet Capital Group

Source Fortune, Nov 13, 2000
18
Are big companies becoming obsolete?

• The story of Linux
• Linux community a temporary, self managed
  gathering of diverse individuals engaged in a
  common task
• Model for a new kind of business organization?
• Devolution of large permanent corporations into
  flexible temporary networks of individuals

Source Malone and Laubacher, 1998
19
The firm as a network

• RD capabilities in Silicon valley
• Engineering capabilities in India
• Manufacturing capabilities in China
• Customer support capabilities in Ireland

20
The emergence of internal networks

• Traditional command and control management is
  less common (U.S. Army)
• Decisions are being pushed lower down in
  organizations.
• Companies like, ABB and British Petroleum have
  broken themselves into scores of independent
  units
• Traditional hierarchies to network structure

Source Malone and Laubacher, 1998
21
Transformation in organizational structures

• Movie business in Hollywood
• 1920s-40s
• Big studios dominated
• Permanent companies
• 1950s onward.
• Studio system disintegrated,
• Power shift from studio to individual
• Temporary companies

Source HBR , 1998
22
Outsourcing

• Topsy Tail founded in 1991
• Achieved sales of 80 million in two years
• How many employees?

23
Source Mell Lazarus, Creators Syndicate Inc
24
The Logic of Collaboration

• Strategic Goal Objective
• Product exchange (supply) Reduce
  transaction costs
• Corporate learning Develop new
  capabilities through technology transfer or joint
  RD
• Market positioning Develop demand
  for a product, spread a technology, develop a
  dominant standard

Source Gomes-Casseres, 1993
25
Tradeoff in networks

• Flexibility
• Portfolio of options at low cost
• Reaching customers
• Windows on new technologies
• Multiple sources of products
• Linkages to entrepreneurial startups

• Dependence
• Vulnerability to dissension by partners in
  network
• Little influence over degree of cooperation in
  the network
• Fate depends on the success of the collective

26
Tradeoffs change

• IBM in the 1950s-70s
• Insistence on wholly owned subsidiaries abroad
• Leader in the industry
• Tightly integrated global strategy
• Left the Indian market in 1978
• After the 1980s
• A big proponent of alliances
• Technological change
• Less centralized control needed
• 1991, IBM back in India with a joint venture!

27
Are network structures viable?

• Internet in the mid 1990s
• Traffic on the worldwide web growing too fast
• Too many web sites, too many people on-line
• Demand outstripping capacity
• Prediction Entire network would either crash or
  freeze in months

28
What actually happened

• The Internet has continued to expand at an
  astonishing rate
• Capacity has doubled every year since 1988 and
  today more than 90 million people are connected
  to it
• Whos in charge?
• Could this growth have been managed by a single
  company, for example ATT?

29
Alliance networks

• Individual well designed alliances are fine, but
  what about the network of alliances composed of
  many bilateral relationships?
• Typically, an ad hoc approach to network design
  leads to loss of reputation and missed
  opportunities

30
How to manage networks?

• Centralized control?
• FAA experimenting with a decentralized free
  flight system

Source Bernstein, 1998
31
Medusa alliances

• Medusa mythological woman with the hair of
  snakes
• Managing complex interorganizational
  relationships
• Disney Time Warner relationship

Source Business Horizons, 1995
32
Limits to growth of alliance networks

• Organizational constraints
• Demands on managements time
• Difficulties in rationalizing operations
• Strategic gridlock
• Limited availability of partners
• Competition among alliances
• Dependence
• Loss of control over companys destiny
• Limited appropriability