Best Practices for Strategic Alliances

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BUAD 6450 - STRATEGIC MANAGEMENT

Alternative Individual Assignment #1

6/25/2017

UWI ID#: 99731654

Maryam Abdool - Richards

Table of Contents

Assignment        3

1.        Introduction        4

2.        Best practice recommendations to be implemented prior to the strategic alliance exercise        5

3.        Best practices for the management of strategic alliances immediately following the decision to participate        7

(i)        Alliance Metrics        7

(ii)        Leveraging and encouraging divergent opinions        8

(iii)        Enhancing and encouraging collaborative behaviour        8

(iv)        Management of Internal Stakeholders        8

4.        Conclusion        9

Bibliography        10

Assignment

Strategic alliances and partnerships have a strikingly high failure rate (30-70% depending on different studies). Identify and describe the best practices that leaders and managers should engage in prior to and immediately following their decision to participate in such an exercise.

1. Introduction

Strategic alliances and partnerships have been widely promulgated as efficient, effective and adaptable mechanisms for companies to achieve a sustainable competitive advantage (Dyer et al., 2001). Corporate alliances are becoming ubiquitous as demonstrated by their steady increase which has been estimated at 25% per annum accounting for approximately 33% of many companies’ revenue and value (Hughes and Weiss, 2007). Despite the growing popularity of strategic alliances, a significant failure rate of 60%-70% has been documented (Hughes and Weiss, 2007).

Booz, Allen and Hamilton define a strategic alliance as: “A cooperative arrangement between two or more companies in which (i) a common strategy is developed in unison and a win-win attitude is adopted by all parties (ii) the relationship is reciprocal, with each partner prepared to share specific strengths with the other, thus lending power to the enterprise; and (iii) a pooling of resources, investments and risks for mutual gain” (The Economist, 2009). Strategic alliances may be bilateral (between two organisations) such as the alliance between Royal Bank of Scotland and Tesco or network (between several organisations) as exemplified by the Airbus consortium and the Visa card network (The Economist, 2009).

Regardless of the typology of the strategic alliance, a converging commonality is the union of two or more companies which may or may not share a similar background. Additionally, in contrast to conventional business arrangements, alliances often require significant interdependence between competing companies in the same marketplace (Hughes and Weiss, 2007). Each of the participant companies can be viewed as a monolithic entity possessing a unique organizational culture and entrenched interests. A poorly implemented strategic alliance function exposes the companies’ vulnerabilities, disrupting the precarious organizational fabric catapulting the companies to a breaking point which results in an unsuccessful alliance.

 In addition to sound business planning, companies engaging in the alliance function can gain a collaborative advantage through robust attention to the human relationships within the companies. The recognition of diversity coupled with the development of communication, trust and respect between employees of participating companies promotes commitment ensuring a more productive partnership (Hughes and Weiss, 2007).

In order to ensure a successful strategic alliance, the timing of applied best practices is critical. Prior to engaging in such an exercise, emphasis must be placed on building relationships with the prospective partner company (Kanter, 1994). The implementation of a dedicated strategic alliance function to act as a coordinating mechanism for all alliance-related activities within the company has been shown to achieve a 25% higher long-term success rate as compared to alliances without such a function (Dyer et al., 2001).

Immediately following the decision to participate in the alliance exercise, robust metrics must be developed to evaluate financial, strategic, operational and relationship fitness (Bamford and Ernst, 2002). Additionally, formal governance structures with a focus on collaborative behaviour must be developed along with stringent internal stakeholder management (Hughes and Weiss, 2007). Finally, efforts must be directed at understanding, appreciating and leveraging divergent views to minimize conflict and create value (Hughes and Weiss, 2007).

1.  Best practice recommendations to be implemented prior to the strategic alliance exercise

Prior to embarking on a strategic alliance exercise, company executives should be encouraged to develop effective intercompany relationships as a means of assessing the ability of their prospective partner(s) to work together (Hughes and Weiss, 2007).  The selection of a suitable partner is enhanced if companies engage in self-analysis, test their compatibility and demonstrate good personal rapport between executives as a means of creating goodwill to draw upon in the event of conflict (Kanter, 1994).

It is imperative that this qualitative approach occurs simultaneously with conventional measures such as the creation of a solid business plan and detailed contract (Hughes and Weiss, 2007). That is, there must be a focus on communication to build trust and commitment which culminates in a significant collaborative advantage (Hughes and Weiss, 2007).

Effective intercompany relationships which translate into productive partnerships are defined by the following eight (8) elements (Kanter, 1994):

1. Individual excellence characterized by partners who both contribute positively to the relationship
2. Importance of strategic fit between partners
3. Interdependence due to the need for complementary assets
4. Investment from either partner demonstrating long term commitment through dedicated financial and other resources to the relationship
5. Information sharing especially with respect to technical data, trouble spots and conflict resolution
6. Integration through linkages to share business processed
7. Institutionalization to ensure sustainability
8. Integrity to ensure mutual respect and ethical business practices

A dedicated strategic-alliance function as a part of the company’s executive structure can be implemented to coordinate all the alliance-related activity within the company (Dyer et al., 2001). The long-term success rate of companies with this function has been shown to be 25% higher as compared to their alliances without such a function (Dyer et al., 2001). Additional value is reflected in enhanced financial objectives evident in greater abnormal stock market gains and favourable strategic objectives such as increased attractiveness to form future alliances (Dyer et al., 2001).