67245 230..240 - Strategic Alliances

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Unformatted text preview: Emerald Research paper Strategic alliances in food and beverage and executive recruiting industries Charles 32 Come Vincent 3'. Calluzzo Deborah I? Schwartz and Theodore M. Schwartz Charles J. Cante is Executive in Residence and Assistant Professor of Information and Decision Technology and Vincent ]. Calluzzo is Associate Professor of Information and Decision Technology. both at Hagan School of Business. Iona (ollege. New Rochelle. New York, USA. Deborah P. Schwartz is Associate Professor of Information and Communication Systems. Fordham University Graduate School of Business. New York. New York. USA. Theodore M. Schwartz is Professor of Management, Hagan School of Businessr Iona College, New Rochelle, New York, USA. Strategic alliances. Food industry, Food and drink, Senior management. Recruitment. Total quality management Abstract Strategic alliances. one component of a total quality management program. break down linkages ot a supply chain and help alliance partners to address new markets that could not be economically satisfied by a single firm. In recent years, through numerous press releases and anecdotal references, there have been an increased number of reported strategic alliances However, there have been no systematic studies of the prevalence and impact of strategic alliances in specific industries and no way to obtain information on the costs and benefits of these formal relationships. this current research addresses these gaps. As part of a long—term longitudinal research program covering diverse industries. two different industries, one in products (food and beverages} and the other in services [exemtive recruiting} were studied to determine the extent of penetration and effectiveness of strategic alliances. This paper presents examples of strategic alliances and the survey results describing penetration. types of alliances business benefits. and expected costs. Electronic access The Emerald Research Register for this journal is available at wwwemeraldinsightcomlresearchregister The current issue and full text archive ot this journal is available at 59-8546.htm Supply Chain Management An international Journal Volume 9 - Number 3 - 2004 A pp 230-240 to Emerald Group Publishing limited - ISSN 1359-8546 DDI 10.1 1W1 359854041 0544926 Introduction In dtis challenging economy, companies are looking for ways to reach new markets while minimizing thc resources needed for new service and existing customers. Strategic alliances, where alliance partners formally agree to work together to satisfy customers while leveraging each other’s specific strengths, have been announced in press releases and in anecdotal references in numerous articles and texts. However, there has been no systematic analysis of the penetration and business results of strategic alliances, which can vary by industry. After describing the concept of strategic alliances and how strategic alliances support total quality management (TQM) programs, this paper explores the types of strategic alliances found in two industries, :1 products industry (food and bcvcragcs) and a service industry (executive recruiting). It then presents the results of a survey in each of these industries about their use of strategic alliances as part of a TQM program, including penetration, business benefits and costs, and future plans for strategic alliances. It also discusses the key factors for managing the risks and maximizing the benefits of strategic alliances. The authors, The Strategic Alliance Research Group (TSARG), plan to periodically evaluate these two industries, as well as other industry studies in process: chemical, financial services and health care indusnieslll. The food and beverage industry is representative of many other goods industries, with a typical supply chain and a significant impact on the US economy (every individual and organization is a customer of the food and beverage industry). The executive recruiting industry was selected as representative of a services industry looking to expand its scope of service to attract more clients and revenue. Like many other services organizations, executive recruiting firms are using the Internet to reach new customers and provide expanded services, often with the help of strategic alliances with business partners. As with many other supply chain initiatives, this research supports the premise that innovations occurring in products industries are often adapted by services industries. Supply chain concepts and definitions Strategic alliances are a component of TQM programs. This section briefly describes the theoretic underpinnings of the current research, describing both TQM and strategic alliances. 230 Strategic alliances Charles I. Caste et al. TQM One of the major premises of TQM is that quality systems and programs must be extended as far as possible in the supply chain to achieve the highest level of quality. TQM extends backwards through suppliers (first tier), the supplier’s supplier (second tier) and beyond (third+ticrs) and forward, through to customers. The following five concepts serve as the foundation for TQM: (1) continuous improvement (a never ending search for perfection); (2) bench-marking (learning from the “best-of- the best” or “best-in-class”); {3) use of empowered employee teams; (4) knowledge of tools (more than 40 available tools, including statistical quality control); and (5) just-in-time GIT) practices (use of strategic alliances and few suppliers). JIT practices include the use of strategic alliances; with first, second andlor third+tier suppliers and! or with customers, to improve quality throughout the business system of an enterprise. Strategic alliances definition A strategic alliance is a formal agreement to both: supply goods or services, as well as to jointly expand knowledge, develop applications and commercialize new products, with rights of err—ownership. The objective of a strategic alliance is to achieve a competitive advantage for each partner through productivity, quality improvements and significant innovation. Alliance inventions can be commercially used to benefit alliance partners under the guidelines of the alliance agreement. Partners in strategic alliances work together to serve the ultimate consumer by doing together what each partner could not do alone. The strategic alliance agreement can include many elements, such as supply processes, technology, intellectual property, legal requirements, and terminationfdisengagement sub—agreements. Generally, alliance agreements have a term of three to five years (Cante, 1998). As Dodge and Salahuddjn (1998) stated, “Put simply, a strategic alliance is a relationship between firms to create more value than they can on their own”. Approach to research As participating companies consider strategic alliances as a significant competitive advantage, it can be difficult to get detailed information about these alliances. This research followed a three-step approach to developing insights into the 231 Supply Chain Management: An International loumal Volume 9 x Number 3 -2004 - 230-240 penetration and uses of strategic alliances in these two industries. (1) Document publicly announced examples of strategic alliances and their expected benefits. (2) Develop, distribute, and analyze a survey to a random sample of experts in each industry. Information about strategic alliances in the food and beverage industry was obtained from a lQ-question survey. The industry is made up of approximately 2,000 food processors, food distributors, food retailers, and suppliers of raw materials, ingredients, packaging materials and process equipment. A sample of 500 firms, representing 25 percent of the industry, was randomly selected from individuals listed in the Membership Directory of the Institute of Food Technologies (IF '1' Membership Mastery, 2000). A similar survey was sent to the members of the executive recruiting industry listed in the {Erector}? of Executive Recruiters (l 999). The survey was sent to 39 percent of the industry (covering a total of 605 retained search firms. There were 107 responses, representing l8 percent of the industry. (3) Discuss additional implications and insights with key players in the industry. These discussions took place via telephone conversations with survey participants and with participants at industry conferences. Some additional insights were obtained through consulting engagements implementing strategic alliances by the authors. Industry background Strategic alliances in the food and beverage industry The food and beverage industry has much to gain by participating in strategic alliances that bring added value to their customers and consumers. A range of standard and new competencies will be needed to satisfy anticipated consumers’ wants. For example, Elizabeth Sloan developed a list of changes to the market in her “Top 10 trends to watch and work on” for the food and beverage industry (Sloan, 2001), as follows: (1) “Do—it-for-me” foods. (2) Super savory and sophisticated. (3) Balance. (4) Form follows function. (5) A new kind of home-spun. Strategic alliances Charles I. Caste et al. (6) Kid-influenced. (7) Light and lively. (8) Crossover meal pattemsm (9) Do—it—yourself health. (10) Clean, pure natural and safe. These consumer wants required changes in supply chain management. Improved standard competencies to meet these requirements include the fundamentals of product, package and process technologies while required new competencies include supply-chain management, computer- controlled warehousing and distribution, sales, and e-business Webs. With today’s business~world realities, the competency requirements render it unlikely mat any firm, regardless of size, can afl'ord the resources to take advantage of these market changes. Popular approaches for meeting these consumer needs has been to outsource non-core competencies or business activities (Patterson and Haas, 1999) and to use outsourced, contract research. In the last decade, suppliers and customers have become an important source of new product ideas and technologies for the food industry as well as positive elements for new product success (Hoban, 1998). As a result, many firms began looking up and down their supply chain for ways to augment their own resources. For example, at the Institute of Food Technologists’ IFT Food Expo 2001, several speakers cited “increasing demand and dependence upon suppliers and external partnerships” that has resulted in “a consolidation of the supplier base with an expansion of suppliers’ roles” (Dahrn, 2001). The significant number of mergers and acquisitions in the industry has worsened the situation by reducing the internal resources of the newly-formed enterprises (Mermelstein, 200] 3 Rosskam, 200] ). As a result, strategic alliances have emerged as a way to meet these new consumer demands while efl'ectively managing the resources. The few publicly announced strategic alliances in the food and beverage industry involve warehousing and distribution technology, global material sourcing, supply-chain efficiency and selling: ' In an effort to increase service level and fill rates at its Acme stores, EW Albrecht Grocery Company (Albrecht) entered into a warehousing and distribution alliance with the Fleming Companies that employs advanced technology in its warehouses (Pupura, 1998). This alliance allows Albrecht to focus on its core retailing sn-ength while Fleming focuses on its core strength in effective inventory management. ° General Nutrition Companies (GNC) formed an alliance with Mitsubishi International Supply Chain Management: An Intemafional loumal Volume 9 x Number 3 -2004 - 230-240 Corporation to produce selected nutrition supplements in the USA and Canada (News in a Minute, 1998). This alliance allows GNC to benefit from Mitsubishi’s global raw material sourcing in exchange for participation in the retail revenues of the resulting products. ' Compass, a global catering enterprise, and Kraft Jacob Suchard, the European component of Kraft Foods, Inc, formed an alliance in which Kraft will supply Compass with all of its coffee requirements in Europe (Larsen, 1998). Compass gains the advantage of Kraft’s scale in global coffee sourcing (lower cost, higher quality beans) and processing (higher quality, greater consistency of the finished coffee) while Kraft improves its asset utilization. ' In another alliance aimed at improving the accuracy of demand forecasts and store re—supply, Safeway, a supermarket chain, and Dreyer’s, an ice cream producer, implemented a scan—based pilot in which Dreyer’s payments are based on real product movement at Safeway’s checkout scanners (Ammo—McCoy, 1998). This shift away from paying Drcyer’s for product delivery to paying for actual sales forces the development of improved forecasting and should positively impact the vendor’s entire supply-chain. The technology is in plaCe at supermarkets through checkout scanners, which read the Universal Product Codes (UPC) so the only other requisite is an agreement to share the consumer—take information (one of the aims of the alliance) with resulting better business performance for both partners. ' In an alliance between Starbucks Corporation and Kraft Foods, Inc, Kraft will use its marketing, sales and distribution power to bring Starbuck’s premium quality coffee beans to retail in US groceries (Associated Press, 1998). Strategic alliances in the executive recruiting industry Conceptualizing a supply chain for a service company can be more difficult than for a product industry, with the product industry’s flow of raw material through finished goods. Despite this difficulty, the executive recruiting industry can be viewed as a service supply chain, from the “raw materials" of candidates looking for positions, to the “end client” of firms looking for executives. Between the end points of the supply chain are a number of different functions that can be performed either internally or through strategic alliances. These are shown in Figure l. 232 Strategic alliances Charles J. Caste et al. Figure 1 Executive recruiting supply chain functions Executive Recruiting Supply Chain Functions Develop Candidate Pool ' Obtaimishandardizet'updalc resumes - Daeibase interfaces (by industry or business function) Manage Client Risk - Verification {job history, salary. education) Financial screening Psychological testing Candidate Se rviee: Relocation Clients [companies looking for executives} Resume and interviewing skills - Financed counselling Client Services Compensation evaluation and design Benefits evaluation and design - Legal Advisment Support Services ° lnfonnation technology ° Video confereitceslinterviews ' Travel Supply Chain Management: An Intemafional lountal Volume 9 x Number 3 -2004 - 230-240 has much to gain by participating in those strategic alliances that bring added value to their clients. Executive recruiting firms enter into strategic alliances to achieve specific business benefits. Many of these alliances use the World Wide Web as the vehicle for delivering benefits; in fact, online recruiting has become one of the few success stories of the Internet. Some of these publicly announced strategic alliances are described in the following examples: (1) Increased scope of services: This industry comprises two types of firms: retained search firms and contingency firms: (1) Retained search firms (approximately 36 percent of all firms) are hired by a client company, on an exclusive basis, to fill a specific, high level position with salaries of 370,000 and higher within three to four months of initiation. The retained search firm is paid its fee regardless of the search outcome. (2) Contingency firms are employed on a non- exclusive basis to fill low— to mid—level positions under $70,000. These firms are paid only if and when their candidate is hired. Retained search firms were selected for this study because of their impact on a client’s business performance through the individuals who are placed at their clients’ organizations. The goal of the executive recruiters is to match candidates with positions. The incentive for making matches is significant. Consider that in the year 2000, according to Hunt-Scanlon Advisors (Business Wire, 2001), the average compensation level was $233,000 for a placed executive: executive recruiting firms earn 3040 percent of the first year’s salary as a fee for service. There has been some movement by individual companies to expand their offerings to clients along the executive recruiting supply chain by function or to increase geographic reach. However, as in product industries, it is difficult for one company to have core competencies in all areas. As a result, the executive recruiting industry 233 Koranerry International is a global executive recruiting firm with an Internet— based subsidiary, bbturcstep. com The result of a strategic alliance between Kornf Ferry and The Wall Smerjoumal, Futurestepcom provides a faster, more efficient way to recruit mid—level managers. It provides an electronic version of the Wall Street journal‘s employment pages over the Internet, so listings are current between the paper editions. In addition, Futurestepcom provides job candidate services, such as skill and culture evaluations and online interviews (Business Wire, 1999a, b). The strategic alliance between another leading executive recruiting agency, Russell Reynolds Associates and theStandard.com provides career management and job placement services online through Standard Media International’s “Job Shop” (PR Newswire, 20003). (2) Expanded markets and geographic reach: Kelly Scientific Resources (KSR), a division of Kelly Services and a premier company in global scientific staffing, formed a strategic alliance with Search Masters International, a leading executive recruiting firm for the pharmaceutical and biotechnology industries. Search Masters International provides an international network of resources and proprietary technology that helps with KSR’s global expansion efforts. KSR provides both temporary and permanent scientific staffing as well as distance learning courses in science and management. Clients benefit from this alliance because of the increased pool of available, international scientific talent from the combined executive recruiting firms (PR Newswirc, 2001). Heidrick and Struggles International, a leading executive recruiting firm, developed a Web—based recruiting system called LeaclcrOnlinc"‘l , Inc. A strategic Strategic alliances Charles I. Caste et al. alliance between VerticalNet, which has a portfolio of e-market business-to—business trading communities for e—business and IcaderOnline", Inc. is used to place mid- level managers and emerging executives. This strategic alliance capitalizes on the strengths of each partner; Heidrick and Struggles’ best executive recruiting practices and VerticalNet’s Internet efficiencies within its communities. Corporate clients gain the ability to make timely and effective matches as a result of this alliance (Business Wire, 2000a). (3) Information exchange: ' TALK Corporation, which provides outsourcing services and the National Student Clearinghouse, a leading education verification service, have formed a strategic alliance to provide degree and enrollment verifications. TALX has. formed other alliances with Workscape, Inc., for employment and income verification (Business Wire, 2002b). ° ResumeRabbit.com has introduced technology that instantly delivers candidate resumes to over 75 Internet career sites, such as Monstercom, Job.com, Headhunter. com, Hotjobs, Dice, etc. ResumeRabbit is currently entering strategic alliances to provide “best in class” solutions for salary information (with Salarycom}, major iob boards (with Job.com and Wanted]obs.com), and specialty job searches (PR Newswire, 2002a, b). {4) Focused services provided to clients: ° Kennedy Information, a leading research and information source for e...
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