3. CASE STUDIES ON ALLIANCE PORTFOLIOS AND ORGANIZATIONAL CHANGE
3.5 C ROSS - SEGMENT ANALYSIS - BUILDING A SET OF TENTATIVE HYPOTHESES
3.5.1 Cross segment analysis
The structure of the cross-segment analysis is structurally related to the within segment analyses. It begins with an assessment of the firm developments and shows their different growth rates, and, second, presents a comparison of their stage characteristics, to control for a comparability of development stages and, thereby, the validity of results concerning the firms’ growth rate. In the third part, resource requirements are compared, followed by the forth part, which analyzes the different alliance portfolios. After checking the resource dependency of alliance portfolio structures, performance implications of efficient alliance portfolios are assessed. The last part analyzes how underlying processes assure and support the efficiency of alliance portfolios.
Company development
All nine case studies pass through a stage-wise development. The case studies differ significantly with respect to the time spent in each phase and in the number of phases they passed through. Table 19 lists the case studies according their development speed.
Table 19 Case study development stages Case studies 12snap Airweb Apollis
Interactive
Marketing MCS MCS MLS Mobile
Marketing MCS MLS
Company developments
In analyzing the number of stages and the average stage duration, differences between companies and segments can be observed. On average, mobile marketing and MLS companies developed faster (10 months/stage) than MCS companies (38 months/stage, respectively 19 months/stage excluding Multichart). Different reasons for this may apply, such as better-defined market niches with higher entry barriers or higher investments from VCs. However, there are still significant differences in development speed within every segment ranging from seven months per stage in the case of 12snap to 14 months per stage in the case of ApollisInteractive, or 15 months per stage in the case of Airweb, and to roughly 20 month per stage in the case of e-hotel and Clever.Tanken. These significantly different stage durations suggest two questions: Are the stages similar in terms of their characteristics, and therefore comparable? What impact do efficient alliance networks have on the stage duration? These questions are discussed next.
Stage characteristics
From an organizational perspective, the stages are comparable across industry segments.
The case characteristics follow similar patterns along the development stages. Figure 54 depicts the organizational characteristics of all case study firms on the following dimensions: management focus, organizational structure, communication style, and flexibility to market changes (descriptions of these dimensions are presented in chapter 3.2.3
‘Organizational dimensions’). The dimension ‘compensation structure‘ is not included in the figure, because the segments differ as a function of this dimension. All MLS and mobile marketing companies have complex compensation programs such as stock options or individual bonuses. Apart from Airweb, all MCS companies kept simple compensation systems based on monthly fixed payments.
Figure 54 Company developments
Figure 54 shows that all case studies gradually added complexity to their organization. Their organizational structure developed from a team-based organization to a functional
organization. After the companies diversified their product portfolios, in the last phase, they introduced business unit organizations. The developments according to the other organizational dimensions are similar; an exemplary development is listed in table 20. The characteristics correspond to the median of all case studies, which is included in figure 54 (bold line).
Organizational dimension
Stage 1 Stage 2 Stage 3 Stage 4
Management focus Entrepreneurial / technical
Business manager Business manager Business managers but managing by
exception Organizational
structure
Team organization Functional organization Table 20 Exemplary organizational development
Not all case studies developed in the same fashion. Yet the differences are small. No case study differs more than one complexity degree or longer than one period from the median.
Within boundaries, the development characteristics of all case studies are comparable.
Except for shorter durations, no difference between segments could be found.
Now that the comparability of stages has been assessed, the question of the impact of efficient alliance portfolios is tackled. To answer this question, the structure of the alliance portfolio is compared stage-wise with resource requirements.
Resource requirements
As analyzed in the within-segment analyses, the need for most resources shift over time. In all three industry segments, the resource categories could be divided according to what drives their requirements. The resources can be clustered into three groups: dependence on life cycle, dependence on business model, and dependence on other events. Table 21 lists the resource categories according to their dependency.
Category dependency MLS MCS Mobile Marketing Life cycle dependent
- fading
Technological know-how,
reputation
Technological know-how, reputation
- changing Human resources, access to supply
Human resources, access to supply
- growing Market access, organizational skills
Market access, organizational skills
Market access, organizational skills, human resources Business model
dependent
Technological know-how, reputation
Access to supply Dependent on other
events
Financial resources Financial resources Financial resources
Table 21 Resource categories
When comparing the segments, similar pattern can be seen according to most resource categories. The assessment of financial resources, market access, and organizational skill coincide over all segments. The evaluation of technological know-how, reputation, and access to supply are also identical as long as segment business models either did not put an extremely high importance on these resources (as in the case of MLS companies on technological know-how and reputation) or put an extraordinary low importance on these resources (as in the case of Mobile Marketing companies on access to supply).
Besides these business-model-induced differences, only one resource category is non comparable. MLS and MCS companies report of initial growth and later decline in requirements for human resources; in the mobile marketing segments the requirements grew constantly. This difference can be explained by splitting up this category into the number of employees required and the specificity of human resources sought. In all cases, the specificity with which human resources were searched grew, as reported by 12snaps managing director:
‘We started to boost our team with people, ... who have experience in our industry sector, who have worked for a couple of years and who probably bring a few clients with them. This has completely changed over the last two years.’ (Ingo Griebl, MD 12snap Germany, 2002)
However, most companies scaled down their organization in the last period. E-hotel scaled its organization down from 35 to 18 employees, and YellowMap from 40 to 19. Only the mobile marketing companies 12snap76 and Mindmatics grew uniformly. Therefore,
76 12snap’s organization size declined as well, when they sold their SnapLab. On the other hand their core business – Mobile Marketing – grew and marketing professionals were needed.
Resource requirements
companies with growing staff sizes evaluated human resource requirements increasingly high. For the other companies, human resource was rated important in the beginning, and lost some of its importance in the later stages.
These similar evaluation patterns concerning resource requirements can also be seen in a cross-case analysis depicted in figure 55. This figure maps the resources stage-by-stage according to their importance (5 – very important to 1 – not important at all). Only financial resources are excluded, because no stage dependency pattern could be found in the within-segment analyses.
Figure 55 Resource requirements
All case studies shifted their resource requirements. Their center of gravity shifted from reputation and technological know-how in the first stage, to a supply side focus, to market access and organizational skills. The case studies shifted their resource requirements in very similar ways. An exemplary development is listed in table 22. The evaluations correspond to the median of all case studies, which is graphed in figure 55 with the thick gray line.
Organizational dimension
Stage 1 Stage 2 Stage 3 Stage 4
Reputation High High Medium-high
(MLS companies Access to supply Medium
(Mobile Marketing
Market access Medium-low Medium-high Medium-high High
Human resources Medium Medium Medium-high High Organizational
skills
Medium-low Medium Medium-high High
Table 22 Exemplary organizational development
Not all case studies evaluate their resource requirements equally. The above-mentioned influence of the segment specific business models has an especially important impact on the evaluation spread. This can be drastically seen in the assessment of access to supply such as content and maps. Furthermore, the evaluation of human resources starts to diverge in the later stages and differs by more than two units on the importance scale by the end.
However, in terms of reputation, market access, and organizational skills, the differences are very small. No case study differs more than one importance step or longer than one period from the median. Within boundaries, the resource requirement characteristics of all case studies are comparable concerning these categories. These findings further emphasize the existence of comparable stages.
Because alliances are suitable primarily for accessing reputation, technological know-how, supply, financial resources, and distribution channels and are less capable of providing human resources and organizational skills, the following discussion will focus on these four resource categories.
Whether the alliance portfolios reflect these partly different and partly similar resource requirements is analyzed in the following section.
Alliance portfolios
The case study companies in all three segments have been building up significant alliance portfolios (>20 partners). They access five different types of resources: financial resources, technological know-how (often linked with reputation), access to supply, and access to markets. Reputation is often not an isolated reason to form an alliance, but an additional motivator to form an alliance with a specific partner.
In the three segments, all these underlying alliance motivation patterns exist. The firms establish alliances to access funds and to improve the company performance through five different levers, which are listed and explained in table 23:
Background Lever Example Explanation Finance oriented Access financial
funds
Mindmatics – T-Ventures
Mindmatics received funds from T-Ventures in its second VC round to finance its further expansion.
Access to superior distribution channels
E-hotel – e-sixt E-hotel cooperates with e-sixt and supplies hotel rooms for their travel portal, which is one of the biggest and fastest growing travel portals in Germany
Output oriented:
Increase revenues
Leveraging resources
Gate5 - ESRI Gate5 cooperates with ESRI to integrate its mobile location platform into governmental software. Thereby, it aims to leverage the usage of resources through the distribution power of ESRI.
12snap cooperates with Empowerment Interactive Group to access and use their SMS, EMS, and MMS technology for terminating their message traffic.
Input oriented:
Improve USP and cut costs
Access to superior supply
Airweb – L’équipe Airweb cooperates with L’équipe to access partially proprietary or right restricted sport content.
Table 23 Alliance types
The partnership types can be found in all segments. Financial ties exist as well in the MLS (e.g., YellowMap – SAP Ventures) and in the MCS segment (e.g., e-hotel – Fortknox Venture). Sales ties in the MCS segment link Multichart to system integrator STS, the MLS company YellowMap cooperates with Jamba!, and Mindmatics has joint projects with the marketing agency AdLink. Similar to 12snaps technological partnership with Empowerment Interactive Group, Gate5 works with Location.net, and Airweb with Dialogic. Furthermore constellations such as Airweb – L’équipe can be found in the other segments with YellowMap – Schober and ApollisInteractive – wissen.de.
However the alliance portfolios have different points of gravity and developed somewhat distinctly. Table 24 shows which types of links declined, remained stable, or grew in importance and how these links changed.
MLS MCS Mobile Marketing
Finance Markets Markets Supply Markets Finance Finance Growing
Portfolio growth (new weak ties)
Markets Markets Markets Supply, Markets
Markets Markets
Table 24 Alliance portfolio development
As the resource developments in the within-segment analyses already indicated, the importance of financial partnerships does not develop stage-wise. The cross-segment analysis supports this finding. There are no detailed coherent patterns in the development of financial resources across the segments. Overall, financial resources gained importance in the early stages when the financial markets were good. They then lost importance, when the companies matured and the financial markets cooled down. Despite their relevance for the development of organizations, financial resources are excluded from analyzing the co-evolution of organizations and alliance portfolios, because they cannot be integrated into the stage-development-grid on which the rest of the analysis is based. Further research is required to integrate the financial aspects.
Concerning the other resource and alliance categories, the portfolio shifts are analyzed on two levels. On a segment level, the relationship and causality is assessed if resource requirements influence alliance portfolio structures. On a firm level, the alliance portfolio efficiency is examined by analyzing its size, intensity, and adaptability. Efficiency differences are confronted with differences in firm performance and organizational development dynamics.
Segment level analysis
Resource requirements influence the shape of networks. Growing requirements lead to shifts in the alliance portfolio. Depending on the complexity of exchanged resources and the sophistication of the markets, either more partnerships are established or existing
partnerships are intensified. In a cross-segment analysis, table 25 contrasts resource requirements and the structure of alliance portfolios. For every segment evaluation, the median value for the case studies is calculated.
MLS MCS Mobile Marketing Table 25 Resource dependency of alliance networks
When assessing these evaluations, the correlation is evident. 14 pairs are identical and an additional 14 are similar, diverging by only one degree. Evaluations controvert in only 5 cases (15%).
In particular supply resources and partnerships and⎯in the later stages⎯the distribution side highly correlate. Only the technology side is not very highly correlated. Out of the 11 technology pairs, only one is identical (at medium low), and 8 are similar with the alliance portfolio structure always weaker than the resource requirement. This indicates that technology partnerships are more difficult to form. The CEO of Gate5 attributes this to the habits of technologists:
‘Technologists do not form partnerships. Technologists try to develop everything by themselves. They do not know how to sell technology. That’s why they develop 100% of the product in-house instead of leaving 90% out, which should be better sourced from the outside, because the internal expertise is missing. …
So far we did not experience successful technology partnerships. But this is our mistake.’
(Michael Halbherr, CEO Gate5, 2002)
However, in general resource requirements influence alliance portfolio structures. Resource requirements and alliance portfolios shift from reputation and technological know-how, to supply as content, and towards a market based focus in the later stages. The next step is to examine how efficiently each case study firm established and structured its alliance portfolio.
Firm level analysis
The firm level analysis compares the nine case study companies, assesses which one has the most efficient alliance portfolio, and compares portfolio efficiency with the performance evaluation and the speed of development of each firm.
The portfolio efficiency is influenced by three drivers: the portfolio size, the intensity of its ties, and its adaptability concerning resource shifts (i.e., how strong and fast the portfolio shifts as a function of resource requirements?). The more new partners can be acquired, the better firms can intensify links, and the better the portfolio structure is adjusted according resource requirements, the more efficient alliance portfolios will be. For the evaluation, the underlying data have been presented in the tables summarizing the within-segment alliance portfolio analyses. The evaluations are depicted in table 26.
Case
Large Medium Small Medium Small Medium Medium Medium Large Intensity of
ties
Medium Medium Low Medium Medium high
Low Medium Medium
low
High Medium Medium Slow Slow Medium High Low Medium
high Table 26 Impact of alliance efficiency on organizational change
By analyzing the data, it becomes obvious that improved resource access via efficient alliances leads to improved firm performance. In addition, better alliance portfolios and, therefore higher performance, accelerate firm’s organizational development and shortens
Correlations between portfolio efficiency, performance, and organizational development
development stages. This correlation between alliance portfolio efficiency, performance and organizational development is depicted in figure 56.
Figure 56 Coevolution correlations
The correlation between performance and organizational change is the strongest. This is not surprising because entrepreneurial performance as measured in this study comprises growth, and growing structures trigger organizational conflicts, which mark the transition from one stage to the next. In addition, profitability and innovation⎯the other performance components⎯usually accelerate growth.
Yet interestingly the correlations between portfolio efficiency and performance and between portfolio efficiency and organizational development are almost as strong, each explaining up to 50%. Therefore, alliance portfolio efficiency plays a mayor strategic role and heavily influences the development of NTBFs. Fast adaptation of networks according to the underlying resource requirements leads to improved entrepreneurial performance. On the other hand, organizational change defines resource requirements in a stepwise fashion.
Therefore, alliance portfolio and organizational change are interdependent. Co-evolution between partnership networks and NTBF’s organization exist.
In summary, organizational steps define overall requirements. Alliance networks help to fulfill these requirements. The faster the partnership adjusts to the requirements, the faster the organization develops.
Different skills support the firms in establishing and maintaining efficient alliance portfolios. These skills comprise capabilities for acquiring partners, and capabilities for to managing the portfolio. The structure of this allying process is presented in the next section.
Processes
Alliance portfolios are facilitated by an underlying allying process. This process supports shifts in the alliance portfolio structure and the resource exchange between the participating
partners. As consistently assessed in the within-segment analyses, the allying process consists of three phases, a strategic pre-phase (with most steps not part of the allying process), an alliance formation phase, and an alliance management phase. Every phase can be split up into steps. The phases, the steps, and crucial capabilities for each step are depicted in table 27.
Phases Steps Crucial capabilities
Strategy review • Developing strategic concepts
• Breaking them down into products and projects Deriving resource require. • Developing a sourcing strategy for every project Strategy
pre-phase
Defining alliance needs • Working out alliance concepts with a clear vision, specifying
− What to achieve
− How the corporation should be structured
− With which type of company to partner
Search & screening • Drawing market portfolios of partner industries, thereby using market data as research and broker reports
• Evaluating strategic fit in an overlap matrix, excluding direct and indirect competitors, and overlap in business units or markets
Contacting • Attracting a good supervisory board (with extensive personal contacts)
• Reputation created through previous projects is crucial is particularly important in competitive situations
• Unplanned alliance opportunities are an additional source of alliances. They depend on:
− Reputation
− Prior alliances and projects Formation
phase
Contracting • Finding a fair alliance model, assuring win-win situations, especially when negotiating revenue sharing deals
• Flexible contracts, no exclusivity, including trial phases
• Setting precise alliance targets
Operating • Building personal contacts to counterparts:
− Directness
Controlling • Measuring alliance targets, revenues in particular, every 3 to 6 months
• Reputation is also important but plays a minor role Management
phase
Realignment or termination
• If alliance targets are not met, it is important to signal the deviation and start renegotiating the contract early. A long misfit almost surely leads to termination of the partnership
Table 27 Allying process - steps and capabilities
Despite the fact that overall structure of the process is fairly similar for all case study firms,
Despite the fact that overall structure of the process is fairly similar for all case study firms,