STMicroelectronics – demonstrating the power of global alliances

On March 2011our Tasmac Sem II team comprising Eklavyya, Bharti and Elwin presented their analysis on the STMicroelectronics. Some of the points discussed in the summing-up session are highlighted in brief. An earlier post describes ST’s strategy making pyramid http://tiny.cc/t86g4

ST came into being in 1987 as a merger between SGS Microelettronica of Italy and Thomson Demeiconducteurs of France – two different countries, two different languages and cultures. The first year was marked by a number of differences. Fortunately the contentious issues were smoothed out and the process of integration began in earnest. It was mutually decided to locate the HQ in a neutral place – Geneva. They adopted a learning approach based on trust and synergies something that never happened in the 1998 Daimler-Chrysler merger which failed.

ST ranked quite low – 17th in chip sales in the first year and lost $200 million on sales of $859 million. Yet by 2011 ST became the world’s No. 3 chip-maker behind Intel and Toshiba in one of the hottest segments of the industry.

ST learned valuable lessons from their own experience on how to make alliances work despite cultural differences. And they made they made this learning into their chief source of competitive advantage thereby validating the following three concepts:

Metanational

ST chose to be a “metanational”- a term coined by Yves Doz, the Timken Professor of Global Technology and Innovation at INSEAD. A metanational is a large entrepreneurial multinational that is able to tap into hidden pockets of innovation, technology and market knowledge in pockets around the world, especially in underexploited emerging markets.  Most multinationals fail to harvest the most precious resources – such ideas and innovation as they remain focused more on exploiting material resources. ST did this in collaboration with its strategic partners.

ST formed a worldwide network of strategic alliances with key customers, suppliers, competitors, and leading universities and research institutes around the world. Alliances with customers accounted for 45 percent of its $6.36 billion in revenues. So ST’s key source of competitive advantage became its ability to artfully manage partnerships and through being the first to identify and capture new knowledge emerging all over the world. In the new economy it is knowledge is a source of competitive advantage by converting it to economic value.

Centerless Corporation

ST operated a “centerless” corporation organizational model described by Bruce A. Pasternack and Abert J. Viscio in their book “The Centerless Corporation: A New Model for Transforming Your Organization for Growth and Prosperity” read http://tiny.cc/azrnm . Such organizations are based on minimizing overhead and hierarchy while pushing critical decision rights to the periphery. Its strategy is based on global expansion primarily through a vast array of alliances and joint ventures. Here leader exercises his powers through an extended leadership team which is spread out.

A Constellation of Strategic Alliances

ST derived significant competitive advantage by leveraging their network of partnerships that were key to execute its strategies. It helped them introduce new products to the market, build economies of scale and scope. Managing a constellation of alliance poses several complex challenges. The main being to trust you partners and appreciating each other’s contribution of value.

In the semiconductor industry we have examples of NEC and Toshiba who also did very well in and are known for making alliances work.

STs current status

STMicroelectronics in their website state they now are one of the world’s largest semiconductor companies with net revenues of US$ 10.35 billion in 2010. Offering one of the industry’s broadest product portfolios, ST serves customers across the spectrum of electronics applications with innovative semiconductor solutions by leveraging its vast array of technologies, design expertise and combination of intellectual property portfolio, strategic partnerships and manufacturing strength. The group has approximately 53,000 employees, 15 main manufacturing sites, advanced research and development centers in 10 countries, and sales offices all around the world.

Conclusion

ST’s success demonstrates the awesome power of leveraging knowledge through partner relationship to create a win-win culture in its globally networked organization.

Finally I thank the team for their efforts in making a fine presentation.

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