- Email: [email protected]
Strategic alliances—Guidelines for success
18
Long Range Planning, Vol. 21, No. 5, pp. 18 to 23, 1988 Printed in Great Britain
Strategic
Alliances
00214301 /8H s3.00 + .oo Pcrgm~on Press plc
Guidelines for
success Godfrey
Devlin
and Mark
Bleackley
The authors are concerned that a growing number of firms are forming too many ‘bandwagon’ alliances in a vacuum of strategic consideration and, as a consequence, are placing their organizations at a competitive disadvantage. Because of implementation problems associated with differing management styles, cultures, operational practices and degrees of control, not too many firms can point to having positively capitalized on the potential advantages. In fact some researchers believe the failure rate of alliances to be as high as 50per cent or more. The authors believe it is timely to put alliances into a strategic context and provide senior management considering this business route with guidelines for success.
What is a Strategic
Alliance?
Co-operative agreements have been common practice in the business community for a long time. Technology swaps; R & D exchanges; distribution, rclationmarketing and manufacturer-supplier ships; and cross licences, to mention a few, arc widely practiscd in most sectors of the economy. Fundamentally many of these relationships are essentially casual in nature and arc unlikely to dramatically change a company’s competitive position. More recently a growing number do not conform to this pattern. These strategic alliances arc specifically concerned with securing, maintaining or enhancing a company’s competitive advantage. Unlike their predecessors they are a central aspect of a company’s future direction and are a key strategic option. Without a doubt they have enabled Glaxo to become one of the world’s most successful companies and a leader in the pharmaceutical industry. Godfrey Devlin IS a Senior Consultant for SRI Northern Europe wrth considerable experience in assisting companies in mergers and acquisitrons, alliance formation and business strategy. Mark Bleackley is a Consultant for SRI Northern Europe. He has a background in banking and specializes in business strategies of the multinational corporation.
The success of ranitidine, an H, blocker used in the treatment of ulcers, marketed internationally under the brand name Zantac, is largely responsible for this. Launched in Europe in 1981, the product’s sales accounted for ,Cf829m in 1987, representing 48 per cent of the Group’s sales. This was achieved mainly through a network of alliances, the most successful being the co-marketing arrangement with Roche in the United States. It is possible to distinguish this new breed of alliance from the old style of co-operative agrccmcnt. Strategic alliances take place in the context sfa company’s lorry-term strategic plan and seek to improve or dramatically charJCqe a company’s competitive position.
The concept of forming alliances, strategic or otherwise. is not new. Toshiba started doing this in 1906. The topic is in vogue and the number and scale of agreements being signed is growing rapidly. If you try to draw a map, you can easily see what a spider’s web it has become. Figure 1 provides an illustrative network of alliances in the telccommunications industry.’ Deals of cvcry conccivablc sort arc being made. They do not appear to bc specific to any particular country, industry or type of organization. They arc occurring at all levels in corporations. Some authors have attcmptcd to put the subject into some form of strategic context.’ For future success, senior management must ensure that this business route is viewed in a true strategic pcrspcctive rather than as an opportunistic ‘quick fix’. Failure to do so may result in putting their organizations’ growth, or even survival, at risk. Renault-AMC is a case in point. Prior to dissolving its arrangcmcnt with AMC, Renault invested S645m in AMC which nevertheless managed to incur losses of 5750m over the period of the agreement. Such investment severely weakened Renault at a time when it was also facing problems in domestic markets.
Strategic
Alliances-Guidelines
for Success
10
Hughes
Ford Aerospace
/ GEC Source:
Figure
-\ Nitsuko SRI International
1. Alliances
The Driving
in the telecommunications
industry
Factors
Probably the greatest stimulus to alliance formation has been the emergence of global competitors and those corporations wishing to become global. This is particularly relevant in growth industries like telecommunications where corporations are making alliances in part to overcome the national protection afforded to indigenous suppliers or to share resources to further develop markets and products. Ericsson’s strategic alliance with Telefonica (Spain) reaffirms this trend. The deal between Compagnie G&&ale d’ElectricitP (CGE), the French electrical group, and ITT produced a new manufacturing alliance capable of serving global markets and challenging its existing global competitors. The rapid pace of technological development and innovation and the increasingly high costs of the associated research and development are also factors. Shorter
product life cycles add momentum to the need to develop new and innovative products and exploit them widely. The Philips-Sony alliance for the joint product development of audio visual compact discs, the Olivetti-Canon arrangement to develop copiers and image processors, and the recent announcement by American Telephone and Telegraph that it was taking a 20 per cent stake in Sun Microsystems are characteristic. These trends are not endemic to the
electronics industries. The American CyanamidCelltech collaborative arrangement centred on the latter’s leading cdgc biotechnology development capability for ‘engineering’ agents to attack cancer cells and the former’s distribution and marketing capability. The concentratiotz of players in mature industries has encouraged those firms with access to capital to challenge traditional monopolies. Redland, the brick and roofing tile manufacturer recently announced it had formed a strategic alliance with the Australian CRS building materials group in an attempt to challenge BPB Industries’ monopoly of the U.K. plasterboard market. The company intends to take approximately 30 per cent of the A250m market. Governments have also been responsible for cncouraging collaboration between companies on a wide scale. The most notable of these are the highly successful Euromissile and Airbus programmes and the much publicized European Strategic Programme in Information Technologies (ESPRIT). This EEC sponsored programme, whereby the EEC funds half the development costs, attempts to close the widening gap in information technology between Europe and the United States and Japan.
Long Range
20
Planning
Vol. 21
October
1988
The objectives of the ESPRIT programme arc quite spccitic and highlight its strategic importance to Europe. These are to:
between Hyundai competitors.
ss ‘provide
Guidelines
A promote and
Senior management must be involved in all stages of the strategic alliance process but they should give particular attention to the following which will improve the chances of success:
European IT industry with the basic technologies it needs to meet the competitive requirements of the 1990s
*
European
industrial
contribute to the development accepted standards’.’
co-operation
in IT,
of internationally
*
The decision
and one of Mitsubishi’s
Japanese
for Success
to form
a strategic
alliance
A The choice of alliance partner
The first phase of the work involved no fewer than 450 participating organizations at a total cost of Albn. ESPRIT II will involve 28,000 person-years of work at a cost of approximately k2bn. A recent British Government White Paper’ outlined by Lord Young, Trade and Industry Secretary, for instance, encourages collaborative research and the transfer of technology. The British Government wishes to foster longer-term research between companies and also between higher education institutions and companies. The fushiorz and fear motives cannot be excluded as see more of their driving factors. As companies competitors being active in this regard, it is hardly surprising that they follow suit. Reputedly one of the motives given by Mitsubishi Motors (Japan) for its alliance with Hyundai Motors (S. Korea) covcring the manufacture and distribution of a line of low price cars, was the pre-emption of any potential alliance
*
The planned
Decision
management
to Form a Strategic
of the alliance. Alliance
Alliances are just one of a range of business development routes which a firm may follow to improve or change its compctitivc position. It is essential that before choosing the alliance, it has been analysed in the light of the company’s overall corporate objectives and other strategic alternatives. The potential risks and benefits have to be identified and deemed acceptable. After careful consideration of the options available, Ford chose the strategic alliance route for its operations in Latin America. Mr Philip Benton Jr, Executive Vice-President in charge of Ford’s non-North American operations has stated ‘when we decided we would stick around, we looked for the best way to stick around’.J This resulted in the formation last year of Autolatina, a merger of Ford and Volkswagen’s operations in Argentina and Brazil. (Figure 2 shows this and other
EUROPE
OTHER COUNTRIES
UNITED STATES
Figure 2. Alliances
in the automotive
industry
Strategic alliances currently industry.)
taking
Senior management selves the questions: *
should
Does an alliance improve
$r Should *
place in the automotive
therefore
ask them-
our chances of success?
it be part of our strategy?
Or, is it only a stop-gap?
By its very nature, a ‘strategic’ alliance, irrespective of type, warrants the attention of senior management within a company and, as such, the reponsibility for it should not be delegated. Choice
of Alliance
Partner
It cannot be over-stressed that, having identified the alliance route as being the best strategic business development route or one of the routes to follow, an in-depth search for the right partner must be undertaken. All too often senior executives have been heard to remark, in hindsight, that they were of the opinion that they should have been more rigorous in the search for, and the evaluation of, their prospective partners . . divorces can be costly! There must be commitment to the strategic alliance from both sides. Carlo De Benedetti, Chairman of Olivetti has said ‘It is easier to live with a girlfriend or a wife? It’s much easier to live with a girlfriend. But normally in that relationship you don’t have children; you don’t create anything for the future. It’s the same between companies engaged in joint ventures. It’s much easier to have a simple arrangement by which you go to bed sometimes-say, twice a week or twice a month-with an ally, let us say in a supplier relationship. But, I believe an effective alliance must join the life of the two companies. That’s the only way to create something for the future.” In choosing a company with which to form a strategic alliance, senior cxccutives must be aware that what may seem to be a short-term operational benefit arising out of the alliance may, in fact, lead to the eventual loss of the company’s strategic position, tither to its alliance partner or to one of the company’s competitors. It is imperative that when choosing amongst potential partners the feasibility of the alliance must also be looked at from the perspective of the alliance partner. Senior management should ask themselves the following questions: *
What will the partner’s strategic position be as a result of the alliance, both now and in the next few years?
A Why should the partner an alliance? *
wish to enter into such
What weaknesses of the partner strengthened by the alliance?
are likely to be
Alliances-Guidelines
for Success
21
Similar questions relating to the management’s own company should already have been asked at the carlier stage of deciding on a strategic alliance as the most suitable option to meet the company’s objcctives. Management
of the Alliance
Alliances do not manage themselves. They need to be managed just like any other business activity, or perhaps even more so. The management of the alliance needs to be planned. Unfortunately this may not be easy since it will normally bring two with different cultures, organizations together management styles and policies. Management incompatibility was one of the reasons given for the failure of the Dunlop-Pirelli alliance. An effective organization structure with supporting systems will greatly assist the task of management. In order to increase the likelihood of gaining a competitive edge from the strategic alliance, senior management must ensure the following: Maintaining
a high prqfile-The strategic alliance should be accorded high priority within the minds of the senior management. It is a weapon with which to gain a competitive edge and, as such, management should remain aware of its potential. Monitoring
the alliance-Regular reporting on the performance and progress of the alliance against the objectives set for it by the company should be made available to senior management . . . like marriage, you have to work at it. In some cases, it is not possible at the outset to foresee the direction an alliance will ultimately take. It may be necessary to revise or amend the terms of the alliance agreement or even discontinue the alliance. In the recent merger of Uniroyal and BF Goodrich to form Uniroyal-Goodrich, the combined company did not perform according to BF Goodrich’s expectations and so Goodrich sold out their share.
The duration and termination of an alliance should be made part of negotiations with potential partners. They may bc linked to the achievement or otherwise of the objectives set for the alliance. An orderly withdrawal from the alliance does, however, need to be managed. Unfortunately it is only at this stage that a company may realize it cannot afford to get out of the alliance and operate independently. In effect the company has become ‘alliance dependent’, a situation which a more thorough monitoring could have avoided. Accountability
and responsibility-The major barriers to effective decision-making within many organizations, and alliances arc no exception, arise from problems associated with accountability and responsibility. It is essential that senior management establish an organization structure
Long Range
Planning
Vol. 21
October
1988 agreement). In a recent alliance between a U.K. and a Japanese company, for every 20 Japanese employees sent to the United Kingdom for training, the U.K. company sent one employee to Japan. It is obvious that the potential for learning from the partner is dependent to a large extent on the size and quality of the resources devoted to the alliance.
which has clear lines of accountability and responsibility. The role of the individual within the alliance must be defined and linked to a realistic set of objectives. Equally, the overall limits of power of the alliance need to be formalized. Improve the ‘Information Retrieval’ process-The company’s employees within the alliance are its ‘eyes and ears’, their roles being to some extent to ‘learn’ from the partner (particularly when the partner is also a competitor). Information channels should be established so that what is learnt is fed effectively into the relevant decision-making ccntre of the parent company.
‘Fast Track’ policy-Only
*
employees
and
positive
Bring su#icient resources
to the alliance-The company and its partner should contribute equally to the alliance (within the confines of the alliance
_a_
___
El
r-l
Divestment
Acquisition
I
CHOICE
OF ALLIANCE
l
Clearly
l
Identification
Defined
of Necessary
Goals
l
Identification
of Potential
l
Evaluation
Impact and
l
Partner
Attributes
Partners Partners
of BenefitsTo
Alliance -
PARTNER
and Objectives
of Potential
-Assessment
By Potential
Be Gained
From
Partners
on Strategic
Positions
of Company
Partner
Negotiation
of PartnershipAgreement
-Top-level
Commitment
-Explicit
Agreement
1 MANAGEMENT Defined
Goals
OFTHE
l
Clearly
l
Contribute
Sufficient
l
Allocation
of Accountability
.
Implement
an Effective
l
Transfer
l
Enhance
Career
l
Monitor
Progress
l
Figure 3. Strategic
personnel
high quality staff should be rccruited for the alliance. Depending on the type of alliance, such employees may need to operate in a mixed-nationality environment and have the necessary language skills. Being chosen to work for the alliance should be seen as enhancing a person’s career prospects within the company, and not as a sideways move. It will increase the
and
of Alliance Limits
for success
Responsibilities Retrieval’
Partnership of Alliance
of Alliance
-Duration
To Alliance
‘Information
Prospects
Reporting of Alliance
Recognize
Objectives
Resources
of Key PeopleTo
-Regular -Revision
alliance checklist
and
ALLIANCE
Agreement
of Alliance
Employees
Process
I
Strategic motivation of the individual towards the alliance and should improve the likelihood of its success. To ease the eventual transfer back from the regularly should be alliance, employees informed of developments within the parent company. Positive
attitude-The only attitude which can be adopted by senior management is one of ‘to win’. Anything else should be considered unacceptable. This frame of mind needs to be instilled at all levels within the alliance.
Recognize the limits-Alliances are not mergers. Nor are they joint ventures encapsulated as a free-standing entity. Therefore, the commitment to make them work at least needs a protocol and a top-level review structure. To keep them ‘live’ they need clearly defined projects with finite goals and properly pooled resources. If you can’t do this, messy attributions of blame soon replace goodwill and high expectations.
Alliances-Guidelines
for Success
23
A guideline for this process, outlined in Figure 3. provides a checklist for senior management of the minimum required steps to improving the chances of a successful alliance. As the 1990s approach, the rate at which businesses form alliances or partnerships is expected to rise dramatically as firms strive to secure a compctitivc edge or ‘sandbag’ a dcfensivc shortcoming. If future collaborative ventures arc to bc successful, unlike many of their predecessors, senior management must ensure they are made in a strategic context and considered with other business dcvelopmcnt paths as a means to achieving particular corporate objcctives. To improve the company’s success rate, senior management must involve itself in all stages of the process. Neglect will ultimately wcakcn their company’s competitive position and the bottom line.
Refererlces
Success in the 1990s The decision to enter into an alliance and the subsequent management of that alliance requires as much attention as, for example, acquiring another company or divesting a business unit . . . it is not something that can be entered into half-heartedly. The prospects for a successful alliance can be improved by formalizing the various steps involved in choosing an alliance partner, negotiating the partnership agreement, and managing the alliance.
(1)
Barrie G. James, Alliance: the new strategic focus, Long Range Planning, 18 (3). 76-81 (1985); Howard V. Perlmutter and David A. Heenan, Co-operate to compete globally, Harvard Business Review, 86209, 136, March-April (1986).
(2)
Commission of the European Communities, Directorate General XIII: Telecommumcation; Information Industries and Innovation, 3rd Esorit Conference 1986, 29 September-l October 1986, Brussels.
(3)
Department of Trade and Industry, DTl--the Department Enterprise, CM278, Her Majesty’s Stationery Office, London.
(4)
Kenneth Gooding, Ford Profits from forging tors, Financial Times, 22 September (1987).
(5)
Richard I. Kirkland, Jr, Seven wary views from the top, Fortune, pp. 51-52, 2 February (1987).
of
links with competi-
Long Range Planning, Vol. 21, No. 5, pp. 18 to 23, 1988 Printed in Great Britain
Strategic
Alliances
00214301 /8H s3.00 + .oo Pcrgm~on Press plc
Guidelines for
success Godfrey
Devlin
and Mark
Bleackley
The authors are concerned that a growing number of firms are forming too many ‘bandwagon’ alliances in a vacuum of strategic consideration and, as a consequence, are placing their organizations at a competitive disadvantage. Because of implementation problems associated with differing management styles, cultures, operational practices and degrees of control, not too many firms can point to having positively capitalized on the potential advantages. In fact some researchers believe the failure rate of alliances to be as high as 50per cent or more. The authors believe it is timely to put alliances into a strategic context and provide senior management considering this business route with guidelines for success.
What is a Strategic
Alliance?
Co-operative agreements have been common practice in the business community for a long time. Technology swaps; R & D exchanges; distribution, rclationmarketing and manufacturer-supplier ships; and cross licences, to mention a few, arc widely practiscd in most sectors of the economy. Fundamentally many of these relationships are essentially casual in nature and arc unlikely to dramatically change a company’s competitive position. More recently a growing number do not conform to this pattern. These strategic alliances arc specifically concerned with securing, maintaining or enhancing a company’s competitive advantage. Unlike their predecessors they are a central aspect of a company’s future direction and are a key strategic option. Without a doubt they have enabled Glaxo to become one of the world’s most successful companies and a leader in the pharmaceutical industry. Godfrey Devlin IS a Senior Consultant for SRI Northern Europe wrth considerable experience in assisting companies in mergers and acquisitrons, alliance formation and business strategy. Mark Bleackley is a Consultant for SRI Northern Europe. He has a background in banking and specializes in business strategies of the multinational corporation.
The success of ranitidine, an H, blocker used in the treatment of ulcers, marketed internationally under the brand name Zantac, is largely responsible for this. Launched in Europe in 1981, the product’s sales accounted for ,Cf829m in 1987, representing 48 per cent of the Group’s sales. This was achieved mainly through a network of alliances, the most successful being the co-marketing arrangement with Roche in the United States. It is possible to distinguish this new breed of alliance from the old style of co-operative agrccmcnt. Strategic alliances take place in the context sfa company’s lorry-term strategic plan and seek to improve or dramatically charJCqe a company’s competitive position.
The concept of forming alliances, strategic or otherwise. is not new. Toshiba started doing this in 1906. The topic is in vogue and the number and scale of agreements being signed is growing rapidly. If you try to draw a map, you can easily see what a spider’s web it has become. Figure 1 provides an illustrative network of alliances in the telccommunications industry.’ Deals of cvcry conccivablc sort arc being made. They do not appear to bc specific to any particular country, industry or type of organization. They arc occurring at all levels in corporations. Some authors have attcmptcd to put the subject into some form of strategic context.’ For future success, senior management must ensure that this business route is viewed in a true strategic pcrspcctive rather than as an opportunistic ‘quick fix’. Failure to do so may result in putting their organizations’ growth, or even survival, at risk. Renault-AMC is a case in point. Prior to dissolving its arrangcmcnt with AMC, Renault invested S645m in AMC which nevertheless managed to incur losses of 5750m over the period of the agreement. Such investment severely weakened Renault at a time when it was also facing problems in domestic markets.
Strategic
Alliances-Guidelines
for Success
10
Hughes
Ford Aerospace
/ GEC Source:
Figure
-\ Nitsuko SRI International
1. Alliances
The Driving
in the telecommunications
industry
Factors
Probably the greatest stimulus to alliance formation has been the emergence of global competitors and those corporations wishing to become global. This is particularly relevant in growth industries like telecommunications where corporations are making alliances in part to overcome the national protection afforded to indigenous suppliers or to share resources to further develop markets and products. Ericsson’s strategic alliance with Telefonica (Spain) reaffirms this trend. The deal between Compagnie G&&ale d’ElectricitP (CGE), the French electrical group, and ITT produced a new manufacturing alliance capable of serving global markets and challenging its existing global competitors. The rapid pace of technological development and innovation and the increasingly high costs of the associated research and development are also factors. Shorter
product life cycles add momentum to the need to develop new and innovative products and exploit them widely. The Philips-Sony alliance for the joint product development of audio visual compact discs, the Olivetti-Canon arrangement to develop copiers and image processors, and the recent announcement by American Telephone and Telegraph that it was taking a 20 per cent stake in Sun Microsystems are characteristic. These trends are not endemic to the
electronics industries. The American CyanamidCelltech collaborative arrangement centred on the latter’s leading cdgc biotechnology development capability for ‘engineering’ agents to attack cancer cells and the former’s distribution and marketing capability. The concentratiotz of players in mature industries has encouraged those firms with access to capital to challenge traditional monopolies. Redland, the brick and roofing tile manufacturer recently announced it had formed a strategic alliance with the Australian CRS building materials group in an attempt to challenge BPB Industries’ monopoly of the U.K. plasterboard market. The company intends to take approximately 30 per cent of the A250m market. Governments have also been responsible for cncouraging collaboration between companies on a wide scale. The most notable of these are the highly successful Euromissile and Airbus programmes and the much publicized European Strategic Programme in Information Technologies (ESPRIT). This EEC sponsored programme, whereby the EEC funds half the development costs, attempts to close the widening gap in information technology between Europe and the United States and Japan.
Long Range
20
Planning
Vol. 21
October
1988
The objectives of the ESPRIT programme arc quite spccitic and highlight its strategic importance to Europe. These are to:
between Hyundai competitors.
ss ‘provide
Guidelines
A promote and
Senior management must be involved in all stages of the strategic alliance process but they should give particular attention to the following which will improve the chances of success:
European IT industry with the basic technologies it needs to meet the competitive requirements of the 1990s
*
European
industrial
contribute to the development accepted standards’.’
co-operation
in IT,
of internationally
*
The decision
and one of Mitsubishi’s
Japanese
for Success
to form
a strategic
alliance
A The choice of alliance partner
The first phase of the work involved no fewer than 450 participating organizations at a total cost of Albn. ESPRIT II will involve 28,000 person-years of work at a cost of approximately k2bn. A recent British Government White Paper’ outlined by Lord Young, Trade and Industry Secretary, for instance, encourages collaborative research and the transfer of technology. The British Government wishes to foster longer-term research between companies and also between higher education institutions and companies. The fushiorz and fear motives cannot be excluded as see more of their driving factors. As companies competitors being active in this regard, it is hardly surprising that they follow suit. Reputedly one of the motives given by Mitsubishi Motors (Japan) for its alliance with Hyundai Motors (S. Korea) covcring the manufacture and distribution of a line of low price cars, was the pre-emption of any potential alliance
*
The planned
Decision
management
to Form a Strategic
of the alliance. Alliance
Alliances are just one of a range of business development routes which a firm may follow to improve or change its compctitivc position. It is essential that before choosing the alliance, it has been analysed in the light of the company’s overall corporate objectives and other strategic alternatives. The potential risks and benefits have to be identified and deemed acceptable. After careful consideration of the options available, Ford chose the strategic alliance route for its operations in Latin America. Mr Philip Benton Jr, Executive Vice-President in charge of Ford’s non-North American operations has stated ‘when we decided we would stick around, we looked for the best way to stick around’.J This resulted in the formation last year of Autolatina, a merger of Ford and Volkswagen’s operations in Argentina and Brazil. (Figure 2 shows this and other
EUROPE
OTHER COUNTRIES
UNITED STATES
Figure 2. Alliances
in the automotive
industry
Strategic alliances currently industry.)
taking
Senior management selves the questions: *
should
Does an alliance improve
$r Should *
place in the automotive
therefore
ask them-
our chances of success?
it be part of our strategy?
Or, is it only a stop-gap?
By its very nature, a ‘strategic’ alliance, irrespective of type, warrants the attention of senior management within a company and, as such, the reponsibility for it should not be delegated. Choice
of Alliance
Partner
It cannot be over-stressed that, having identified the alliance route as being the best strategic business development route or one of the routes to follow, an in-depth search for the right partner must be undertaken. All too often senior executives have been heard to remark, in hindsight, that they were of the opinion that they should have been more rigorous in the search for, and the evaluation of, their prospective partners . . divorces can be costly! There must be commitment to the strategic alliance from both sides. Carlo De Benedetti, Chairman of Olivetti has said ‘It is easier to live with a girlfriend or a wife? It’s much easier to live with a girlfriend. But normally in that relationship you don’t have children; you don’t create anything for the future. It’s the same between companies engaged in joint ventures. It’s much easier to have a simple arrangement by which you go to bed sometimes-say, twice a week or twice a month-with an ally, let us say in a supplier relationship. But, I believe an effective alliance must join the life of the two companies. That’s the only way to create something for the future.” In choosing a company with which to form a strategic alliance, senior cxccutives must be aware that what may seem to be a short-term operational benefit arising out of the alliance may, in fact, lead to the eventual loss of the company’s strategic position, tither to its alliance partner or to one of the company’s competitors. It is imperative that when choosing amongst potential partners the feasibility of the alliance must also be looked at from the perspective of the alliance partner. Senior management should ask themselves the following questions: *
What will the partner’s strategic position be as a result of the alliance, both now and in the next few years?
A Why should the partner an alliance? *
wish to enter into such
What weaknesses of the partner strengthened by the alliance?
are likely to be
Alliances-Guidelines
for Success
21
Similar questions relating to the management’s own company should already have been asked at the carlier stage of deciding on a strategic alliance as the most suitable option to meet the company’s objcctives. Management
of the Alliance
Alliances do not manage themselves. They need to be managed just like any other business activity, or perhaps even more so. The management of the alliance needs to be planned. Unfortunately this may not be easy since it will normally bring two with different cultures, organizations together management styles and policies. Management incompatibility was one of the reasons given for the failure of the Dunlop-Pirelli alliance. An effective organization structure with supporting systems will greatly assist the task of management. In order to increase the likelihood of gaining a competitive edge from the strategic alliance, senior management must ensure the following: Maintaining
a high prqfile-The strategic alliance should be accorded high priority within the minds of the senior management. It is a weapon with which to gain a competitive edge and, as such, management should remain aware of its potential. Monitoring
the alliance-Regular reporting on the performance and progress of the alliance against the objectives set for it by the company should be made available to senior management . . . like marriage, you have to work at it. In some cases, it is not possible at the outset to foresee the direction an alliance will ultimately take. It may be necessary to revise or amend the terms of the alliance agreement or even discontinue the alliance. In the recent merger of Uniroyal and BF Goodrich to form Uniroyal-Goodrich, the combined company did not perform according to BF Goodrich’s expectations and so Goodrich sold out their share.
The duration and termination of an alliance should be made part of negotiations with potential partners. They may bc linked to the achievement or otherwise of the objectives set for the alliance. An orderly withdrawal from the alliance does, however, need to be managed. Unfortunately it is only at this stage that a company may realize it cannot afford to get out of the alliance and operate independently. In effect the company has become ‘alliance dependent’, a situation which a more thorough monitoring could have avoided. Accountability
and responsibility-The major barriers to effective decision-making within many organizations, and alliances arc no exception, arise from problems associated with accountability and responsibility. It is essential that senior management establish an organization structure
Long Range
Planning
Vol. 21
October
1988 agreement). In a recent alliance between a U.K. and a Japanese company, for every 20 Japanese employees sent to the United Kingdom for training, the U.K. company sent one employee to Japan. It is obvious that the potential for learning from the partner is dependent to a large extent on the size and quality of the resources devoted to the alliance.
which has clear lines of accountability and responsibility. The role of the individual within the alliance must be defined and linked to a realistic set of objectives. Equally, the overall limits of power of the alliance need to be formalized. Improve the ‘Information Retrieval’ process-The company’s employees within the alliance are its ‘eyes and ears’, their roles being to some extent to ‘learn’ from the partner (particularly when the partner is also a competitor). Information channels should be established so that what is learnt is fed effectively into the relevant decision-making ccntre of the parent company.
‘Fast Track’ policy-Only
*
employees
and
positive
Bring su#icient resources
to the alliance-The company and its partner should contribute equally to the alliance (within the confines of the alliance
_a_
___
El
r-l
Divestment
Acquisition
I
CHOICE
OF ALLIANCE
l
Clearly
l
Identification
Defined
of Necessary
Goals
l
Identification
of Potential
l
Evaluation
Impact and
l
Partner
Attributes
Partners Partners
of BenefitsTo
Alliance -
PARTNER
and Objectives
of Potential
-Assessment
By Potential
Be Gained
From
Partners
on Strategic
Positions
of Company
Partner
Negotiation
of PartnershipAgreement
-Top-level
Commitment
-Explicit
Agreement
1 MANAGEMENT Defined
Goals
OFTHE
l
Clearly
l
Contribute
Sufficient
l
Allocation
of Accountability
.
Implement
an Effective
l
Transfer
l
Enhance
Career
l
Monitor
Progress
l
Figure 3. Strategic
personnel
high quality staff should be rccruited for the alliance. Depending on the type of alliance, such employees may need to operate in a mixed-nationality environment and have the necessary language skills. Being chosen to work for the alliance should be seen as enhancing a person’s career prospects within the company, and not as a sideways move. It will increase the
and
of Alliance Limits
for success
Responsibilities Retrieval’
Partnership of Alliance
of Alliance
-Duration
To Alliance
‘Information
Prospects
Reporting of Alliance
Recognize
Objectives
Resources
of Key PeopleTo
-Regular -Revision
alliance checklist
and
ALLIANCE
Agreement
of Alliance
Employees
Process
I
Strategic motivation of the individual towards the alliance and should improve the likelihood of its success. To ease the eventual transfer back from the regularly should be alliance, employees informed of developments within the parent company. Positive
attitude-The only attitude which can be adopted by senior management is one of ‘to win’. Anything else should be considered unacceptable. This frame of mind needs to be instilled at all levels within the alliance.
Recognize the limits-Alliances are not mergers. Nor are they joint ventures encapsulated as a free-standing entity. Therefore, the commitment to make them work at least needs a protocol and a top-level review structure. To keep them ‘live’ they need clearly defined projects with finite goals and properly pooled resources. If you can’t do this, messy attributions of blame soon replace goodwill and high expectations.
Alliances-Guidelines
for Success
23
A guideline for this process, outlined in Figure 3. provides a checklist for senior management of the minimum required steps to improving the chances of a successful alliance. As the 1990s approach, the rate at which businesses form alliances or partnerships is expected to rise dramatically as firms strive to secure a compctitivc edge or ‘sandbag’ a dcfensivc shortcoming. If future collaborative ventures arc to bc successful, unlike many of their predecessors, senior management must ensure they are made in a strategic context and considered with other business dcvelopmcnt paths as a means to achieving particular corporate objcctives. To improve the company’s success rate, senior management must involve itself in all stages of the process. Neglect will ultimately wcakcn their company’s competitive position and the bottom line.
Refererlces
Success in the 1990s The decision to enter into an alliance and the subsequent management of that alliance requires as much attention as, for example, acquiring another company or divesting a business unit . . . it is not something that can be entered into half-heartedly. The prospects for a successful alliance can be improved by formalizing the various steps involved in choosing an alliance partner, negotiating the partnership agreement, and managing the alliance.
(1)
Barrie G. James, Alliance: the new strategic focus, Long Range Planning, 18 (3). 76-81 (1985); Howard V. Perlmutter and David A. Heenan, Co-operate to compete globally, Harvard Business Review, 86209, 136, March-April (1986).
(2)
Commission of the European Communities, Directorate General XIII: Telecommumcation; Information Industries and Innovation, 3rd Esorit Conference 1986, 29 September-l October 1986, Brussels.
(3)
Department of Trade and Industry, DTl--the Department Enterprise, CM278, Her Majesty’s Stationery Office, London.
(4)
Kenneth Gooding, Ford Profits from forging tors, Financial Times, 22 September (1987).
(5)
Richard I. Kirkland, Jr, Seven wary views from the top, Fortune, pp. 51-52, 2 February (1987).
of
links with competi-