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Abstract. This paper describes a possible setup for strategic alliances within the Dutch construction
industry. It will – compactly – describe a general organizational setup as well as a judicial setup and
apply this setup to a group of companies who aim together to design and construct houses according
to the principles of mass customization.
1 INTRODUCTION
Cooperation within the Dutch construction industry is gaining interest. The studies after
project-based alliances carried out by the Faculty of Architecture of the Delft University of
Technology are proving this development. The knowledge of project alliances gained by these
studies invoke the question whether long term, process focused alliances – the so-called
strategic alliances – can also form a useful way of cooperation between construction
companies.
Vereniging EspritHuis is a Dutch association of construction companies, searching for a
new way to develop and construct individual houses based on the mass customization
principles. Mass customization gives the customer the freedom of choice – within his/her
budget and taste – to configure the final product. The products of which the customer can
choose from therefore have to be able to function with all the other products of the bidding
companies. This is why mass customization requires the bidding companies to exchange all
ins and outs of all the products they want to make available to the customers. The
development of a product catalogue for a mass customization housing project – which is
where Vereniging EspritHuis is aiming at – will require the investment of time and intimate
cooperation to make it happen.
The goals of the development process of Vereniging EspritHuis seem to have strong
parallels with the general characteristics of a strategic alliance. To verify if this is true this
paper will first look into the organizational and juridical setup of the strategic alliance and
secondly try to apply the strategic alliance model to Vereniging EspritHuis.
A.F. Snijders and R.P. Geraedts
2.4 Trust
Finally, strategic alliances are based on trust between the mutual partners and in within the
process. There is not much chance of success and even survival of the alliance if the bond of
trust is too weak. The partners will most likely lose interest in the process at an early stage.
Cooperation as equals is important to gain and keep trust between the partners. An
hierarchical structure undermines the initiative of the separate partners: the partners lower in
the hierarchy will be more likely to wait with putting in effort until they are told to do so. This
A.F. Snijders and R.P. Geraedts
2.5 Process
Incentives are given to partners who have shown better effort than other partners. This
stimulates the partners to invest in the process. Strategic alliances can benefit greatly from this
form of stimulation, but the way the incentives are given must be carefully defined. The
partners must at least agree on why and when and how incentives are given. In contrast with
project alliances, the issue of when an incentive is given may be quite difficult for strategic
alliances. Projects have easily definable milestones, while in development processes a lot of
time can pass before a foreseeable milestone will pass. This is important because incentives
lose their effect if they aren’t given at regular intervals. If the interval between the moments
the incentives are given is too big, the partners will lose trust in the incentive system.
When a SWOT-analysis - based on the characteristics of the strategic alliance - is made,
the organizational aspects of the cooperation stand out. It this case this means that the alliance
must develop and implement good management strategies for the internal organization and
process management to maximize the potential success and minimize the chances of failure.
3 JUDICIAL ASPECTS
A company doesn’t just have an organizational setup, it also has a legal form. Dutch law,
like probably any other country’s law system, holds many legal forms. The two forms of
limited companies and three (main) forms of partnerships have been reviewed for their use as
a legal form for a strategic alliance. To make a choice we first researched the main
characteristics of the two types of legal forms1.
1
Fiscal characteristics have not been taken into account.
A.F. Snijders and R.P. Geraedts
3.2 Partnerships
The Dutch partnerships (which are going to be renamed as from January 1st 2008) are
much more flexible. The nature of the legislation for partnerships is directive (sections of the
law are only compulsory if explicitly stated to be so in that section of the law). Besides that,
the partnerships are based on the cooperation within the partnership as equals. The partners
have to make all decisions together, not just on the general policies, but also on all practical
issues.
Another important difference to the limited company is that in partnerships ownership and
power are not separated but both in the hands of the partners. Besides that there are many
ways in which the partners can contribute to the partnership. This can be money, but also
work, knowledge or even goodwill. It can be anything which can help the partnership reach its
goal. The partners have to decide what the non-monetary input is worth, though, because that
sets the ‘share’ any partner has in the partnership. This is not a share as the limited companies
have, but more like the weight of the vote each partner has. The ‘share’ is also less fixed than
the shares of limited companies, because input can be revalued or added relatively easily.
N Privat P
Y PLC/ LLP
Partnerships N 4 Y LLP-P
Y 2
Y LLP 5
N Other partnerships 3
1 N LLP
Limited companies
N Y 4
Y PubP-P
N Public P 5
N PublicP
Figure 1: flowchart for determining the legal form for a strategic alliance. PLC: Private Limited Company.
LLP: Limited Liability Partnership. PLC/LLP: A combined legal form which has the characteristics of a LLP
but gains liability protection from the PLC. Private P: ‘private’ partnership (a partnership which is not known
to any third party). Public P: ‘public’ partnership (a partnership which actively and openly takes part in the
market). LLP-P: limited liability partnership in which the partnership can bear the rights of ownership. PubP-
P: public partnership in which the partnership can bear the rights of ownership.
their alliance by answering the questions. The choices at the numbered points in figure 1 are:
1. Is the basis for the cooperation a cooperation as equals between the partners?
2. Do the partners run a greater risk within the cooperation than they are used or willing to
A.F. Snijders and R.P. Geraedts
take?
3. Do the partners have the wish to have the cooperation to be known on the market under one
common name?
4. Are there partners who only wish to put money in the cooperation and have no say in the
policies of the partnership?
5. Do the partners want to transfer the ownership of all input to the partnership (and pay
conveyance duty)?
Strat. All.
4 STANDARD STRATEGIC ALLIANCES
With the acquired information we now can construct an AGB
organizational and legal setup for a strategic alliance. D&Q
AMT
4.1 Organizational setup
The basic setup of the organization of a strategic
alliance is depicted on the right. The alliance (Strat. All.) OL
contains three layers. All partners are represented in each
of these layers. The layers are: the Alliance Governing
Board (AGB), the Alliance Management Team (AMT)
and the Operational Layer (OL). The AGB decides on the Figure 2: basic organizational
policies and goals for the alliance. The AMT is setup.
responsible for the daily management of the strategic
alliance and translates the policies and goals the AGB
makes into actions for the OL. The OL does the ‘real’ work.
For example, the AGB can decide they want to make kitchen sinks. The AMT translates
this in a list of requirements, which the OL in return translates in technical drawings.
If the strategic alliance consists of more than five to seven partners, the AMT cannot
contain representatives of all partners at one time. This is due to the fact that the AMT will
lose its decisiveness when it has too many members.
An advisory panel has been drawn besides the vertical structure. The Design integrity &
Quality panel (D&Q) is completely independent of the partners in the strategic alliance. It
monitors the process from a distance and warns the AGB when the process is going the wrong
way or when friction occurs in or between the AMT and OL. The D&Q also advises a course
A.F. Snijders and R.P. Geraedts
AMT.
Another big difference with the final model is that the OL of all partners are not a part of
the structure of the current model. They can only be addressed by representatives from their
own company. The first step (Figure 4) is to pull the OLs of the different partners (POL) into
the partnership. The responsibility for the POLs remains with the separate companies. They
cooperation cooperation
Process Process
Management Management
D&Q D&Q
Figure 3. Step 0; The starting point. The Figure 4. Step 1; Process Management gains
POLs can only be activated or reached by the direct access to the POLs. These remain,
separate partners. however, under control of the separate
partners.
strategic alliance
process organisation
D&Q
D&Q
AMT
AMT
partners shift up to form the AGB. A result from these shifts is that the AGB now decides on
the policies and the AMT starts to transfer these policies into actions for the POLs. To do this
effectively the AMT must have direct access to and control over the POLs. In this step the
separate companies still have a direct say in what their respective POLs do. At the base of the
changes in this step, there should be a contract which defines the roles of the respective layers
in the organization. Since EspritHuis is going to be a large strategic alliance, the contract
should also state how the partners decide the way members of the AMT are selected. They
could use election, a rotation schedule or any other way, for as long as all partners are in the
AMT every once in a while.
After the third and final step (Figure 6), the final organizational setup is reached by
integrating the POLs into one large operational layer (OL) inside the alliance. The AMT has
full control over the activities in the OL. The different companies can influence the work done
by their own POL only indirectly by adjusting the policies.
6 CONCLUSIONS
The strategic alliance seems to be a very useful organizational model. It has some
interesting possibilities for the construction industry on one hand and the individual consumer
at the housing market at the other hand, especially when the market supply in the construction
industry will be based on the mass customization principles. The legal forms within the
Partnership fit well with the characteristics of the strategic alliance. The Duch association
EspritHuis is willing to start a pilot for a strategic alliance.
REFERENCES
Snijder A.F., Strategische alliantie voor Esprithuis, (Strategic Alliance for Esprithuis), Msc
thesis, July 2007, TU Delft.
Koolwijk J.S.J, Geraedts R.P, Projectalliantie; Procesinnovatie bij complexe bouwprojecten,
(Project alliance; process innovation in complex construction projects), 2006, VSSD Delft.
Thillart C.C.A.M. van den, Customized industrialisation in the Residential sector; mass
customisation modelling as a tool for benchmarking, variation and selection, October 2004,
Sun Delft.