Strategic Alliances and Their Effectiveness

This assignment delves into the complexities of strategic alliances, examining their potential for success while highlighting common pitfalls. It encourages a critical evaluation of alliance formation, focusing on resource complementarity, effective communication, and shared goals. Real-world case studies, such as Sangamo's partnership with Biogen and Shire, are used to illustrate key concepts and demonstrate the impact of strategic alliances on organizational outcomes.

Running Head: Innovation Management
Innovation Management
Case Study

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Table of Content
Case Study 1..........................................................................................................................................2
Case Study-2..........................................................................................................................................6
References.............................................................................................................................................9

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Case Study 1
Six degree was a social networking site which was based on a concept which is popularly called as
“Six degrees of Separation”. The concept implies that all the living things in the world and everything
else are six or fewer steps away from each other so that a chain of “a friend of a friend” statements
can be made to connect any two people in a maximum of six steps (Ellison, 2007). Based on this
social study and a scientific phenomenon Andrew Weinrech thought of leveraging the growing
penetration of internet and people curiosity of connecting with one another. Hence, six degree
social networking site was created, it gained huge popularity in the past, but could not sustain it for
a longer time as people felt that not too many people are interested in the social network, also it
had limited functionalities for people (Gross & Acquisti, 2005). The people could just accept
invitation or send invitation to other people, thus the site was doomed. Few years later other sites
like Friendster & MySpace came in the ecosystem and addressed some more requirements of the
growing internet population. None of them could live up to the expectation of the demanding
consumer and in the end all of them had to close their businesses.
Meanwhile in the year 2004, Mark Zuckerberg and his team came up with Facebook, initially started
as social network for Harvard, but year 2006 saw the company opening up the doors for the general
public (Scott, 2017). Since then, Facebook has disrupted the ways people perceive social network.
Mark Zuckerberg learnt from the mistakes of all the earlier companies, he rationalized why other
social network failed to succeed and hence created a formidable strategy for Facebook to sustain in
the market. Facebook was innovative right from the start and it kept on adding new things on the
platform to make it engaging for the audience. In the initial days he kept Facebook away from the
harmful effects of advertising and later as well, he never let the advertisement deflect the customers
from serving news feed (Dwyer, Hiltz & Passerini, 2007)
It can be said that Six degrees was the first company to come up with the idea of a social network,
however it failed to leverage the benefits of the first mover’s advantage. First mover’s is a term
which is used to describe some competitive advantage an organization gains by bringing the first one
to bring a service or product to the market. Being first helps a company to build a brand recognition
and customer loyalty before any new player enters the market. It also gives the company a gestation
period to improve the service before an incumbent enters the same business space. However, Six
degrees could not live up to the hype it created once it entered the market, it garnered 3 million
subscribers quickly, but post that it failed to innovate and hence quickly died in the business cycle.

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The tricky thing with first mover advantage is to capitalize on the growing market, understand the
need of the customers and come up with solutions to engage with the audience. In absence of all the
above elements, no company can take advantage of being a first mover.
Facebook was smart, it clearly understood the market landscape, realized the needs of the
customers and existing lacunae between the current solutions and the required solution. Based on
the clear analysis Facebook created a platform which catered to all the audience. It did not stop after
catering to the needs of the customers, but it kept on innovating to satisfy the unsatiated needs of
the customers. He believed in consistent innovation throughout the business cycle. Mark Zuckerberg
created the market for social platforms, Twitter, Pinterest; Foursquare etc. were created after the
success of Facebook. Hence, it can be said that all the companies who are first movers in their
businesses do not reach the heights as envisioned by them (Duggan, Ellison, Lampe, Lenhart &
Madden, 2015)
Figure 1 Showing costs incurred by First Movers
Disadvantages of First movers:
 First movers have an additional responsibility of developing a brand new market; it has to
bear the economic burden of creating and developing the market which the followers easily
enter through. First movers have to conduct a lot of research before entering the market,
and all this goes in vain if the company fails. At the same time, awareness is created which
followers easily leverage(Vecchiato,2015)

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 Followers, who enter the market just after the first movers can learn a lot from the
challenges that first movers faced and hence can reduce the risk and avoid costly mistakes.
Facebook learnt tremendously from Six degrees, MySpace, Friendster and finally after filling
in all the gaps realized by the early movers he came with a comprehensive platform which
was widely accepted by the people(Househ, 2016)
 First movers don’t have a ground for experimentation, there is a huge burden on them to do
things right the very first time, and hence if they fail in delivering result at the very first time,
people lose confidence in the company and then there is no coming back. On the other hand
followers learn from it, adapt the changes, improve their business processes and move
towards sustained growth(Carr & Hayes,2015)
 First movers are driven by the fear of missed opportunity and hence they launch a new
product or service without sufficient market research, they don’t think at times if the market
is ready for their product.
Based on the points discussed above it can be clearly said that, being a first mover is a great
thing, but the level of preparedness for becoming a successful first mover has to be immense.
Some of the successful first movers are Amazon & E-bay in the internet space. Six degrees was a
great concept, based on a proven theory, but the founders did not have a vision to process it
further, they did not have futuristic thinking, they could not envision the demand of the
consumers after giving a platform for social interaction, thus the company failed. Facebook on
the other hand, realized the mistakes other founders made, hence went on the path of constant
innovation in its product and thus made Facebook as the largest social networking site in the
world.
Case Study-2
Edward Lanphier was the man who founded Sangamo Biosciences in the year 1995 with the purpose
of developing Zinc-Finger nucleases (ZFNs), a technology which could edit the genetic code of a living
individual to correct genetically based diseases or to confer genetic resistance to non-genetically
based diseases. Sangamo was a big respite for patients suffering from terminal illness from the
diseases like Huntington, Haemophilia and so on. But the problem with Sangamo was that it was
unable to conduct the R&D out of its free will, it was reliant on the grants from institution, none of
its products were fully developed and in the pharmacist labs, thus despite achieving breakthrough in
the technology, it could not achieve much.

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It has been pointed in the case study that Drug development is extremely expensive and risky at the
same time. In some of the studies it has been indicated that it costs a decade of time and over $1.5
Billion to bring a drug after all the checks, FDA approvals into the market. Also, the statistics are not
fairly conclusive in calculating the cost behind creating one drug, because in the process many failed
drugs go through the litmus test and thus the fair estimation of development of a drug would be
much higher than $1.5 Billion. Studies further suggested that the cost of clinic trials is the major cost
component in the drug development. Sangamo was going through a bad shape and had no idea how
the firm can expedite the process of dug development and contribute to the society.
A ray of light was showered on to Sangamo when Biogen Idec, a Cambridge based company with
almost $10 Billion in revenue was excited with the product of Sangamo and wanted to enter into a
partnership contract with the firm. The terms & condition of the deal was pretty much favourable for
Sangamo, Biogen promised to give Sangamo $20 Million upfront and Sangamo would be responsible
for doing all the R&D on the treatments until the drug was proven to work on humans. Further,
Biogen would take over, conduct the drug trials, take care of the marketing, manufacturing activities
and pay somewhere around $300 million in royalties to Sangamo, seemed to be a win –win deal for
Sangamo and Biogen. In the following year another UK based company, Shire AG striked a similar
deal with Sangamo with more or less the same conditions. Hence, creation of strategic alliance was
pivotal in pulling Sangamo out of the troubled waters. In the modern day scenario, creation of
strategic alliance is extremely important. In sectors such as biomedical, it plays a more important
role due to the huge cost involvement in the R&D.
Strategic alliances are an agreement between two or more independent companies to cooperate in
the manufacturing, development or sale of products and services or for the fulfilment of other
business objectives (Albers, Wohlgezogen & Zajac, 2016). There are different ways in which the
company can get into strategic alliances.
Joint Venture: It is created when the parent company establishes or creates a new company for the
fulfilment of the joint objectives (Rothaermal, 2015)
Equity strategic alliance: An equity strategic alliance is created when one company purchases a
certain equity or percentage of share in another company.
Non-Equity strategic alliance: This type of alliance is created when two or more companies sign a
contractual agreement among themselves to pool the resources and capabilities together and fulfil

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certain objectives (Zamir, Sahar & Zafar, 2014). Sangamo was in non-equity strategic alliance with
Biogen & Shire AG.
There are a plenty of reason why company get into strategic alliance, for example, in the purview of
the case study the reason for strategic alliance was that Sangamo required funds to develop the
drugs. Certain other reasons for the alliances are:
Slow cycle: Pharmaceutical companies are the biggest repositories of slow cycle, slow cycle can be
inferred to the industries whose competitive advantages are shielded for a relatively longer time,
thus require the need of forming alliances (Grant, 2016)
Standard Cycle: In this type of cycle company launches a new product every 5 years and hence may
not be in a position to maintain the position of leader in the industry. Thus, this type of alliance are
created to gain market share, push out other companies out of competition, pool resources for large
capital projects and establishing economies of scale(Hill, Jones & Schilling,2014)
Fast cycle: In this type of cycle, company’s competitive advantages are not protected and companies
are operating in a fast product lifecycle.
Sangamo falls in the standard cycle as drug development takes time and thus it formed partnership
agreement with other companies.
Strategic alliances are not always fruitful; there are times when it puts forward challenges in the
contractual agreement. Some of the challenges which can be identified are:
 Partners misinterpreting what they are bringing to the table, they might communicate
something but their hidden motives might be different, hence a good research has to be
done before getting into a partnership.
 Sometimes partners overcommit, but later when the deeds of the alliances have to be
honoured they take a backseat, losing the entire purpose of getting into an alliance and in
the meanwhile time gets wasted in the process.
 The meaning of alliance creation is when one partner can use the resources and capability of
the other partner, but there are chances when one of the partner is not in a position to use
the complementary resources effectively, thus ruining the purpose of the strategic alliance.

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It is no doubt that strategic alliances help the company to pursue their goals quickly, leveraging the
resources and knowledge of the other party. An alliance can also provide easier access to new
opportunities on the block and a low barrier to entry. Sangamo’s troubled went away when the big
giants came forward to help the company, because it was win-win for both the firms. Biogen and
Shire would get a chance to market, manufacture and develop the drugs, keeping all the revenues in
hand, at the same time Sangamo would be the one responsible for creation of life saving drugs.
References
Ellison, N.B., 2007. Social network sites: Definition, history, and scholarship. Journal of computer‐
mediated Communication, 13(1), pp.210-230.
Scott, J., 2017. Social network analysis. Sage.
Dwyer, C., Hiltz, S. and Passerini, K., 2007. Trust and privacy concern within social networking sites: A
comparison of Facebook and MySpace. AMCIS 2007 proceedings, p.339.
Duggan, M., Ellison, N.B., Lampe, C., Lenhart, A. and Madden, M., 2015. Social media update 2014.
Pew research center, 19.
Vecchiato, R., 2015. Creating value through foresight: First mover advantages and strategic agility.
Technological Forecasting and Social Change, 101, pp.25-36.
Househ, M., 2016. Communicating Ebola through social media and electronic news media outlets: A
cross-sectional study. Health informatics journal, 22(3), pp.470-478.

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Carr, C.T. and Hayes, R.A., 2015. Social media: Defining, developing, and divining. Atlantic Journal of
Communication, 23(1), pp.46-65.
Albers, S., Wohlgezogen, F. and Zajac, E.J., 2016. Strategic alliance structures: An organization design
perspective. Journal of Management, 42(3), pp.582-614.
Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
Zamir, Z., Sahar, A. and Zafar, F., 2014. Strategic alliances; A comparative analysis of successful
alliances in large and medium scale enterprises around the world. Educational Research
International, 3(1), pp.25-39.
Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition. John Wiley & Sons.
Hill, C.W., Jones, G.R. and Schilling, M.A., 2014. Strategic management: theory: an integrated
approach. Cengage Learning.
Gross, R. and Acquisti, A., 2005, November. Information revelation and privacy in online social
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