Companies are remarkably myopic when they go about forming strategic partnerships. Systematizing the analysis process should produce more gain and less pain.
Companies are surprisingly obtuse, the authors say, when it comes to the formation of new alliances. What often happens is that a business unit will form a partnership that serves its own parochial interests. All too often, however, the value that such alliances add at the business-unit level is negated by the resulting harm to the company due to the incompatibility of the new alliance with existing ones. Forming a partnership with a company that is an arch rival of an existing partner, for instance, can create such ill will that it leads to the overall destruction of value in the company.
The solution, the authors argue, lies in both structure and process: Companies should create a central “alliance function” an individual or a department at the corporate level that is charged with overseeing and coordinating the formation of new alliances. And the decision of whether to enter into a proposed alliance should be subject to a rigorous set of analytical steps in which the company examines the costs and benefits of the proposed alliance, not only for the business unit that is directly involved but also for the company as a whole.
3 Comments On: How to Manage Alliances Better Than One at a Time
I very much enjoyed the article and agree with your view that companies need to consider the portfolio effects of individual alliances and not just manage them on a one-off basis. In addition to the several good points you make in support of your recommendations, it is our view that a portfolio approach to alliance management recognizes that each alliance makes a different contribution to strategic (corporate and/or business unit) objectives. Thus, in developing its corporate/business unit strategy, an organization needs to explicitly identify the value strategic alliances are to provide in order the organization is to realize its strategic and financial objectives. Prior to seeking out appropriate partners, the organization needs to identify the specific value sought (its strategic intent) from each alliance.
Working towards achieving the strategic intent of an alliance and creating value for each partner implies managing the inherent complexities of the alliance. Management complexity is indicative of the time and effort required to realize the potential value of any alliance and arises because of the nature of alliance agreements and the internal and external risks that appear over the lifecycle of an alliance. Because the value actually realized from alliances is only determined as the alliance is executed and how well the alliance is executed depends on managing the complexity. Consequently, for more complex alliances, greater management is needed in order to realize the desired value.
The key to effective alliance portfolio management is the dual ability of Alliance Management to look up at the company’s corporate strategy and determine whether the alliance portfolio is providing the value needed and at the same time use the portfolio assessment to inform the management of each individual alliance. The organizational ability to do this provides a competitive advantage.
Jeff Shuman, PhD, CSAP
Co-founder and Principal
The Rhythm of Business, Inc.
Newton, MA
Interesting article and an equally interesting response. However, there is too much technical jargon involved thus far. How can the process be adrquately managed? What sectors are at risk of these kinds of enstrangements and the concomittant litigations? What can be done? These are the sorts of questions practitioners would be seeking answers to. I for one have previously argued about the growing disconnect between theory and practice and the issues raised in this article seem like fulfilment of the doomsday prophesy. I think we need to be clear of the degree of strategic alliances in the international business literature. Would strategic alliances between two firms in the same sector bring about rivalry, competition or cannibalism? Is this healthy, disruptive or expected? Would an alliance between two or more firms in different sectors be more sustainable? Think about strategic alliances between airlines such as Dubai-based Emirate Airlines and the English Premier League football club, Arsenal. What are the lessons to be learnt.
NO Madichie, PhD, MCIM
Assistant Professor of Marketing
University of Sharjah, UAE.
Good point, adding some more, corporate should define the scope of any partnership (for a long period) in advance rather than being feeling jealous about the partner’s success at later stages. This would allow both parties to identify their risk in advance. Customarily setting limitation upon “smaller” partner is considered to be risky. However, knowing this situation beforehand would prevent smaller party going into the risk of having a larger proportion of their revenue coming from a single partner who does not expect their growth.
Sriwantha Attanayake,
Student, University of Cambridge