PSA Peugeot Citroen,
or Peugeot for short, is a former French industrial icon. In the past two years, it struggled
to escape from € 7 billion losses. A €3 billion capital increase from the
French state and Dongfeng, a Chinese carmaker, should help Peugeot secure its
future[1]. Will it
be bright?
The alliance between Peugeot and Dongfeng is one of the thousands of
alliances that companies formed around the world in the past 10 years. The classic
frameworks of strategy analysis, however, don’t provide much guidance for how
to extract value from alliances. Take for example a classic “value chain” tool popularized
by Michael Porter:
* This figure is borrowed from http://www.insemble.com/software-value-chain.html
As a business educator
and a consultant, I love this framework. It helps map activities of a firm and to
think about how they relate to its competitive advantage. The weakness of the framework
is that it is too much focused inside the firm and is not meant to help
executives think about opportunities for value creation by collaborating with
other companies.
I recently co-authored
a book “Network Advantage: How to Unlock Value from Your Alliances and Partnerships”. In this book we offer advice on how companies can achieve
competitive advantage by managing alliances and partnerships with customers,
suppliers or competitors.
When I taught this
book at INSEAD, a group of Executive Education participants[2] proposed a really cool way
to integrate the logic behind the value chain with alliance thinking. This gave birth to
a new framework which we call “Alliance Radar.”
The Radar can help you look outside of your firm. It:
· links alliances to specific parts of your
value chain
· helps visualize all of the alliances which
your company has
· identifies new opportunities for value
creation across different alliances.
Let’s use this tool to
compare alliances of Toyota and Peugeot. I picked these examples because I own cars from both car makers. Another reason is that lately Toyota has been much more
innovative than Peugeot and this tool can help understand why.
Let’s start by identifying
the key areas of two companies’ value chain. For simplicity, let’s assume that
they are Production, R&D, Sales and After Sales. You can draw a radar like this:
Now let’s take all of Toyota’s
alliances and classify them into three categories: primarily aimed at cost
reduction (red), aimed at innovation and differentiation (green) and those
aimed at both cost reduction and differentiation (yellow)[3].
This approach helps us
immediately see that most of production alliances are aimed at cost reduction
(and efficiencies in general), whereas in other areas Toyota focuses on differentiation
of its products.
We can also see areas
in which Toyota can create value across different alliances. For example, let’s
take three alliances and move them in the “bull’s eye”. Between 2008 and 2013,
Toyota worked with Google to optimize search experience for Toyota’s products,
collaborated with GM to make Prius in the U.S. and worked with Intel to
integrate sensors inside the car with your smartphone. The tool tells us that Toyota
can create value by integrating ideas across these three alliances and make a
new product “Smart Social Prius”. I am not sure such car exists yet, but it is definitely in the works!
Because of Intel’s
sensors, the car will feed information on your Prius driving habits to your social
network. Some “friends” (like your parents or your insurance company) might
actually want to know how well you are driving. In fact, an insurance company
might even lower your premiums for good driving habits and make your insurance
really “personal”! And you can even have a contest among your friends who is a safer (or environmentally friendlier) driver.
Now let’s compare Toyota’s
Alliance Radar to that of Peugeot :
It is clear that Toyota
has a lot more alliances than Peugeot, most of Peugeot's alliances are aimed at cost
reduction and not much on differentiation. Peugeot has a lot fewer
opportunities to innovate across alliances. For once, it can work with both
Mitsubishi and Changan: make electric cars in Spain (with Mitsubishi) and outfit them with Chinese interiors. Not as exciting as a "Smart Social Prius"? Well, Peugeot's network of alliances doesn't allow it to do much better than that because most of the collaborations are focused on cost reduction anyway. If I were to consult to Peugeot, I would have suggested to take a hard look at their alliance network and see if they can collaborate with partners that can provide them with something better than just cost cutting.
Does your company want
to have a big space for innovations a la Toyota? The Alliance
Radar tool can help you see the opportunities. Experiment with moving different circles into the bull's eye and challenge yourself whether you can create value by combining ideas or resources or market access across different partners. If you don't see exciting opportunities, then maybe you need new alliance partners!
Lately Peugeot has
been on an upward swing financially. Sales are looking brighter as the European
market recovers[4].
Hopefully the company builds more and varied alliances that will help it not
only to cut costs, but also to create innovative solutions by integrating ideas, resources or market access across its customers, suppliers or even competitors.
If you find Alliance Radar tool to be useful for thinking about
your company’s alliances or to identify new value creation opportunities (like
a Smart Social Prius), share your story with me (shipilov@insead.edu).
If you want to discuss this tool, you can do so in the “Comments”
section.
