Defining the Social Network of a Strategic Alliance

Strategic alliances are assuming an increasingly prominent role in the strategy of leading firms, large and small. Such cooperative relationships can help firms gain new competencies, conserve resources and share risks, move more quickly into new markets, and create attractive options for future investments.1 Yet, despite their promise, many alliances fail to meet expectations because little attention is given to nurturing the close working relationships and interpersonal connections that unite the partnering organizations. While these personal relationships between “boundary spanning” members, who work closely together, serve to shape and modify the evolving partnership, economic theories of exchange virtually ignore the role of people and their importance in the management of interorganizational relations.2 Surprisingly, “human or people factors appear to have remained unconsidered or, at worst, dismissed” in the alliance research tradition.3

Communication and the proactive exchange of information can strengthen cooperative relationships in several ways. First, effective collaboration requires connections at three levels across partnering organizations, represented by continuing contact among (1) top management to develop broad goals and monitor progress, (2) middle managers to develop plans for joint activities, and (3) operational personnel, who carry out the day-to-day work of the alliance.4

Second, “trust plays an important (often dominant) role in successful alliances,”5 and communication and information processing are instrumental to building trust between partners.6 We define trust as “a psychological state comprising the intention to accept vulnerability based upon positive expectations of the intentions or behavior (of a partner).”7 A defining characteristic of trusting relationships is open and prompt communication among partnering firms.8 Likewise, frequent interactions, the timely exchange of information, and accurate feedback on each partner’s actions will minimize misperceptions and strengthen cooperation in the alliance.9

Third, communication among boundary-spanning personnel produces a shared interpretation of goals and common agreement on norms, work roles, and the nature of social relationships.10 In turn, as a strategic alliance evolves, “(1) personal relationships increasingly supplement formal role relationships and (2) informal psychological contracts increasingly substitute for formal legal contracts.”11

We studied a strategic alliance between two Fortune 500 firms (referred to as Alpha Communications and Omega Financial Services) that developed a cobranded product for the business market. This case study provides the rare opportunity to explore the social architecture of a working alliance and helps identify the communication patterns that united the participants — and the beliefs that divided them. Rather than restricting attention to a few key informants, we gathered data from the entire network of alliance participants that includes a core team and a cadre of senior executives in each of the partnering firms. To our knowledge, this is the first study to provide a vivid and comprehensive portrait of the intricate web of relationships that forms in a working alliance and to examine the flow of communications within and across the partnering organizations.

Our study consisted of three phases. First, we conducted in-depth interviews with eighteen managers drawn from both firms to identify the alliance goals, the array of participants involved, and the prominent milestones and issues that defined the relationship. Second, forty-two managers, identified as the primary alliance participants, completed a survey; this social network data was instrumental in uncovering the communication and friendship ties that formed the alliance’s underlying structure. Third, we conducted personal interviews with each of these managers to identify the specific beliefs that anchored their evaluation of three prominent dimensions of the relationship: trust, compatibility, and commitment. We chose these relationship characteristics because each has been positively linked to desirable performance outcomes, such as partner satisfaction with the alliance or the perceived effectiveness of the partnership.12 However, our focus was on exploring the meaning of these constructs to the participants in the Alpha-Omega alliance using a fine-grained case-study approach.

To begin, we describe the Alpha-Omega alliance and highlight important milestones in the relationship. Next, we profile the alliance communication network and identify the pattern of relationships that formed as the alliance evolved. Centering on key features of the relationship, we also contrast the divergent beliefs of managers in the partnering firms. Finally, we discuss the implications for managing strategic alliances.

Dancing Elephants

The history of any alliance will reveal periods of optimism and doubt, cooperation and conflict, and a host of forces that advance or threaten the future prospects for one or both partners. While alliances can take many forms, our case study centered on a contractual alliance not involving the sharing or exchange of equity.13 The parties jointly coordinated ongoing activities and negotiated new decisions. To understand the background and the current state of the Alpha-Omega alliance, we conducted in-depth interviews with eighteen managers who were centrally involved in forming and implementing the partnership. Included in this group were the two senior executives who conceived of the idea to join forces.

The relationship began when an executive vice president of Omega (an internationally recognized financial services firm) approached the president of Alpha (a premier telecommunications company of comparable stature) and suggested the two companies target a “cobranded” product at the corporate market — a credit card/calling card. These two executives were acquaintances who had met at an executive roundtable and had remained in contact, so collaboration appeared to be “a natural,” as one Alpha mid-level manager put it. The two companies had been working closely together as customers and suppliers of each other for years: Alpha contracted with Omega for billing its telecommunication services, and Omega handled much of Alpha’s financial and travel arrangements. Alpha also administered Omega’s telecommunications and financial data transmissions. Direct interpersonal contact between the two senior executives at the partnering firms thus created the opportunity for cooperation, and the established business ties between the two firms further supported formation of the alliance. Such relational ties are often critical to alliance formation.14

Omega Financial Services was interested in a more formal partnership with Alpha Communications because its position in the corporate market was eroding. Despite its prestige, Omega was losing market share to new, more competitively priced entrants. Including Alpha’s telecommunication services with its own financial service offering could help Omega retain market share. Ironically, Alpha’s competitive strategy was partly responsible for Omega’s situation; earlier in the year, Alpha began offering its own financial services, aimed largely at its own current telecommunications customers, as a retention device. Alpha’s services were such a success in the consumer market that the company was emerging as a principal player in financial services. As a defensive move, Omega could prevent Alpha from targeting financial services by making Alpha a partner. Together, Alpha and Omega could also launch a powerful cobranded product that could be attractive to corporate customers.

For Alpha, the prospect of an alliance was also attractive, providing immediate access to the corporate market. Although it could use its own financial services unit and make an independent move into the corporate market, Alpha’s key business was really telecommunications. Senior managers were more concerned with developing mechanisms to support this core business than with branching out too aggressively into new areas. Alpha’s senior managers were also concerned that its financial services division, headquartered in another state, was becoming “too independent” and losing sight of its primary mission of supporting the company’s telecommunications interests. Hedging on Omega’s established reputation via a cobranded product, Alpha could expand its telecommunications network usage through increased communications and billing data transmissions. Plus, if Alpha did not embrace Omega’s offer, Omega could pursue the corporate market by allying with one of Alpha’s competitors.

However, a “clash of corporate egos,” as managers from both sides described it, plagued the negotiation process from the start. Both firms were accustomed to “getting their way” with alliance partners, because of their market clout and size; but this situation was different. The partners nicknamed themselves “the Dancing Elephants” to depict the careful movements necessary for the two corporate giants to avoid stepping on each other’s toes. A mid-level Omega manager remarked: “Neither one of us was in a position to push the other around.”

Since both companies rarely compromised, partnership discussions were arduous. At one low point, both sides refused to give in on a particular issue, and one team coldly got up and left. Reflecting on the experience, one Omega executive commented: “What took the most time in the negotiations was deciding ‘what happens when we divorce?’ It took us almost a year to negotiate — 3 months to cut the deal and 9 months to protect each other’s corporate assets.”

The negotiations offered little room for developing a spirit of cooperation, and several new organizational members from both sides were brought aboard to implement the partnership. Animosities, however, lingered.

Product Launch

The first major hurdle was integrating the partners’ customer databases. Each firm’s customer list was a significant corporate asset, and neither was willing to openly give the other partner access. Omega feared that Alpha’s own financial services division might target its customers. Managers at Alpha worried that Omega might lure away its existing customers with cobranded offerings developed with competing telecommunication providers. Furthermore, since many Omega managers involved in alliances with Alpha’s rivals were also assigned to work with Alpha, Alpha managers were concerned that confidential information might “leak” (even inadvertently) to Alpha’s competitors. At one point, Alpha managers even received promotional pieces at their homes that promoted Omega products affiliated with Alpha’s key competitors. According to one Alpha manager, “People here were genuinely offended!”

Omega was anxious to announce the new alliance and reassert its position in the marketplace. Omega’s marketing personnel would not wait for the customer database merger and negotiated a stop-gap “sticker campaign” to expedite the product launch. Small coded stickers, which granted access to Alpha’s telecommunication services, would be mailed to existing Omega corporate customers. These customers were instructed to apply the stickers to their Omega membership cards. Alpha complained that the sticker failed to convey Alpha’s status as an equal partner, but Omega was excited about the sticker campaign and launched it despite Alpha’s reservations. Unfortunately, it proved to be a disaster because most customers confused the stickers with junk mail and inadvertently threw them away. Trust eroded as each firm blamed the other.

Adding to the complexity, Alpha and Omega needed to identify mutual customers to supply them with the new cobranded product. They contracted a third-party vendor to integrate the customer databases because it required significant time and complex technical development. The systems crews on both sides were not yet convinced of the alliance’s value; it appeared to be a lot of work for a small set of clients.

After the customer lists had been integrated, the companies could formally issue new cobranded membership cards. But a new conflict surfaced because Omega refused to allow Alpha’s logo to appear on the front of “its” membership cards. After several months, they reached a compromise: the new cards would have an “Alpha side” and an “Omega side.” Although Omega was proud of what it touted as major concessions on the card design, Alpha managers were never completely satisfied with the outcome, feeling that Alpha’s logo was clearly given an inferior display.

First Year of Marriage

During the first year, several sensitive issues erupted concerning the overall alliance relationship. Frequent disputes centered on issues such as which company name customer service representatives would use when answering service calls from joint customers, or which company logo would be at the top of the partners’ letterhead. Another conflict arose from Alpha’s sudden withdrawal of a promised discount program to promote the cobranded product. Regulations prevented Alpha from offering an initially agreed-upon telecommunications discount with the cobranded product, but Omega believed that Alpha should have done more to offer some value in its place because the product was far less attractive without the discount. Omega’s frustrations were exacerbated when Alpha also withdrew a large set of customers from participation in the alliance program. Omega managers felt that Alpha never gave a reasonable explanation for this move, and they were upset that Alpha advertising for its financial services never mentioned Omega or the cobranded product. Personnel from both sides complained that the alliance was under-capitalized at both firms and that the cobranded product was not given high priority and enough senior-level management attention.

Some of the initial animosities festered at the personnel level. The negotiation process was moderated somewhat by programmed team-building exercises involving core team members responsible for the day-to-day partnership operations. While some managers thought these exercises were helpful for bridging the working relationship, others were less convinced. According to one Omega manager:

“We had a relationship consultant who was more like a marriage counselor [asking] questions like ‘How do you feel?’ I don’t respond well to that! You go to these Outward Bound exercises, and they make you toss balls and jump all over the place. I think what makes people feel more comfortable with each other is going to dinner and talking about your family and friends. Maybe I’m too much of a cynic, but pulling ropes and walking through boxes? I just don’t find it useful!”

A turning point that helped improve rapport between Alpha and Omega was a Key West “working vacation” that provided many relaxing social opportunities. One Alpha manager noted: “It was the first time we were able to just sit down, relax, and talk about what we wanted this alliance to be. . . . Now we were friends, and we had been through a lot. We had battle wounds and scars that had healed.”

Social meetings eventually fostered friendships and personal relationships between Alpha and Omega. Back in the office, however, the positive effects of team building and meetings appeared to be short-lived. The firms did not conduct these social events regularly and underlying frictions continued.

Omega personnel accused Alpha of being too bureaucratic and not assigning enough personnel who were able to approve decisions. Omega managers described Alpha as being structured around product “silos” (strategic business units) that inhibited internal communications. Omega, on the other hand, touted an organization around “customer segments,” with a better integrated internal structure. As compared to Alpha, Omega assigned higher level personnel to the alliance and, consequently, Omega managers could more readily make alliance decisions. One operations manager at Omega explained:

“Basically, there is someone different at Alpha for every little thing you have to do. For example, with our core team at Omega, I feel like we have been empowered to really resolve problems or make decisions. That’s not always the case with Alpha. They always have to take something back to senior management.”

Omega managers also complained of Alpha’s personnel turnover; Alpha frequently promoted or transferred employees to other projects. “They are always in training,” charged one mid-level Omega manager about the Alpha counterparts.

Alliance personnel from both organizations also accused each other of withholding important information. Omega managers seemed especially frustrated with Alpha’s unwillingness to openly share details necessary to execute the alliance. Omega had designated one knowledgeable manager to be the key contact for alliance-related communications, whereas Alpha allowed all of its participating managers to discuss alliance issues with their Omega counterparts. Thus, the perceived lack of openness on Alpha’s part may simply have reflected the inability of junior managers to distinguish nonproprietary from proprietary information. Again, a lack of senior executive involvement on the Alpha side made the goals and objectives of the alliance unclear, and neither partner seemed to totally trust the other. One Alpha manager called it “a cautious trust.”

By the end of the first year, the cobranded product generated only modest profits; this was particularly disappointing to Alpha, whose expectations for first-year performance were high. Many Omega managers expressed concern that Alpha’s underlying financial assumptions for the product revenues were inappropriate. Although Omega managers would have preferred greater profitability in the first year, they had their sights set on building an expanded set of relationships with Alpha and launching a host of other collaborative offerings. Luckily, profitability improved in the second year.

Relationship Patterns and Themes

At the time of this study, the alliance was stabilizing and moving into its second year of operation. Partnership norms had emerged, and the alliance had become an intertwined set of interpersonal relationships among various levels of managers from the marketing, computer systems, and customer service functions.

The second phase of our research examined the pattern of these relationships by collecting data from forty-two managers from both firms (twenty-two Alpha managers and twenty Omega managers). First, these managers identified the alliance personnel with whom they interacted at their own firm and the partnering firm. Second, they evaluated each of these contacts on three dimensions: the frequency of alliance communications, the importance of those communications, and the closeness of the relationship (see Figure 1).

The alliance network is composed of core and peripheral participants. Core participants were those with strong communication and closeness linkages (including friendships) with others in the alliance network, indicating their central role in the alliance’s day-to-day operations. These managers were “in the know” about the alliance. Although assigned to the alliance, peripheral participants had weak communication and friendship ties in the social network.

Alpha managers with strong social ties were predominantly junior and middle managers from marketing, with a few managers representing the computer systems function. In general, Alpha personnel with weak linkages were either senior managers (#7 represents Alpha’s highest-ranking executive in the alliance) or junior and middle managers involved in the customer services function. Thus, the communication and friendship network within Alpha did not tightly integrate its management levels and functions.

Alpha’s original project manager, responsible for overseeing alliance operations, was a middle manager from marketing (ranked #20). However, during the second year, Alpha reassigned many members of its management team — including the project manager — to new projects outside the alliance. The second project manager was #29. When she was reassigned, #19 became the third project manager. Both #29 and #19 were junior marketing managers.

By contrast, Omega managers with strong communication and friendship ties represented all levels of Omega’s management hierarchy in marketing, systems, and customer service. Unlike Alpha, two high-ranking Omega executives, a vice president and a marketing director (#24 and #26), maintained close communication and friendship linkages with other managers in the alliance. Thus, Omega’s upper management was more actively involved in the alliance than Alpha’s senior management. In fact, Omega’s project manager (#26) held a significantly more senior management position than her Alpha counterparts (#19, #20, and #29), who were junior or middle-level managers. Similar to Alpha, however, Omega’s most senior-level executive assigned to the alliance (#30) maintained weak communication and friendship linkages with other managers in the alliance’s social network.

Among the core managers, a unique set of boundary-spanning participants emerged. These managers maintained strong communication and friendship linkages with other managers both within their own organization and the partnering firm. With two exceptions, all boundary-spanning participants occupied the lowest management level. The two exceptions, one from Alpha (#12) and one from Omega (#39), were middle-level managers. Omega designated manager #39 as the key contact for communicating all alliance-related information. In contrast, Alpha had a large number of managers assuming boundary-spanning roles. All boundary spanners were affiliated with marketing.

We gained further insights into the Alpha-Omega alliance by examining three relationship characteristics — trust, commitment, and compatibility — and by exploring the meaning of each to the participants.15 Consistent with a case-study approach, however, our goal was to isolate the meaning that managers ascribed to these relational dimensions. Some revealing differences emerged.

Trust, as defined earlier, involves accepting vulnerability, on the basis of positive expectations of the intentions or behavior of a partner.16 Relationship commitment, another important attribute of a partnership, exists when a partner believes that an ongoing relationship with another firm is so important that it warrants maximum effort to maintain it.17 Finally, compatibility reflects complementarity of goals and objectives of partners, as well as similarity in operating philosophies and corporate cultures.18

The alliance had been underway for 1 year, so opinions had solidified regarding the relationship. In the third phase of the study, we conducted interviews with the same forty-two managers to (1) isolate the specific beliefs or “themes” that shape their feelings of trust, commitment, and compatibility; and (2) capture any differences in perspective that may have divided the alliance counterparts. In each interview, we queried the executive about the factors that built and/or eroded trust, commitment, and compatibility. Working independently, two judges coded the content of the interviews, and ten major themes emerged from the data (see Figure 2).19 Alpha and Omega managers held opposing views of the salient dimensions of the alliance relationship (see Figure 3).

Contrasting Views

Overall, Alpha managers held a constructive view of the alliance, whereas Omega managers were considerably more negative, and many of their negative comments were infused with bitterness and emotion. While seldom praising their partner for alliance successes, Omega shamelessly blamed Alpha for many of the alliance’s shortcomings. Attributions of self-blame were rare on both sides; Alpha also laid more blame than praise on its partner. However, perhaps because the alliance was not as strategic to their organization, Alpha managers were much less likely to assign blame for missteps in the alliance.

For both alliance partners, lack of trust tarnished the alliance relationship the most. As compared to commitment and compatibility, trust generated the most lengthy and lively discussions, indicating its central place in the minds and hearts of managers. Negative thoughts about establishing trust outnumbered positive ones, accounting for 54 percent of all negative thoughts about the alliance and only 29 percent of the positive responses. In contrast, positive sentiments for commitment and compatibility outnumbered negative ones across both firms. However, a more fine-grained analysis of each firm’s position on the specific alliance themes highlights Omega’s deep discontent about certain aspects of commitment and compatibility.

Trust

Managers’ discussion of trust centered on three themes: communication, competition, and the integrity of team members (see Figure 2). For both partners, integrity of alliance team members (e.g., honesty, opportunistic behavior, underlying motives) represented a dominant concern of managers and assumed the largest role in destroying trust. Fear of “hidden agendas” and ulterior motives preoccupied managers on both sides. Alpha and Omega accused each other of opportunism: their needs were routinely superseded by the self-interest of their counterpart. While both firms felt that trust had been damaged, the source of this deep-seated disdain differed. Omega’s fingerpointing centered specifically on Alpha’s sudden withdrawal of the incentive program to support the cobranded card and, more generally, on Alpha’s failure to give the cobranded card more prominent attention in advertising campaigns. Meanwhile, Alpha blamed Omega for “not following through on prom ises.” Alpha was also irritated by Omega’s intelligence-gathering tactics, which often included “fishing for information” from multiple contacts within Alpha (because Alpha’s alliance structure allowed Omega access to many Alpha team members).

Managers also identified communication frequency and openness as important drivers of trust. While Alpha participants were generally constructive about the nature and level of communication among alliance members, Omega was disappointed (see Figure 3). In fact, Omega frequently blamed Alpha for not communicating problems and, in general, for being too cautious and careful on all alliance matters. Lacking insight and confidence on several occasions, it appeared that Alpha’s inexperienced alliance team withheld even nonproprietary information from higher level counterparts. Alpha’s decentralized alliance structure compounded the problem by potentially involving each junior-level manager in the Alpha-Omega communication flows.

Finally, Alpha’s and Omega’s competitive positions in the financial services industry clearly provided an uncomfortable backdrop for launching a cobranded product in the same industry. Alpha worried that Omega would leak proprietary information to Alpha’s fiercest competitors, with whom Omega maintained similar alliance relationships. Likewise, Omega managers feared that Alpha might exploit Omega’s competencies to leverage Alpha’s own position in the financial services market. In addition to these obvious concerns, the competitive relationship also had far-reaching effects on the social ties among alliance participants. The alliance was embedded in a contentious competitive environment, so perceptions of hidden agendas, deceit, opportunistic behavior, and carefully measured communication heightened the tension.

Commitment

The alliance managers’ view of commitment comprises three themes: senior management involvement, dedication of alliance team members to shared goals, and alliance outcomes (e.g., current results and future expansion plans). For both Alpha and Omega, actions of senior leadership — including willingness to invest resources, personnel assignments, and direct hands-on involvement — shaped perceptions of commitment to the alliance (see Figure 2). While Alpha managers were satisfied with the level of senior commitment on both sides of the alliance, Omega’s team was disheartened by the seeming lack of commitment from Alpha’s senior leadership (see Figure 3). They blamed their partner for “not committing enough staff,” for taking too long to replace key players in the alliance, and for avoiding direct involvement in the relationship. According to Omega, the excessive turnover on Alpha’s team conveyed signals from the leadership that the alliance was “unimportant.” In contrast, Omega viewed its senior managers as supportive and involved, praising senior executives for their willingness to commit resources wherever necessary to ensure the alliance’s success. These sentiments revealed an imbalance in the degree of importance that the partners assigned to the alliance.

The alliance counterparts were similarly divided in their view of team dedication and its impact on commitment (see Figure 3). Both alliance partners viewed dedication of team members to advancing the alliance as a crucial component of commitment. However, while Alpha was satisfied, Omega was sorely disappointed with the behavior of Alpha’s alliance team. Most notably, they were outraged by Alpha’s failure to implement the aggressive marketing plan for the cobranded product. Across the board, Omega managers blamed their Alpha counterparts for “dragging their feet on making product enhancements,” failing to offer promised customer incentives, and for “providing only the ‘bare bones.’ ” Omega managers theorized that Alpha was “holding back” to enhance the value of its financial services product.

Despite the contentious debate surrounding senior management involvement and team dedication, both partners were generally positive on their views of alliance performance. They agreed that the alliance was a success and that success builds commitment.

Compatibility

The alliance participants focused their discussion of compatibility on four dimensions: firm size and status, goals and values, policies and procedures, and interpersonal relationships (see Figure 2). On the surface, the partners appeared to be compatible. Although Alpha was somewhat larger than Omega, employees from both shared the same frustrations and experiences that accompanied life in large and successful firms. Across both firms, managers agreed that the goals and values were aligned and that the alliance “made sense.” Compatible goals, and even similarities in size and stature, provide the necessary cornerstones for a successful alliance. Attention directed at the inner workings of the alliance, however, revealed some bothersome incompatibilities (see Figure 3). While both firms stumbled over the policies and procedures of their counterpart, Omega found Alpha’s bureaucratic structure to be particularly distasteful. They blamed the lack of decision-making authority by Alpha’s junior-level managers for slowing alliance progress. On the other hand, Alpha blamed Omega’s aggressive and derogatory demeanor for dampening the interpersonal relationships among team members, resenting “being treated like a vendor.”

Implications for Alliance Management

The Alpha-Omega case demonstrates that in a strategic alliance, interpersonal relationships matter: companies must forge strong interpersonal ties to unite participants in their organizations, and they must continue boundary-spanning activities at multiple managerial levels as the relationship evolves. “Broad synergies born on paper do not develop in practice until many people in both organizations know one another personally and become willing to exchange technology, refer clients, or participate in joint teams.”20 Superimposed over the formal infrastructure of an alliance, a web of interpersonal connections expedites communication, conflict resolution, and learning. Interactions that the parties judged to be efficient and equitable strengthen the bonds among managers and help to increase trust between the firms. Of course, if trust in the relationship erodes, interpersonal bonds become strained, and formal processes rule. Our study suggests several implications for initiating and managing strategic alliances.

Laying the Foundation

Alliance negotiations set the tone for the relationship. Smooth alliance negotiations depend on finding the proper balance between the formal, legal procedures that establish detailed contractual safeguards for the parties and the informal, interpersonal processes crucial to successfully execute an alliance strategy. Frequently, alliance negotiations represent the first meeting of key personnel from the partnering organizations. These initial exchanges form the foundation for the relationship. For the Alpha-Omega alliance, several managers indicated that the difficult and protracted negotiations created hostilities between company representatives that persisted more than 2 years later! One key Alpha manager wondered, “How do you go from being a negotiator having no trust, commitment, or compatibility to being a partner who needs all of those things?”

If negotiations are difficult, alliance architects may be tempted to consider the appointment of a new set of managers — free of past conflicts — to execute the alliance. However, this may be a risky course. By replacing those managers who have the greatest personal stake in the alliance and the best understanding of the partnering firm’s culture and key personnel, a valuable bank of knowledge is lost. Moreover, the momentum and enthusiasm for the partnership may suffer. Some Alpha managers voiced this concern when the firm reassigned several colleagues who were central to the initial negotiations to new projects after signing the cooperative agreement.

Developing Interpersonal Ties

Legal documents that establish an alliance and specify the boundaries in elaborate detail are never complete and exhaustive. Countless ambiguities become evident as middle managers begin to flesh out the specific elements of the alliance plan. To resolve these issues and move the alliance forward, personal relationships must develop and supplement formal role relationships. Importantly, these ties provide an alternative route for resolving conflicts and form the basis of an informal understanding that clarifies the commitments made by the parties.

Alliance negotiations should be structured to promote development of interpersonal ties. Experts suggest that more effective transactions are likely to evolve when managers, rather than lawyers, develop and control the negotiation strategy.21 Likewise “negotiations appear to go more smoothly when parties from different organizations interact with their role counterparts (e.g., managers with managers or lawyers with lawyers).”22 Interactions between lawyers are largely based on institutionalized professional norms, center on a specific activity, and take place over a relatively short period of time. Whereas the work of the lawyers culminates in a signed agreement, manager-to-manager relationships formed during negotiations provide the social structure to realize alliance goals.

Forming the Alliance Team

Firms must carefully choose team members who will match their counterparts in the partnering organization in organizational rank and job experience. Omega’s alliance team, comprised of more senior managers, complained that Alpha lower-level managers lacked the decision-making authority to take prompt action. They also suggested that appointing these less experienced managers to the team initially signaled that Alpha was less committed to the relationship.

To build social ties among alliance team members, the firms hired a relationship consultant to conduct team-building sessions, field trips, and an Outward Bound experience. Building the social fabric of an alliance is essential, because the early communications are intense and the issues are confusing. However, the results of formal team-building exercises will “wear off” if the participants fail to cultivate relationships and strengthen interpersonal ties. As the firms launched the alliance strategy, both formal and informal meetings became less and less frequent. Moreover, critical interpersonal links between the firms were broken as the participants changed over time, particularly on the Alpha side. Turnover levied a heavy toll on the alliance because it involved two key Alpha boundary-spanning managers who also had strong interpersonal ties with Omega personnel. A decision to reassign personnel that makes sense in the confines of an organization can inflict severe penalties and trigger a major setback to an alliance.

Top Management’s Role

Beyond establishing joint goals and determining how the alliance fits each firm’s total strategy, senior executives define the meaning of the relationship and signal its importance to personnel in the respective firms. Top management’s involvement in a strategic alliance encompasses much more than merely appointing an alliance manager or project leader. For an alliance-based strategy to succeed, an ongoing level of backing from top management is required.

Executive leadership also assumes a critical role in communicating the strategic role of the alliance and in creating an identity for the alliance within the organization. A senior executive’s personal involvement galvanizes support for an alliance throughout the organization. Moreover, direct ties at the top-management level across partnering firms spawn organizational commitment and more active involvement between managers at multiple levels of the hierarchy.

If visible participation by senior executives is lacking, the members of the alliance team may question the importance of the initiative to their firm and the value of team membership to their careers. In the Alpha-Omega alliance, the participation of senior executives was unbalanced. Omega assigned a greater strategic importance to the alliance, and toptier executives were more centrally involved. Preoccupied with other strategic priorities, Alpha’s senior managers were generally unaware of the interfirm trust problems that were hampering the alliance. In addition, alliance personnel at Alpha eagerly sought reassignment to other positions when opportunities arose; this high turnover slowed decision-making, hampered alliance-strategy execution, and provided a constant source of tension.

Cultivating Relationships

To achieve alliance goals requires a well-integrated communication and work-flow network among managers within and across firms. Communication and proactive information exchange can be important in building trust in cooperative relationships.23 Our study suggests that a regular audit of evolving social, work, and communication ties is valuable for managers to gauge the health of an alliance and to spot problem areas. At its simplest level, each member of the alliance team can estimate the frequency and importance of alliance-related communications with colleagues — both internally and with the partnering firm. Identifying managers at critical junctures of information flows and those who span organizational boundaries provides a valuable social blueprint of the alliance. Further clarity can be achieved in the audit by identifying close cross-firm relationships.

In any alliance, communication and information flows are crucial in resolving disagreements, speeding decision making, and achieving a shared understanding of alliance goals. When reviewing an alliance network, first focus attention on relationship patterns at multiple levels. Examine connections among operating personnel who require timely access to information and resources and between the project leaders who establish the climate for the alliance (as well as craft the strategy and manage the execution). Assess connections among senior managers who signal the relationship’s importance in their respective organizations, lend critical support at key points, and are central to discussions of new opportunities for successful collaboration.

Next, consider potential trouble spots in internal as well as external communication flows. In our study, the Omega alliance team used a weekly telephone conference to coordinate plans, deal with pressing issues, and keep members informed. As a rule, managers are adept at constructing their own personal networks and in recognizing how to improve the structure of that network to be more efficient and effective.

Combining these individual networks to form a broader picture of social relations provides a unique perspective of the relationship. The relationship audit is a tool for identifying loose connections, key personnel who are not part of the central flow, and relationship ties that are a major asset — as well as those that require special attention. As the alliance relationship matures, as the strategy changes, or as key personnel move on to other assignments, a periodic social network audit may reveal the need to restore balance in the relationship in order to achieve mutual goals.

Managing the Information Flow

A firm enters into an alliance to combine its distinctive competencies with those of a partner to create a competitive position that neither could accomplish alone. For success, each must share information and each must learn from the other. However, since alliances often bring together partners who are actual or potential rivals, alliance managers carefully manage the outflow of information and protect the distinctive skills and knowledge that define their firm’s competitive standing. Experts suggest that alliance managers “draw the line between an active flow of information that ensures the vitality of the alliance, and an unregulated, unmonitored, and unbridled exchange of information that can jeopardize the competitiveness of partners.”24

In our study, Omega used a centralized approach, channeling communication largely through a designated manager. By contrast, Alpha utilized a decentralized approach; alliance team members fielded frequent queries from Omega. Often this decentralized approach slowed the information flow because many team members lacked the experience and authority to discern sharable information and thus required approval from higher-level managers. To Omega, this signaled a lack of openness and responsiveness from its partner, so Omega managers queried other Alpha team members to obtain the required information. Alpha viewed this searching for information across team members with suspicion.

In developing an information management policy, alliance team members should openly discuss and agree upon the level of confidentiality for different categories of information. Ongoing attention to information management issues is required as an alliance grows more complex or as new people join. When defining information boundaries, however, key alliance personnel must have the authority and autonomy to expedite communication and work flows between the firms. An overly restrictive information policy will damage trust, hamper learning, and impede the development of interpersonal relationships across organizations.

Many alliances that appear to have the right strategic ingredients fail because they lack the social ingredients that define collaborative success. The Alpha-Omega case demonstrates that cultivating strong interpersonal ties unites managers in the partnering organizations, and continuing boundary-spanning activities at multiple managerial levels helps the relationship develop. A web of interpersonal connections provides the information-flow circuits, enhanced learning, and formation of strategies. Frequent interactions and the timely exchange of information across organizations resolve conflict, build trust, speed decision making, and uncover new possibilities for the partnership. Our study suggests that a regular audit of communication patterns and social ties is a valuable tool to create a social blueprint of a relationship and isolate the interpersonal connections that make an alliance work.