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Simple Rules for Making Alliances Work

The Idea in Brief

The number of corporate alliances soars 25% a year. And those partnerships account for nearly 33% of many companies' revenue and value. Yet the failure rate for alliances hovers at 60%-70%. According to Hughes and Weiss, that's because too many firms rely too much on conventional advice for managing alliances--such as "Focus on defining a business plan" or "Minimize conflict."

Alliances pose special challenges that make traditional management practices irrelevant. Consider: These partnerships require two companies to cooperate with one another while simultaneously competing in the same market. And the participants must navigate often-maddening differences in operating styles.

To bolster their alliance success rates, companies need to apply five counterintuitive practices. These include focusing less on the business plan and more on the partnership's working relationship and, rather than suppressing disagreements, exploring conflicts to find sources of value in partner companies' differences.

The Idea in Practice

Hughes and Weiss recommend these practices for managing your alliances:

Develop the right working relationship. Define exactly how you'll work together. For example, clarify what "mutual trust and respect" mean to each of you. Articulate how you'll make decisions, allocate resources, and share information.

Pharmaceutical giant Schering-Plough initiated "alliance relationship launches." At these meetings, the partners identified potential challenges of working together as well as mechanisms for handling day-to-day tasks and making key decisions. The resulting clarity accelerated decision making, eased frustration, and improved decision follow-up.

Peg metrics to progress. Alliances require time to pay off financially. So, augment "ends" metrics (financial performance indicators) with "means" metrics assessing factors that will affect the alliance's ultimate performance (such as information sharing and new-idea development).

In its alliances with other health insurers to develop new services for members, Blue Cross and Blue Shield of Florida tracked issues "escalated" to a joint alliance oversight committee for resolution. Tracking revealed an unspoken clash over strategic direction that had spawned disagreements on how to prioritize efforts.

Leverage differences. Companies ally to take advantage of partners' different know-how, markets, customers, and suppliers. Yet other types of differences (such as contrasting cultures) can lead to uncomfortable conflict. Instead of driving conflict underground, surface it and find ways to use your differences to create value.

Encourage collaboration. When a problem arises (such as a missed milestone), replace finger-pointing with dispassionate analysis of how both parties contributed to it and what each can do to improve it.

When drug manufacturer Aventis and biotechnology company Millennium Pharmaceuticals formed an alliance, the companies jointly created a list of problem-solving protocols, including "When discussing challenges, we'll present possible solutions, not just problems." Adhering to the protocols helped the partners quickly achieve their objective.

Manage internal stakeholders. Most external alliances depend on cooperation from internal units in each partner company. Ensure that all internal players involved in supporting the alliance are committed to its success.

Prior to any joint governance meetings with partners, Aventis meets with inside stakeholders to discuss and resolve internal disagreements, so that issues can be resolved without the awkwardness of doing so in front of partners. Since this practice began, partner companies have noticed that Aventis is more consistent and reliable in delivering resources and meeting deadlines--thus a more attractive ally.

Copyright 2007 Harvard Business School Publishing Corporation. All rights reserved.

Further Reading


Your Alliances Are Too Stable

Harvard Business Review

June 2005

by David Ernst and James Bamford

If your company has already established alliances, you need to look critically at them to see whether they're delivering their promised value. If they're not, you may need to restructure them or intervene to correct performance problems. Evaluate your ventures on these dimensions: ownership and financials, strategy, operations, governance, and organization and talent. Identify root causes of problems in any of these dimensions, not just the symptoms. Decide whether to fix, grow, or exit the arrangement. If you're going to fix or grow, assemble 3-4 restructuring options, test them with shareholders, and get parent companies' approval. Execute the changes, assigning accountability to specific groups or individuals.

When to Ally and When to Acquire

Harvard Business Review

July 2004

by Jeffrey H. Dyer, Prashant Kale, and Harpreet Singh

Sometimes the problem with an alliance is that it should have been an acquisition. The authors explain how to weigh the relative merits and demerits of alliances and acquisitions before choosing which is best suited to the situation at hand. To decide between acquisition and alliance, companies need to analyze three sets of factors: the resources and synergies they desire, the marketplaces where they compete, and their competencies at collaborating. Understand how the two strategies differ: Acquisition deals are competitive, based on market prices, and risky. Alliances are cooperative, negotiated, and not so risky. Use the two strategies appropriately, and you'll grow faster than your rivals do.

Collaborate with Your Competitors--and Win

Harvard Business Review

January 1989

by Gary Hamel, Yves L. Doz, and C. K. Prahalad

When you ally with a competitor, take steps to ensure that the arrangement won't have fatal downsides. Never forget that your partners may be out to disarm you. Accept that harmony is not the most important measure of success; indeed, occasional conflict may be the best evidence of mutually beneficial collaboration. Also, guard against competitive compromise by informing employees at all levels what skills and technologies are off-limits to the alliance partner. Finally, learn from each of your partners, viewing every alliance as a window onto the other company's broad capabilities.

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