Launching a World-Class Joint Venture Flashcards
JVs and alliances can deliver ________ shareholder value than M&As can, but getting them off the ground can trip you up in unpredictable ways
more
equity JVs
the partners contribute resources to create a new company
contractual alliances
the partners collaborate without creating a new company
what are the four types of JVs
- Consolidation JV
- Skills-Transfer JV
- Coordination JV
- New-business JV
consolidation JV
the value of the alliance comes from a deep combination of existing businesses
Skills-transfer JV
the value comes from the transfer of some critical skills from one partner to the joint venture—and sometimes to the other partner
Coordination JV
the value comes from leveraging the complementary capabilities of both partners
New-business JV
the value comes from combining existing capabilities, not businesses, to create new growth
What are three main reasons for JVs?
- Managing risk in uncertain markets,
- Sharing the cost of largescale capital investments, and
- injecting newfound entrepreneurial spirit into maturing businesses
What is the success rate of JVs? What does success mean?
Success rate 51% to 53%
Success means each partner had achieved returns greater than the cost of capital.
why is the success rate for JVs so low?
Mistakes made during the launch phase often erode up to half the potential value creation of a venture.
The launch phase—beginning with the signing of a memorandum of understanding (MOU) and continuing through the first 100 days of operation—is usually not managed closely enough.
Resolving Strategic Conflicts - When do we identify strategic objectives?
Defined during deal making and that the launch phase.
Is it possible to clearly identify strategic objectives?
- Virtually impossible to get into enough detail during the deal-making phase.
- Fundamental misalignment can arise early in the process.
JVs should be able to discover and deal with surprises (strategic conflicts) early enough in the ________ when the partners might have been more amenable to negotiation
launch process,
What are ways the business plan of the JV can help resolve strategic conflicts?(5)
- The group should define exactly how and where the JV will compete,
- Project how the JV might expand beyond its initial scope,
- Set financial targets,
- Plan capital expenditures, and
- Create a blueprint for the organization.
JVs need to act ______ to manage inevitable setbacks
quickly
What does the JV need to do to achieve loose-tight governance?
Besides managing the parents’ goals and expectations,
the launch team needs to focus on building an effective governance system for the JV or alliance.
An appropriate structure should allow the JV management team to make timely decisions while providing the parents with sufficient oversight to protect their assets.
Apply rigorous risk management and performance tracking.
describe the idea of too much of a good thing is bad with regards to governance
Governance systems that stifle entrepreneurship & create dysfunctional bureaucracy
Successful alliances pay a lot of attention to communication —not just during the launch phase, but _____________________
throughout the life of the venture
describe economic interdependencies with regards to JVs and potential challenges (what are the issues to discuss)
Capital, people, intellectual property, raw materials, and customers.
Issues to Discuss:
Transfer prices
Who will provide what?
what are some best practices with economic interdependencies
- determining precisely which services and resources each parent would provide the JV, and
- constructing service-level agreements that specified transfer pricing, access rights, and other critical terms of the deal.
What are the three key ways to manage economic interdependencies?
- Challenge and limit interdependencies
- Reduce complexities
- Limited the list of shared services
What are the things to consider when building a cohesive organization?
- Staffing model
- Incentive plan
- Attractive? New model, new structure, new mindset
describe the interdependent JV
*Tough to execute
*Complex to manage and
*can perpetuate divided loyalties.
*Most commonly implemented structure.
*Members of the management team maintain links to their original corporate parent. They remain on the same compensation plans, anticipate future career moves back to the parent, and
*sometimes have dotted-line-reporting relationships to an executive in their parent organization.
*The interdependent model protects career paths and offers maximum flexibility.
