Launching a World-Class Joint Venture

Question 1

JVs and alliances can deliver ________ shareholder value than M&As can, but getting them off the ground can trip you up in unpredictable ways

Answer 1

more

Question 2

equity JVs

Answer 2

the partners contribute resources to create a new company

Question 3

contractual alliances

Answer 3

the partners collaborate without creating a new company

Question 4

what are the four types of JVs

Answer 4

1. Consolidation JV
2. Skills-Transfer JV
3. Coordination JV
4. New-business JV

Question 5

consolidation JV

Answer 5

the value of the alliance comes from a deep combination of existing businesses

Question 6

Skills-transfer JV

Answer 6

the value comes from the transfer of some critical skills from one partner to the joint venture—and sometimes to the other partner

Question 7

Coordination JV

Answer 7

the value comes from leveraging the complementary capabilities of both partners

Question 8

New-business JV

Answer 8

the value comes from combining existing capabilities, not businesses, to create new growth

Question 9

What are three main reasons for JVs?

Answer 9

1. Managing risk in uncertain markets,
2. Sharing the cost of largescale capital investments, and
3. injecting newfound entrepreneurial spirit into maturing businesses

Question 10

What is the success rate of JVs? What does success mean?

Answer 10

Success rate 51% to 53%

Success means each partner had achieved returns greater than the cost of capital.

Question 11

why is the success rate for JVs so low?

Answer 11

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.

Question 12

Resolving Strategic Conflicts - When do we identify strategic objectives?

Answer 12

Defined during deal making and that the launch phase.

Question 13

Is it possible to clearly identify strategic objectives?

Answer 13

• Virtually impossible to get into enough detail during the deal-making phase.
• Fundamental misalignment can arise early in the process.

Question 14

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

Answer 14

launch process,

Question 15

What are ways the business plan of the JV can help resolve strategic conflicts?(5)

Answer 15

1. The group should define exactly how and where the JV will compete,
2. Project how the JV might expand beyond its initial scope,
3. Set financial targets,
4. Plan capital expenditures, and
5. Create a blueprint for the organization.

Question 16

JVs need to act ______ to manage inevitable setbacks

Answer 16

quickly

Question 17

What does the JV need to do to achieve loose-tight governance?

Answer 17

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.

Question 18

describe the idea of too much of a good thing is bad with regards to governance

Answer 18

Governance systems that stifle entrepreneurship & create dysfunctional bureaucracy

Question 19

Successful alliances pay a lot of attention to communication —not just during the launch phase, but _____________________

Answer 19

throughout the life of the venture

Question 20

describe economic interdependencies with regards to JVs and potential challenges (what are the issues to discuss)

Answer 20

Capital, people, intellectual property, raw materials, and customers.

Issues to Discuss:
Transfer prices
Who will provide what?

Question 21

what are some best practices with economic interdependencies

Answer 21

1. determining precisely which services and resources each parent would provide the JV, and
2. constructing service-level agreements that specified transfer pricing, access rights, and other critical terms of the deal.

Question 22

What are the three key ways to manage economic interdependencies?

Answer 22

1. Challenge and limit interdependencies
2. Reduce complexities
3. Limited the list of shared services

Question 23

What are the things to consider when building a cohesive organization?

Answer 23

• Staffing model
• Incentive plan
• Attractive? New model, new structure, new mindset

Question 24

describe the interdependent JV

Answer 24

*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.