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Medusa alliances: Managing complex interorganizational relationships
Medusa Alliances: Managing Complex Interorganizational Relationships Gene Slowinski, Eugene R. Oliva, and Libby J, Lowenstein
The mythological woman with the hair of snakes stands as a symbol of today’s multifarious business connections. I
48
N
ever in the course of business history have the relationships between organizations been so complicated. At one level, companies are competing in a global marketplace characterized by short product life cycles, rapid innovation, and increasingly sophisti1 cated customers, At another level, companies are redefining their relationships with suppliers to foster zero defects, just-in-time delivery, and the best possible prices, At a third level, managers are creating strategic alliances and linking up with world-class firms to cooperatively move products to market. The ultimate form of complexity occurs when two firms find themselves in all three relationships simultaneously. That is, Company A and Company B are competing in the marketplace, supplying to one another, and cooperatively attacking a market through the use of a strategic alliance. In ancient Greek culture this type of multiple independent relationship was represented by Medusa, a Gorgon whose head sported a coif of writhing snakes (see Figure1). The relationship between Disney and Time Warner is a classic example of a Medusa alliance. These two companies are interconnected in a number of ways. First, in the area of theme parks, retail stores, and entertainment they are direct competitors-Disney theme parks compete directly with Six Flags theme parks. Second, Disney is a major customer of Time Warner’s
advertising services, spending more than $40 million over a five-year period in Time Warner magazines. Third, the two corporations have a distribution alliance in which Warner Brothers distributes Disney films overseas and Time Warnet acts as the distribution arm for Discowry magazine and other Disney publications. Although each of these inter-firm relationships is independent, it is appropriate to view them together as a portfolio of relationships because the interrelated ness of the portfolio can have profound effects on the entire set of connections. The dissolution of the Disney/Time Warner alliance highlights the profound effects of interconnectedness. At the competitive level, the Six Flags division of Time Warner developed a series of advertisements that offended Disney CXKLItives because they seemed to demean the Disney name. When Disney attempted to have the ads changed, it was not successful. To increase pressure on Time Warner, Disney canceled all of its advertising in Time magazine and reconsidered all of its other relationships with Time Warner. To quote one Time executive, “Here is a customer who took business away from us not because Time didn’t work but because he was mad and angry at another division of Time Warner.” This example highlights the principles that are important in understanding Medusa alliances: l Individual relationships develop between firms that have specific goals and milestones. l Over time, it is common for two firms to develop a portfolio of multiple independent relationships l This portfolio develops in an uncoordinated manner because individual relationships are relevant to specific groups, arise at different times, and have limited goals and objectives.
Figure 1 The Myth of Medusa The Gorgon Medusa, a terrible monster who had laid waste the country of the Peioponnesus around Argos. had once been a nlaiden wilose hair was her chief glory. But when she and her sisters dared to vie in beauty with Athena. the goddess deprived them of their charms and changed their ringlets into hissing serpents. Medusa hecame ;1 monster of so frightful an aspect that no living thing muid bchoid her without being turned into stone. All around the cavern where she dwelt might be seen the stony figures of men and animals that had chanced to catch a glimpse of her and had been petrified at the sight. I’erseus, the son of Zeus and Danae, and fa\,ored by Athena and Hermes. set out against the Gorgon. Approaching first the cave of the three Gr:ezz, he snatched the single eye they shared and compelled them, as the price of its restoration, to tell him how he might o&in the helmet of tides that renders its wearer invisible, and the winged shoes and pouch that were necessary. With this outfit, to which Athena added her shield and Hermes his knife, Perseus sped to the hall of thrz Gorgons. In silence sat two of the sisters,But a third woman paced about the hall, And ever turned her head from wall to wali And moaned aloud, and shrieked in her despair; Ikcause the golden tresses of her hair Were moved by writhing snakes from side to side, That in their writhing oftentimes would glide On to her breast, or shuddering shoulders white; Or. failing down, the hideous things would light IJpon her feet, and crawling thence would twine Their slimy folds about her ankles fine. - From Sbellq 3 liws ‘07 the .2fedzrsu of Leorrardo Du wnci in the Florentine
Gallen“’
This wax Medusa. While she was praying the gods to end her misery, or as some say, while she was sleeping, Perseus approached anl.l, guided by her image reflected in the bright shield which he bore, cut off her head, and so ended her miserable existence. So~,~ce:(Jxwle.s .I-IiN Gu_)ky,, The Classic Myths in English Literature and in Art. ~a). ed. lilies York: Wilti,,, 19.39); Illustration:
l An interrelatedness emerges that can have profound effects on the entire portfolio. The purpose of this article is to show how some companies have attempted to manage the complexity of their own Medusa alliances. Specifically, we will describe three techniques executives use to manage the interrelatedness of the portfolio while encouraging the success of each individual relationship. To discover these techniques, we conducted in-depth interviews with senior managers from 18 companies actively engaged in Medusa alliances. All but one of the manaGgers Ts’as at the level of vice president or above. The interviewees were selected because they were directly responsible for the alliance effort in their corporation or business unit. In four cases, the executive had direct responsibility for managing a Medusa alliance. To avoid industrial bias in our sample, we selected our interviewees from various industries. Eight of the companies were in the telecommunication+computers-electronics industry, seven were in the pharmaceutical-biotechnological industry, two were in the chemical industry, and one m’as in the office equipment business. The intervlews were conducted between June 1993 and FL+xLI~~~ 1994.
Medusa
Alhnces:
Carauu&o
:s Medr~a
APPROACHES TO MANAGING MEDUSA ALLIANCES
A
s the Disney/Time Warner relationship shows, the level of complexity in these intricate business relationships can become overwhelming. For example, the legal department of a major U.S. computer manufacturer reports that the company has 110 separate contracts with a major software company, covering everything from simple licensing agreements to strategic initiatives that have implications for the entire industry. Though the majority of these contracts have no real impact on the overall alliance, a few are strategically important in nature and can have profound effects on the entire portfolio. The issue is really quite simple. When a company uses a partner to accomplish a strategic goal, it does so because the partner possesses a specific talent or resource. If that partner does not appear to be making a good faith effort to accomplish the goals and objectives of the relationship, the natural tendency is to encourage it to do so. In Medusa alliances, one obvious avenue is to apply pressure on the partner through other
Managing Complex Interorganizational Relationships
49
relationships. In this way the independent relationships can be converted into leverage points to influence the behavior of the partner. The significant issue in this action is whether this type of response is constructive-corrective of the nonresponsive nature of the partner--or destructive-setting in motion a series of actions that rapidly grow out of control, endangering the overall relationship between the two firms. Managing Medusa alliances means respecting the independence of each relationship while managing the interrelationship of the portfolio. How can managers simultaneously manage separate but interrelated activities? Are there any examples of firms that have developed mechanisms to coordinate the relationships in their portfolios? What are the best practices in the management of Medusa alliances? The following paragraphs describe three different approaches that emerged from our in-depth interviews.
The Single Point of Contact Approach The single point of contact approach was developed by a computer company and a software development firm. At the time of the interview, these two corporations were intertwined in dozens of small relationships, but they had truly strategic partnerships at two levels. The first was a cooperative R&D relationship with industrywide implications. The second was a high stakes, competitive alliance in which both firms were directly competing in the marketplace. As the competitive relationship progressed, heated words and bad feelings filtered down to the R&D level in both firms. It did not take long for the cooperative R&D relationship to deteriorate into an “us-versus-them” battle characterized by mistrust, poor communication, and a general feeling of resentment. One engineer summed it up well when he said, “It’s not easy to cooperate with the enemy.” To set the cooperative relationship back on track, managers from both companies had to visit the R&D center and convince their employees that this relationship was in the best interests of both companies. Even then, a great deal of work was required to move the partnership forward. To avoid such a situation in the future, a single point of contact management approach was developed. Each firm identified one individual who was responsible for evaluating and signing off on all contracts between the companies. In this case the points of contact were the president of the software company and a middle manager in the computer company. To ensure that every contract went through the process, it was agreed that no contract between the companies was binding unless it had been signed by both of these individuals. To further coordinate
efforts, both executives meet throughout the year to review the portfolio, identify potential new relationships, and prune non-performing contracts from the alliance. The single point of contact approach leads to a managed strategy between firms because at least one person in each company has a holistic view of the entire portfolio as well as intimate involvement with the strategy, goals, and values of the strategic partner. Moreover, this approach also ensures that individuals within each company obtain input and advice from that person before entering serious negotiations with the partner firm.
The Treaty Approach The most bureaucratic approach to managing Medusa alliances was developed by a large chemical company, whose CEO recognized that the firm’s relationship with another large chemical company was very tenuous and likely to collapse. The two firms were direct competitors in some markets but supplied one another with key products in other markets. If the relationship deteriorated further, both would lose market share to the competition. After days of negotiations, high-level representatives from both firms developed a matrix that included all of the relationships that existed between the two companies. The executives then negotiated a set of ‘.rules of engagement” for each type of relationship (see Figure 2). For example, Product W falls into the competitor cell of the matrix. In this cell all bets are off: each firm acts in its own best interests and tries to gain market share at the expense of the other. Product V, on the other hand, is in the strategic supplier cell of the matrix. Here each firm is required to provide notice before changing prices, shipping schedules, or product definitions. Similar definitions and rules were developed for all of the other relationships that exist between these firms. When problems arise, managers are expected to refer back to the rules of engagement for guidance and direction. If the problems are particularly serious or are of a strategic nature, the two executives that developed the matrix are called in as negotiators. The treaty approach works well for these two companies. It fits into their corporate cultures, provides a sense of strategic intent, and gives managers a set of rules by which they are expected to abide. Though the matrix is a key component of the treaty strategy. it must be noted that the strong interpersonal relationship that developed between the two senior executives who created the matrix was key to its success. This interpersonal relationship remains an important linking mechanism between the firms today.
The Ad Hoc Approach Figure 2
The most common approach used to Relationships Between Firms in the Treaty Approach manage Medusa alliances is the ad hoc approach. More than 80 percent of the Product Product Product Product firms in the study fall into this category. x Y V W In ac hoc organizations no formal meclianism exists to manage the portfo/ X / Informal R&D Agreement / lio. Rlanagers of individual relationships 1 I I focus on their goals and objectives with I little appreciation for the scope and Strategic Supplier 1 )( / 1 1 complexity of the portfolio. The concept of managing the interrelatedness of the relationships or viewing the portfolio as a strategic resource is lost in the daily Marketing Joint Venture 1 management concerns of individual executives. In some cases, the ability to leverage the portfolio was recognized, Licensing Agreement but internal pressures, conflicts, delays, I and points of indecision within and between the organizations consistently Competitor 1 1 )( 1 1 prevented action from taking place. In most cases there was a complete lack of knowledge about other relationships in L the portfolio. However, an interesting variant of merits and is not dependent on the actions of the the ad hoc approach was found in a Japanese others. manufacturing company. In this firm, the ad hoc approach is the explicit strategy; relationships are he Disney/Time Warner example clearly managed independently. If one relationship has points out the true nature of Medusa negative implications for another relationship in T alliances. Under a veneer of independent the portfolio, so be it. Managers are expected to arm’s_length relationships lies a fabric of interdedo their best to achieve the stated goals of the pendence that must be managed. Each of the alliance. The roots of this strategy can be found in the approaches we have described is designed to bring some form of rationality into the process decentralized nature of the firm. From a structural However, the issues that can exist between comperspective, this company functions as a series of panies are too numerous and complex ever to autonomous strategic business units. Each SBU lend themselves to a simple formula. negotiates its own alliances and business relationTwo factors stand out as key variables in ship> with little regard for the impact on other business units. The culture of the company is so understanding the complexity of Medusa alliances The first is the connection any single reladecentralized that business units compete directly tionship has to the strategic goals of a firm. When with one another in the market. To show how this decentralized structure the relationship has competitive implications or involves a supplier of critical resources, partner affects the interrelatedness of Medusa alliances, the lice president of new business development behavior is closely scrutinized. If the partner’s told how one of the SBUs had invented a process performance does not meet expectations, executhat greatly improved the overall quality of manutives look for techniques to improve that perforfacturing. The process was used by another SBU mance. In Medusa alliances, one technique is to and all of its competitors. Rather than withhold use the portfolio of relationships as a leverage the technology from the market and provide its point to influence the behavior of the partner firm. sister SBU with a monopolistic position, the innovative SBLI licensed the technology openly. InterThe second factor that allows managers to predict the behavior of firms in Medusa alliances estingly, the sister SBU, which could not afford the technology, now finds itself at a competitive is the centralized versus decentralized structure of disadvantage. Explaining the company’s philosothe firms. When a company such as Time Warner phy. the vice president said, “If a division needs or AT&T uses the SBU structure, those SBUs are you to give up an opportunity for them to be autonomous and behave like independent entisuccessful. they probably wouldn’t survive in the ties In this case a portfolio approach will problong run anyway.” Each SBLJ stands on its own ably not be used to coordinate alliance activities.
I
Medu~
Alliances:
Managing
Complex
Interorganizational
Relationships
Product 2
I
/
I 1
51
On the other hand, a company that is highly centralized, such as Disney or NYNEX, is more likely to view the relationships between the firms as a portfolio and manage them accordingly. The clash of two such structures was clearly apparent in the Disney/Time Warner alliance. One independent SBLJ of Time Warner acted in its own self-interest and refused to alter its strategy in the face of Disney objections. The tightly linked subunits of Disney reacted as one by pulling advertising, canceling publishing contracts, and reconsidering all other contracts with Time Warner companies. The irony of this situation is that a long and profitable relationship between the two companies was destroyed by the smallest and least profitable Time Warner strategic business unit. The selection of one of the three strategic approaches for a given firm is not only based on these two factors but on the culture of the firm and its CEO as well. No single approach has proved overwhelmingly successful. What is important is that each firm clearly transmit to its partners the strategy it follows. Otherwise, it may find the partnership eroding beneath itself. Cl References Thomas
Rulfinch,
M_ythology: 7beAge qf Fuble,
of Cbiuulry, Legends oj‘Charlemagne
Crowell,
7;be Age (New York:
1970).
Laura Landro, Patrick M. Reilly, and Richard Turner, “Clash of Titans: Disney, Time Warner Just Keep Bumping Up Against Each Other,” Wull Street Journal, April 14, 1993, p. Al.
52
Jordan
D. Lewis, Purtnrrships~for
and Munuging
Stmtegic
Alliarms
Prqfit: Structuring (New York: The Free
Press, 1990). 7he Ectermxl Chtrol qf 0rgunirution.s: A Resource Dc~pendtwce Perspectirw (New York: Harper & Row. 1978).
Jeffrey Pfeffer and Gerald R. Salancik,
Y.K. Shetty, “New Look at Corporate Goals,” Cul$mzia Munugement Retlieu: Winter 1979, pp. 71-79. Gene Slowinski, “100 Managers Reflect on Alliances,“ les iVour?elle.~,September 1994, pp. 135-139. Karl E. Weick. 7be Sociul P.sychology ofOr;~urzizi~zg, 2nd ed. (New York: Random House. 1979).
Gene Slowinski is the director of Strategic Alliance Studies at the Graduate School of Management, Rutgers University, and the managing partner of Alliance Management Group, a consulting firm in Gladstone, New Jersey. Eugene R. Oliva is Vice President of New Business Development and Libby J. Lowenstein is Vice President of Strategic Market Analysis at NYNEX in White Plains, New York.
The mythological woman with the hair of snakes stands as a symbol of today’s multifarious business connections. I
48
N
ever in the course of business history have the relationships between organizations been so complicated. At one level, companies are competing in a global marketplace characterized by short product life cycles, rapid innovation, and increasingly sophisti1 cated customers, At another level, companies are redefining their relationships with suppliers to foster zero defects, just-in-time delivery, and the best possible prices, At a third level, managers are creating strategic alliances and linking up with world-class firms to cooperatively move products to market. The ultimate form of complexity occurs when two firms find themselves in all three relationships simultaneously. That is, Company A and Company B are competing in the marketplace, supplying to one another, and cooperatively attacking a market through the use of a strategic alliance. In ancient Greek culture this type of multiple independent relationship was represented by Medusa, a Gorgon whose head sported a coif of writhing snakes (see Figure1). The relationship between Disney and Time Warner is a classic example of a Medusa alliance. These two companies are interconnected in a number of ways. First, in the area of theme parks, retail stores, and entertainment they are direct competitors-Disney theme parks compete directly with Six Flags theme parks. Second, Disney is a major customer of Time Warner’s
advertising services, spending more than $40 million over a five-year period in Time Warner magazines. Third, the two corporations have a distribution alliance in which Warner Brothers distributes Disney films overseas and Time Warnet acts as the distribution arm for Discowry magazine and other Disney publications. Although each of these inter-firm relationships is independent, it is appropriate to view them together as a portfolio of relationships because the interrelated ness of the portfolio can have profound effects on the entire set of connections. The dissolution of the Disney/Time Warner alliance highlights the profound effects of interconnectedness. At the competitive level, the Six Flags division of Time Warner developed a series of advertisements that offended Disney CXKLItives because they seemed to demean the Disney name. When Disney attempted to have the ads changed, it was not successful. To increase pressure on Time Warner, Disney canceled all of its advertising in Time magazine and reconsidered all of its other relationships with Time Warner. To quote one Time executive, “Here is a customer who took business away from us not because Time didn’t work but because he was mad and angry at another division of Time Warner.” This example highlights the principles that are important in understanding Medusa alliances: l Individual relationships develop between firms that have specific goals and milestones. l Over time, it is common for two firms to develop a portfolio of multiple independent relationships l This portfolio develops in an uncoordinated manner because individual relationships are relevant to specific groups, arise at different times, and have limited goals and objectives.
Figure 1 The Myth of Medusa The Gorgon Medusa, a terrible monster who had laid waste the country of the Peioponnesus around Argos. had once been a nlaiden wilose hair was her chief glory. But when she and her sisters dared to vie in beauty with Athena. the goddess deprived them of their charms and changed their ringlets into hissing serpents. Medusa hecame ;1 monster of so frightful an aspect that no living thing muid bchoid her without being turned into stone. All around the cavern where she dwelt might be seen the stony figures of men and animals that had chanced to catch a glimpse of her and had been petrified at the sight. I’erseus, the son of Zeus and Danae, and fa\,ored by Athena and Hermes. set out against the Gorgon. Approaching first the cave of the three Gr:ezz, he snatched the single eye they shared and compelled them, as the price of its restoration, to tell him how he might o&in the helmet of tides that renders its wearer invisible, and the winged shoes and pouch that were necessary. With this outfit, to which Athena added her shield and Hermes his knife, Perseus sped to the hall of thrz Gorgons. In silence sat two of the sisters,But a third woman paced about the hall, And ever turned her head from wall to wali And moaned aloud, and shrieked in her despair; Ikcause the golden tresses of her hair Were moved by writhing snakes from side to side, That in their writhing oftentimes would glide On to her breast, or shuddering shoulders white; Or. failing down, the hideous things would light IJpon her feet, and crawling thence would twine Their slimy folds about her ankles fine. - From Sbellq 3 liws ‘07 the .2fedzrsu of Leorrardo Du wnci in the Florentine
Gallen“’
This wax Medusa. While she was praying the gods to end her misery, or as some say, while she was sleeping, Perseus approached anl.l, guided by her image reflected in the bright shield which he bore, cut off her head, and so ended her miserable existence. So~,~ce:(Jxwle.s .I-IiN Gu_)ky,, The Classic Myths in English Literature and in Art. ~a). ed. lilies York: Wilti,,, 19.39); Illustration:
l An interrelatedness emerges that can have profound effects on the entire portfolio. The purpose of this article is to show how some companies have attempted to manage the complexity of their own Medusa alliances. Specifically, we will describe three techniques executives use to manage the interrelatedness of the portfolio while encouraging the success of each individual relationship. To discover these techniques, we conducted in-depth interviews with senior managers from 18 companies actively engaged in Medusa alliances. All but one of the manaGgers Ts’as at the level of vice president or above. The interviewees were selected because they were directly responsible for the alliance effort in their corporation or business unit. In four cases, the executive had direct responsibility for managing a Medusa alliance. To avoid industrial bias in our sample, we selected our interviewees from various industries. Eight of the companies were in the telecommunication+computers-electronics industry, seven were in the pharmaceutical-biotechnological industry, two were in the chemical industry, and one m’as in the office equipment business. The intervlews were conducted between June 1993 and FL+xLI~~~ 1994.
Medusa
Alhnces:
Carauu&o
:s Medr~a
APPROACHES TO MANAGING MEDUSA ALLIANCES
A
s the Disney/Time Warner relationship shows, the level of complexity in these intricate business relationships can become overwhelming. For example, the legal department of a major U.S. computer manufacturer reports that the company has 110 separate contracts with a major software company, covering everything from simple licensing agreements to strategic initiatives that have implications for the entire industry. Though the majority of these contracts have no real impact on the overall alliance, a few are strategically important in nature and can have profound effects on the entire portfolio. The issue is really quite simple. When a company uses a partner to accomplish a strategic goal, it does so because the partner possesses a specific talent or resource. If that partner does not appear to be making a good faith effort to accomplish the goals and objectives of the relationship, the natural tendency is to encourage it to do so. In Medusa alliances, one obvious avenue is to apply pressure on the partner through other
Managing Complex Interorganizational Relationships
49
relationships. In this way the independent relationships can be converted into leverage points to influence the behavior of the partner. The significant issue in this action is whether this type of response is constructive-corrective of the nonresponsive nature of the partner--or destructive-setting in motion a series of actions that rapidly grow out of control, endangering the overall relationship between the two firms. Managing Medusa alliances means respecting the independence of each relationship while managing the interrelationship of the portfolio. How can managers simultaneously manage separate but interrelated activities? Are there any examples of firms that have developed mechanisms to coordinate the relationships in their portfolios? What are the best practices in the management of Medusa alliances? The following paragraphs describe three different approaches that emerged from our in-depth interviews.
The Single Point of Contact Approach The single point of contact approach was developed by a computer company and a software development firm. At the time of the interview, these two corporations were intertwined in dozens of small relationships, but they had truly strategic partnerships at two levels. The first was a cooperative R&D relationship with industrywide implications. The second was a high stakes, competitive alliance in which both firms were directly competing in the marketplace. As the competitive relationship progressed, heated words and bad feelings filtered down to the R&D level in both firms. It did not take long for the cooperative R&D relationship to deteriorate into an “us-versus-them” battle characterized by mistrust, poor communication, and a general feeling of resentment. One engineer summed it up well when he said, “It’s not easy to cooperate with the enemy.” To set the cooperative relationship back on track, managers from both companies had to visit the R&D center and convince their employees that this relationship was in the best interests of both companies. Even then, a great deal of work was required to move the partnership forward. To avoid such a situation in the future, a single point of contact management approach was developed. Each firm identified one individual who was responsible for evaluating and signing off on all contracts between the companies. In this case the points of contact were the president of the software company and a middle manager in the computer company. To ensure that every contract went through the process, it was agreed that no contract between the companies was binding unless it had been signed by both of these individuals. To further coordinate
efforts, both executives meet throughout the year to review the portfolio, identify potential new relationships, and prune non-performing contracts from the alliance. The single point of contact approach leads to a managed strategy between firms because at least one person in each company has a holistic view of the entire portfolio as well as intimate involvement with the strategy, goals, and values of the strategic partner. Moreover, this approach also ensures that individuals within each company obtain input and advice from that person before entering serious negotiations with the partner firm.
The Treaty Approach The most bureaucratic approach to managing Medusa alliances was developed by a large chemical company, whose CEO recognized that the firm’s relationship with another large chemical company was very tenuous and likely to collapse. The two firms were direct competitors in some markets but supplied one another with key products in other markets. If the relationship deteriorated further, both would lose market share to the competition. After days of negotiations, high-level representatives from both firms developed a matrix that included all of the relationships that existed between the two companies. The executives then negotiated a set of ‘.rules of engagement” for each type of relationship (see Figure 2). For example, Product W falls into the competitor cell of the matrix. In this cell all bets are off: each firm acts in its own best interests and tries to gain market share at the expense of the other. Product V, on the other hand, is in the strategic supplier cell of the matrix. Here each firm is required to provide notice before changing prices, shipping schedules, or product definitions. Similar definitions and rules were developed for all of the other relationships that exist between these firms. When problems arise, managers are expected to refer back to the rules of engagement for guidance and direction. If the problems are particularly serious or are of a strategic nature, the two executives that developed the matrix are called in as negotiators. The treaty approach works well for these two companies. It fits into their corporate cultures, provides a sense of strategic intent, and gives managers a set of rules by which they are expected to abide. Though the matrix is a key component of the treaty strategy. it must be noted that the strong interpersonal relationship that developed between the two senior executives who created the matrix was key to its success. This interpersonal relationship remains an important linking mechanism between the firms today.
The Ad Hoc Approach Figure 2
The most common approach used to Relationships Between Firms in the Treaty Approach manage Medusa alliances is the ad hoc approach. More than 80 percent of the Product Product Product Product firms in the study fall into this category. x Y V W In ac hoc organizations no formal meclianism exists to manage the portfo/ X / Informal R&D Agreement / lio. Rlanagers of individual relationships 1 I I focus on their goals and objectives with I little appreciation for the scope and Strategic Supplier 1 )( / 1 1 complexity of the portfolio. The concept of managing the interrelatedness of the relationships or viewing the portfolio as a strategic resource is lost in the daily Marketing Joint Venture 1 management concerns of individual executives. In some cases, the ability to leverage the portfolio was recognized, Licensing Agreement but internal pressures, conflicts, delays, I and points of indecision within and between the organizations consistently Competitor 1 1 )( 1 1 prevented action from taking place. In most cases there was a complete lack of knowledge about other relationships in L the portfolio. However, an interesting variant of merits and is not dependent on the actions of the the ad hoc approach was found in a Japanese others. manufacturing company. In this firm, the ad hoc approach is the explicit strategy; relationships are he Disney/Time Warner example clearly managed independently. If one relationship has points out the true nature of Medusa negative implications for another relationship in T alliances. Under a veneer of independent the portfolio, so be it. Managers are expected to arm’s_length relationships lies a fabric of interdedo their best to achieve the stated goals of the pendence that must be managed. Each of the alliance. The roots of this strategy can be found in the approaches we have described is designed to bring some form of rationality into the process decentralized nature of the firm. From a structural However, the issues that can exist between comperspective, this company functions as a series of panies are too numerous and complex ever to autonomous strategic business units. Each SBU lend themselves to a simple formula. negotiates its own alliances and business relationTwo factors stand out as key variables in ship> with little regard for the impact on other business units. The culture of the company is so understanding the complexity of Medusa alliances The first is the connection any single reladecentralized that business units compete directly tionship has to the strategic goals of a firm. When with one another in the market. To show how this decentralized structure the relationship has competitive implications or involves a supplier of critical resources, partner affects the interrelatedness of Medusa alliances, the lice president of new business development behavior is closely scrutinized. If the partner’s told how one of the SBUs had invented a process performance does not meet expectations, executhat greatly improved the overall quality of manutives look for techniques to improve that perforfacturing. The process was used by another SBU mance. In Medusa alliances, one technique is to and all of its competitors. Rather than withhold use the portfolio of relationships as a leverage the technology from the market and provide its point to influence the behavior of the partner firm. sister SBU with a monopolistic position, the innovative SBLI licensed the technology openly. InterThe second factor that allows managers to predict the behavior of firms in Medusa alliances estingly, the sister SBU, which could not afford the technology, now finds itself at a competitive is the centralized versus decentralized structure of disadvantage. Explaining the company’s philosothe firms. When a company such as Time Warner phy. the vice president said, “If a division needs or AT&T uses the SBU structure, those SBUs are you to give up an opportunity for them to be autonomous and behave like independent entisuccessful. they probably wouldn’t survive in the ties In this case a portfolio approach will problong run anyway.” Each SBLJ stands on its own ably not be used to coordinate alliance activities.
I
Medu~
Alliances:
Managing
Complex
Interorganizational
Relationships
Product 2
I
/
I 1
51
On the other hand, a company that is highly centralized, such as Disney or NYNEX, is more likely to view the relationships between the firms as a portfolio and manage them accordingly. The clash of two such structures was clearly apparent in the Disney/Time Warner alliance. One independent SBLJ of Time Warner acted in its own self-interest and refused to alter its strategy in the face of Disney objections. The tightly linked subunits of Disney reacted as one by pulling advertising, canceling publishing contracts, and reconsidering all other contracts with Time Warner companies. The irony of this situation is that a long and profitable relationship between the two companies was destroyed by the smallest and least profitable Time Warner strategic business unit. The selection of one of the three strategic approaches for a given firm is not only based on these two factors but on the culture of the firm and its CEO as well. No single approach has proved overwhelmingly successful. What is important is that each firm clearly transmit to its partners the strategy it follows. Otherwise, it may find the partnership eroding beneath itself. Cl References Thomas
Rulfinch,
M_ythology: 7beAge qf Fuble,
of Cbiuulry, Legends oj‘Charlemagne
Crowell,
7;be Age (New York:
1970).
Laura Landro, Patrick M. Reilly, and Richard Turner, “Clash of Titans: Disney, Time Warner Just Keep Bumping Up Against Each Other,” Wull Street Journal, April 14, 1993, p. Al.
52
Jordan
D. Lewis, Purtnrrships~for
and Munuging
Stmtegic
Alliarms
Prqfit: Structuring (New York: The Free
Press, 1990). 7he Ectermxl Chtrol qf 0rgunirution.s: A Resource Dc~pendtwce Perspectirw (New York: Harper & Row. 1978).
Jeffrey Pfeffer and Gerald R. Salancik,
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Gene Slowinski is the director of Strategic Alliance Studies at the Graduate School of Management, Rutgers University, and the managing partner of Alliance Management Group, a consulting firm in Gladstone, New Jersey. Eugene R. Oliva is Vice President of New Business Development and Libby J. Lowenstein is Vice President of Strategic Market Analysis at NYNEX in White Plains, New York.