Best Practices for Strategic Alliances

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Value creation through a dedicated strategic-alliance unit is created through improved knowledge management efforts, increased external visibility, improved internal coordination and the elimination of accountability and intervention challenges (Dyer et al., 2001).

Through the dedicated strategic-alliance unit, companies can improve formal and informal knowledge management systems to establish guidelines for business processes such as documentation, coding and even specific aspects of the alliance life cycle (Dyer et al., 2001). This function was demonstrated by Dow Chemical through the use of the Spatial Paradigm for Information Retrieval and Exploration (SPIRE) database, which identified potential areas of overlap in patent domains between Dow and potential alliances (Dyer et al., 2001). Based on the findings of this tool, Lucent Technologies was identified and later joined as a partner based on the availability of complementary technologies (Dyer et al., 2001). Beyond quantitative mapping, tools can also be developed to evaluate cultural fit, cognizant of the fact that cultural mismatches are a significant aetiology of alliance failures (Dyer et al., 2001).

The presence of a dedicated alliance function emphasizes the company’s commitment to the alliance process. Additionally, increased internal visibility is achieved since this unit acts as a focal point of contact and control for screening of potential partners (Dyer et al., 2001). Oracle demonstrated this function through the use of the Web with Alliance online which allowed potential partners to select their level of engagement based on a tiered platform (Dyer et al., 2001). Ultimately, this web based approach enhanced the company’s global visibility while allowing for better rationalization of human resources who could now carry out more strategic tasks.

Strategic mismatch and disconnect have been blamed for the failure of some strategic alliances (Dyer et al., 2001). Active collaboration accelerates the five levels of integration required for a productive relationship: strategic, tactical, operational, interpersonal and cultural (Kanter, 1994). A dedicated alliance function possesses the organizational legitimacy to design, direct and implement activities to ensure communication, training and other activities necessary for holistic integration (Kanter, 1994). In this way, internal coordination is formally managed as part of the company’s overall strategy.

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Best practices for the management of strategic alliances immediately following the decision to participate

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Alliance Metrics

An ongoing assessment of alliance performance is critical to the success of a strategic alliance exercise (Bamford and Ernst, 2002, Hughes and Weiss, 2007). Typically, alliance scorecards concentrate on financial objectives (increased revenue, market share, profitability, and return on investment) which are measured from baseline on a monthly basis (Hughes and Weiss, 2007). This quantitative focus in the midst of ongoing organizational culture shift can potentially result in a demotivated workforce signalling problems for the alliance initiative.

The inclusion of qualitative, progress (interim) metrics has been proposed to provide a more holistic assessment of the alliance exercise in terms of evaluating challenges and overall progress (Hughes and Weiss, 2007). Scorecard results also provide early warning signs for problems occurring within the alliance (Bamford and Ernst, 2002). Ideally, an alliance scorecard should be jointly developed by partners within thirty (30) days of the launch to track the alliance’s financial, strategic, operational and relationship fitness (Bamford and Ernst, 2002). Favourable results received for these interim metrics can serve to motivate staff and engender improved trust, credibility and commitment (Hughes and Weiss, 2007).

In the assessment of financial fitness, alliances should monitor transfer-pricing revenues, sales of related and competing products from partner companies as well as progress in cost savings through achieving purchasing discounts, increasing revenues and reducing overlapping costs (Bamford and Ernst, 2002). These metrics should be measured in tandem with sales revenues, cash flow, net income, return on investment and the expected net present value to provide a balanced snapshot of the alliance’s progress and performance (Bamford and Ernst, 2002).

Strategic fitness can be evaluated through non financial metrics such as market share, new product launches and customer loyalty (Bamford and Ernst, 2002). In the case of SEMATECH, an international semiconductor research consortium, strategic metrics were used to track knowledge transfer from the parent company to partners (Bamford and Ernst, 2002).

Given the inherent organizational culture clashes which can compromise the alliance’s success, an ongoing evaluation of the cultural fit, decision making processes and conflict resolution techniques is essential in assessing relationship fitness (Bamford and Ernst, 2002). The measurement of these “soft skills” is imperative as it identifies differences in mutual expectations while providing a platform to have explicit discussions about well defined problem areas (Hughes and Weiss, 2007).

Operational fitness should also be included as a domain in the alliance’s scorecard. Metrics specific to this domain are related to customer visits, staff recruitment and product quality which correlates to performance review and staff compensation (Bamford and Ernst, 2002).

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Leveraging and encouraging divergent opinions

Cooperative relationships range from a mutual service consortium in which similar companies in similar industries merge to gain a mutual benefit which may be cost restrictive to individual companies to a joint venture in which companies pursue an opportunity that needs a capability from each other and finally value-chain partnerships such as supplier-customer relationships (Kanter, 1994).

Strategic alliances are often initiated because partners are interested in leveraging differences in markets, customers, technology, business processes and organizational culture to develop a productive partnership (Hughes and Weiss, 2007). However, these differences are often a cause of conflict which decreases the productivity of the alliance initiative. To minimize the level of disruptive conflict between alliance partners, systematic documentation of differences must be carried out which should be used to initiate structured discussions