Introduction

Strategic collaborations have existed for many years; some have been formal, others less so.  However, the surge in the number of alliances formed in the last 5 years appears to owe much to the outsourcing trend which has seen companies seek to reduce internal costs (usually by reducing owned resources) whilst at the same time maintaining growth.  Anecdotally this trend has usually been known as the ‘build, buy, ally’ model.[1]

Nowhere is this trend more obvious than in the USA where, over the last 15 years, alliances have been studied with a high degree of rigour.  This trend is understandable since alliances and collaborations have generally been easier to form in the USA due to a number of significant common factors; language, tax structure, accounting procedure, currency and legal system.

However, the phenomena and associated business models are now being increasingly used in Europe.  Today’s global economy requires companies to do more with less under increased competitive pressure. To keep up, executives are turning to alliances, joint ventures, consortia, outsourcing arrangements and other forms of partnering that lengthen their global reach, enhance customer value, bridge gaps in their own capabilities and gain a competitive commercial ‘edge’.

Indeed, partnerships, which are proliferating at an unprecedented rate, are integral components of most companies’ strategies today. The 21st century will only see this trend continue as globalization and competitive pressures increase.

In today’s challenging economic environment, alliances often present an attractive capital efficient alternative for driving growth and profitability. But they present a distinctive set of management challenges.  What they have in common is that they involve collaboration and interdependence between otherwise separate organisations[2].

Stages in Alliance Maturity

There are broadly three stages to partnering maturity

By observation three ‘tipping points’ can commonly be observed in the maturity of alliance thinking in organisations. These three points reflect a company’s attitude to organisational partnering. The three stages are almost always sequential however there are certain circumstances in which some companies choose not to progress to the next stage.  In addition there are no known instances of companies using a ‘step through’ strategy by missing out a stage.  The three stages in order are;

Stage I – Opportunistic

Typically organisations in this stage use partnerships tactically (most often to propose for business which they could not win alone or to force suppliers to collaborate for extra value in the supply chain).  Actions and initiatives are not combined and projects are driven by internal champions.  Success is measured by commercial return or ‘deals’ and little if any thought is given to the long term health of the relationships involved.

Stage II – Systematic

Organisations which enter this stage have recognised the effort that they are putting into multiple instances of partnering and have further recognised the value of systematising their efforts.  Typical actions include; establishing a central strategic alliances planning team, developing common governance procedures, joining external alliance associations, developing common methodologies and toolsets for internal use and seeking out external best practice.  This stage appears to be the longest, contains the greatest number of alliances examined and appears to be the most common for organisations today.

Stage III – Endemic

This stage contains world class partnering organisations which have progressed through stages 1 and 2 above and have now implanted partnering as the very means by which they do business.  Partnering is not seen as a management fad but rather as ‘the way we do business around here’.  Typical actions in this stage are; breaking apart corporate partnering teams and repositioning the function within line management, making collaboration a key skill which is measured in individual appraisal processes and utilising partnering as a key competitive strategy in multiple functions (e.g. sales, procurement, supply chain management, manufacturing, research and development,etc.).

 

Common Success Factors

In conducting research into Strategic Alliances it was found that certain factors reoccurred time and again in successful collaborative relationships.  These factors reappeared more frequently than could be explained by co-incidence alone.  A number of points of interest were noted;

  1. Whilst not all the factors needed to be in place for a successful relationship it was observed that the more factors that were present the more successful was the relationship.  Research from Booz Allen and Hamilton suggests that the improvement factor can be as much as 500% greater[3].
  2. The factors (here called Common Success Factors or CSFs) appeared to remain mostly consistent over time.  (i.e. research conducted by Andersen Consulting in 1999[4] identified ‘Trust’ as a key CSF in strategic alliances, research conducted by the Economist Intelligence Unit on behalf of Cisco Corporation in 2006[5] identified exactly the same recurring success factor).
  3. The research also identified that the CSFs were not sector specific; this means that they appear equally applicable in all sectors.
  4. Finally it appears that the incidence and importance of the factors changes from stage to stage.

Each stage comes with its own challenges and myths (which this paper explores) but the evidence strongly suggests that paying particular attention to the critical success factors accelerates progress effectively through each stage.

A Table of Common Success Factors (CSFs) arranged by ‘Dimension’

 

Commercial Success Factors Technical Success Factors Strategic Success Factors Cultural Success Factors Operational Success Factors

 

 Co1 Business Value Proposition (BVP)Co2 Due DiligenceCo3 Optimum Legal / Business StructureCo4 Alliance Audit

Co5 Key metrics

Co6 Alliance reward system

Co7 Commercial cost

Co8 Commercial benefit

Co9 Process for negotiation

Co10 Expected Cost value ratio

T11 Valuation of assetsT12 Partner company market positionT13 Host company market position

T14 Market fit of proposed solution

T15 Product fit with partners offerings

T16 Identified mutual needs in the relationship

T17 Process for team problem solving

T18 Shared Control

T19 Partner accountability

S20 Shared objectivesS21 Relationship ScopeS22 Tactical and strategic risk

S23 Risk sharing

S24 Exit strategies

S25 Senior executive support

S26 B2B Strategic alignment

S27 Fit with strategic business path

S28 Other relationships with same partner

S29 Common strategic ground rules

S30 Common vision

 

 Cu31 Business to business trustCu32 Collaborative corporate mindsetCu33 Collaboration skillsCu34 Dedicated alliance manager

Cu35 Alliance centre of excellence

Cu36 Decision making process

Cu37 Other cultural issues

Cu38 B2B Cultural Alignment

 O39 Alliance processO40 Speed of progressO41 Revenue flowO42 Business plan

O43 Communication

O44 Health check

O45 Alliance charter

O46 Change mgt.

O47 Operational metrics

O48 Operational alignment

O49 Exponential breakthroughs

O50 Internal alignment

O51 Project plan

O52 Issue escalation

 

 

Stage I – Opportunistic

Most organisations appear to be introduced to alliances in one of three ways;

  1. Develop new business – Usually this is by pitching for a piece of work that they would not be able to secure alone.
  2. Reduce Costs – Many organisations have squeezed all the cost reductions that they can from their supply chain and many are now turning to collaboration with their suppliers to develop more innovative cost saving models based on the concept of joint value.  Partnering appears to be the preferred tool of choice to achieve this.
  3. Develop new products and services – Innovation has become an increasingly important business strategy as companies recognise that a growing amount of their business is coming from recently released products and services.  This in turn is placing an increasing strain on R&D departments to produce new ideas more quickly.  Consequently they are turning to external alliances and collaborations to ease this burden.

Challenges in Stage I

  • Building bricks with no straw – This is the syndrome of expecting alliance professionals to be able to develop and manage successful alliance relationships with no support.  It was common in the research to find individuals at multiple levels up to and including Vice Presidents and country managers who were expected to produce outstanding results with no; training, partner support systems, methodologies, templates, tools, etc.

The reality is that no matter how good or ‘alliance savvy’ an individual might be he or she will benefit from being able to rely on a support infrastructure appropriately provided by the organisation.

  • Confusing Terminology – In many situations during the research individuals were seen to be adopting positions and attitudes to the detriment of the relationship simply because they misunderstood what individuals in their partner organisations meant by key phrases and terminology.  This trivial oversight is actually responsible for massive lost value and time in many strategic alliances.
  • Identifying Key Stakeholders – It is amazing how much time it takes organisations to interact successfully with each other.  Even in the situation where both are fully committed to interaction the apparently simple process of identifying the right person to speak to is fraught with considerable difficulties which necessarily slow down relationship development.
  • Appointing the wrong person to the alliance role – This is a closely allied problem to the one above and involves appointing the wrong type of personality to an alliance role.  There is no doubt (as identified above) that some people find it easier to and more natural to act in a collaborative manner than others consequently many organisations are wasting a great deal of time and effort asking the wrong types of people to act as alliance managers.

One of the most common instances of this is by appointing large account salesmen in the Hi Tech sector to become alliance managers. What they typically find is that the very skills, attitudes and beliefs that made them a success as a salesman are actually a barrier to them becoming successful alliance managers.

  • Short term thinking – There is no doubt that the strategic alliance model is a long term business model and whilst it can produce results quickly (see ‘Short Term Impactors’) it is also somewhat unreasonable to ask ‘How will this strategic alliance affect my sales this month?

 

Myths in Stage I

  • Collaboration is an unnatural act – This point of view most often leads us into a philosophical consideration of the nature of humanity itself (i.e. is man naturally good or bad?  Is he naturally disposed towards collaboration or competition?).  The argument supporting this assertion is founded on the idea that since all natural resources are by definition finite it is a ‘natural’ act to fight to secure a greater share of those limited resources for oneself rather than sharing them.

The answer from the database appears to be that whilst collaboration is very difficult for some personalities it is extremely easy (and the interaction of choice) for others.  In addition the ‘law’ of scarce resources actually acts in favour of good collaboration since successful collaborators know that they need to offer something that they have a lot of (or costs them very little) in return for something that they have a little of (or costs them a lot to get).

There is also a great deal of evidence from nature itself that collaboration is not just a ‘natural’ act but in many instances it is a necessary one.

  • Alliances are about people pure and simple – The essence of this view is that collaborations between companies ultimately come down to the relationship between a finite number of people and hence alliances are fundamentally concerned with whether people ‘get along’.

Whilst it is perfectly true that chemistry is an important and catalytic element in most strategic alliances and that the cultural dimension is important in the CSF framework, it also evident from the database that it is only one of many such important considerations.  Further it is evident that in two relationships both with an equally strong bond between the participants the relationship with the added advantage of commercial, technical, strategic and operational factors (or CSFs) will have a vastly enhanced chance of success.

  • If the money is good enough then people will pretend to get along – This is in a sense the converse argument to the one above ‘Its all about people’.  Once again the answer is similar which is that although the money (or commercial return) is important there are a whole host of other factors (actually there are 51 other factors!) which can contribute to a successful relationship.

In actual fact evidence from the database strongly suggests that commercial return is an effect rather than a cause of strategic alliance success, meaning that if the underlying causes are in place (all other things being equal) then increased commercial value will flow as a natural consequence.

Stage II – Systematic

Challenges in Stage II

The essence of the challenge in Stage II is effective systematisation.  There are various internal and external factors at play here but in addition there are considerable barriers to effective progress.

  • Organisations are beginning to understand a lot more of each other’s ways of working and this is being recognised as very valuable      .  The ability of organisations to engage with each other to discover both the ‘core’ and the ‘context’ is recognised as a key competitive weapon and one that leads to an acceleration of business value[6].  However, the reality of aligning two large organisations is extremely complex and fraught with difficulty.  Often the ‘local office’ doesn’t know that any relationship exists at the corporate level.
  • Organisations increasingly want to reuse the investments they have made in opportunistic deal making initiatives with other organisations.  These days understanding organisations is a costly and time consuming business and many organisations are looking to effectively and speedily move from stage 1 to stage 2.  The problem is that many of deals done in Stage I are designed for a particular situation and do not lend themselves easily to the concept of methodologies and processes.
  • CEOs world wide are increasingly under pressure from such aspects as Sarbanes Oxley and Enron and other such high profile audit failures and need to convince both internal and external stakeholders that they have a repeatable and auditable process for this new business model.  What they do not have entering Stage II is a clear and concise language for describing the new business model in terms that shareholders can grasp easily.  Consequently they fall back on grandiose announcements to the press and industry analysts which sound good in theory but are hollow in execution.
  • Organisations don’t want to be held to ransom by individuals who manage very valuable relationships.  In the past when a key person left a relationship business results would suffer as one individual had to ‘get to know’ another key individual replacement.  Now systematisation is reducing the dependence on individuals and bringing with it a reduction of business risk which can be tangibly measured.  However, there is still considerable resistance from some old style ‘key relationship managers’ who see their organisational influence and power being eroded by the rigour of the new operating protocols.
  • Systematisation also allows for consistency in comparing one alliance relationship with another and thus leads to being able to develop in house best practice programmes as one business unit learns from another; but see also the ‘myths’ section in which very many professionals believe it is pointless to compare relationships because ‘all alliances are unique’!
  • It costs less to be working to a system.  Invariably organisations who have considered this question recognise its implicit truth.  It costs less in terms of time, money and effort (often all three are linked) to be following a process that has already been defined than it does to invent a new one.  The reverse side of the cost point above is also true.  Organisations that use best practices make more money.
  • Chief Executives these days are becoming increasingly tired of the hype that surrounds partnering and want to see palpable evidence of its success rather than ‘motherhood and apple pie’ statements of anticipated value.  This attitude is increasingly driving a systematised and coherent approach into organisations.  The challenge for most CEOs and CFOs is that there are very few coherent balanced scorecards for alliances.  In addition the job of tracking influenced extra revenue or influenced cost savings can be very complex indeed; so complex in fact that many just give up and count value twice (e.g. the so called ‘double bubble’ counting in Hi Tech companies).
  • Managing multiple alliances – One of the biggest problems for many organisations moving from stage one thinking to stage two thinking is the problem of alliance portfolio management.  This is because a successful answer involves so many different aspects many of which are outside of individual control; alliance strategy, senior executive support, organisational maturity, partner choice and balance, etc.

Many organisations solve this problem pragmatically by ‘taking the problem offline’ by allocating it to a newly formed alliance centre of excellence which can be either real or virtual.  The Alliance CoE performs the strategic, integration, standards setting and balancing tasks so necessary to programme manage an alliance portfolio successfully.  The drawback is sometimes that the CoE gets isolated from the operational units and is seen as a ‘corporate ivory tower’ adding no real value but dictating rules as barriers to local alliance practitioners.

  • Lack of control – There is no doubt that for both individuals and organisations alike some can tolerate lack of control more easily than others.  By its nature a balanced collaboration will have joint control or sometimes shared control between the parties depending on the situation and context.  This aspect of deriving value from a collaborative model is implicit in its nature and the leading edge organisations are now experimenting with alliance manager assessment centres which identify those personalities that will feel most at home (and therefore able to perform better) in these situations.
  • There can be no ‘one’ single best practice all alliances are unique – It is entirely true that one cannot isolate a single CSF or indeed a small group of CSFs and say with any confidence that such a small group represents best practice.  In addition it is equally true to say that all alliances are different and in their makeup, context, results and positioning unique.  However, statistically it is possible to identify those factors (CSFs) that repeat on a regular basis in successful strategic alliances and further to identify those factors in all alliances regardless of type, intent, sector or background.

Myths in Stage II

The analogy is akin to that of human DNA in that the range and complexity of individual humans is infinite with each one being unique.  However, we now know that all humans (whatever their sex, colour, physical makeup or ethnicity) are built from a common set of DNA ‘strands’.  The best practice database represents a collection of the DNA strands of strategic alliances from which many multiple types can be observed.

  • Collaboration is an unnatural act – This point of view most often leads us into a philosophical consideration of the nature of humanity itself (i.e. is man naturally good or bad?  Is he naturally disposed towards collaboration or competition?).  The argument supporting this assertion is founded on the idea that since all natural resources are by definition finite it is a ‘natural’ act to fight to secure a greater share of those limited resources for oneself rather than sharing them.

The answer from the database appears to be that whilst collaboration is very difficult for some personalities it is extremely easy (and the interaction of choice) for others.  In addition the ‘law’ of scarce resources actually acts in favour of good collaboration since successful collaborators know that they need to offer something that they have a lot of (or costs them very little) in return for something that they have a little of (or costs them a lot to get).

There is also a great deal of evidence from nature itself that collaboration is not just a ‘natural’ act but in many instances it is a necessary one.

Stage III – Endemic

Challenges in Stage III

  • Technical excellence is not partnering excellence – This problem showed up time and again in Hi Tech collaborations (but was certainly not restricted to this sector).  The problem was that organisations and individuals believed that partners would work with them simply because their products and / or services were of good quality.  These individuals misunderstand the nature of alliances in the 21st century.

It is true that if an organisation does not have products and services which are ‘fit for purpose’ then their chances of partnering success are slim.  However, the converse also holds true and is reflected in the database, which is that just because an organisation has good products and services does not necessarily make it a good target for prospective partners.

This problem was commonly seen in the software sector in which the opening statement from an alliance executive was often; ‘We make good software so how many licences do you want to on sell?’  This is hardly collaborative language and actually serves to ‘turn off’ the partner as he or she perceives themselves being downgraded to the role of a reseller of the others services and products.

  • Embedding collaborative thinking in an organisation – Just as alliance programme management is the big headache when moving from stage one to stage two; embedding collaborative thinking and behaviours is the main challenge facing high stage two companies.

The essence of the problem appears to be that organisations do not put appropriate structures in place to appropriately reward the behaviour they are seeking consequently ‘lip service’ is paid to collaborative aspirations and the programmes themselves become enshrined in meaningless PR documents which are not supported by local actions.

  • Collaborative negotiation – Negotiation in alliances is not the same as negotiation in other aspects of business life.  The difference lies in the distinction between collaborative and adversarial.  In an alliance compromise is failure whilst in most normal commercial negotiations compromise is seen as the natural end point achieved in balanced negotiations.  For a further and deeper discussion of these distinctions see Vantage Partners and the Harvard Negotiation Project ‘Difficult Conversations’ www.vantagepartners.com[7].
  • Alliances are not ‘sexy’ business models – In a recent edition of Forbes Business magazine in the United States[8] over 100 pages of intense consideration of the alliance model concluded with the deceptively insightful comment that ‘Strategic Alliances are not sexy’ meaning that mergers, takeovers, grabbing market share, beating the competition, etc. all these actions were considered ‘sexy’ by male and female CEOs but collaboration, seeing the others point of view, one plus one equals three, etc. were seen as aspirations of non commercially minded people.

Myths in Stage III

Evidence from the database suggests that there is a ‘tipping point’ in the understanding of and deployment of strategic alliance models.  If a CEO can ‘hang in there’ long enough with a genuinely strategic relationship then the long term commercial results will justify the model’s adoption.  However, it is also true that those organisations that have a predominantly short term vision for their business relationships struggle with the stamina required to adopt successfully a strategic alliance mindset.  This is reflected in those organisations that have stable senior executive teams rather than those that have a high degree of senior management turnover (e.g. success models include; Microsoft, Cisco, Dell, Eli Lilly, Siebel, and Starbucks).

  • No organisation is going to willingly commit to a limited number of partners – The argument here is that organisations will want to deal with as many organisations as possible to give them the best chance of commercial success.  However, evidence from the research suggest otherwise.

Firstly any organisation (of whatever size) has a limited bandwidth available in terms of people, skills, technology platforms, etc. which makes dealing with more than a handful of truly strategic partners impossible.

Secondly the act of allying with one organisation necessarily alienates that organisation from a relationship with others.  This is principally the reason why ‘alliance fortresses’ or ‘islands’ are growing up with competition developing not between individual organisations but between competing collaborations.

Finally the research shows that the commercial benefits of a successful alliance chosen with the right partner in the right sector which has a high degree of organisational ‘intimacy’ between the players outweigh the alternative benefits of allying in a non proprietary manner with a large number of less intimate partners.

  • There are too many variables in any collaborative relationship to allow meaningful analysis – Whilst it is true that the primary and secondary variables generated by collaborations are complex and can at time appear bewildering; organisations who have used the framework generated by the database report good results which are practical, applicable, relevant and insightful.  In part this is because what the database teaches them is ‘in synch’ with their intuition.  This in itself is not surprising since the database contains ‘systematised common sense from a large number of appropriate observations, hence it would be surprising indeed if the data was not relevant and immediately practical

Conclusions

The research suggest a number of powerful conclusions that corporate strategists in all business sectors would do well to consider;

  • Strategic Alliances are steadily growing in popularity as organisations discover that they can’t ‘go it alone’.  This appears to be the case for the very biggest corporations (e.g. Microsoft, IBM, GE, and Eli Lilly) but also for the smallest SMEs.
  • As this desire to partner increases many organisations are now looking to systematise the way in which they conduct their partnering efforts.
  • Those that systematise successfully (using known best practices) enjoy a critical competitive advantage over those that develop in house programmes.  This advantage can be anything up to seven times greater success.
  • As firms increasingly systematise a maturity model is fast developing identifying three stages of maturity;
  1. Opportunistic
  2. Systematic and
  3. Endemic

These stages appear sequential and there are no known instances in the research of companies missing out any of these stages.  Managing the efficient and effective passage from each stage to each other is a considerable exercise since it relies on a complex set of inter-related critical success factors which change in their emphasis depending on the stage of development.

  • Strategic Alliances remain complex business models to ‘get right’ but certain recurring factors are evidently crucial in successful endeavours.  There are over 52 of them in 5 critical dimensions; Commercial, Technical, Strategic, Cultural and Commercial.  Whilst success in every regard is unlikely the more attention organisations pay to these factors the better their results.
  • To grow their businesses quickly and effectively CEOs are turning to a third generation model of business growth that of ally in the build / buy / ally combination.  Strategic Alliances help them to achieve this more quickly, with less risk.
  • There are a number of myths regarding Strategic Alliances which are not borne out by the research evidence.  Some of these myths can be very damaging in developing partnering programmes.
  • Despite the evidence of best practice there are quite considerable challenges involved in the successful execution of Strategic Alliances and those organisations that conduct more of them appear to learn from their experiences and conduct them better as the number increases.

References

[1] For further information see (amongst others) work by Robert Porter Lynch at www.warrenco.com

[2] The Economist Intelligence Unit, 2003, ‘Extending the Enterprise’

[3] Research conducted by Peter Pekar Jr and John Harbison for Booz Allen and Hamilton on 3,500 companies from 1998 – 2002

[4] Andersen Consulting, 1999, Internal Research Paper into Strategic Partners, October.

[5] Economist Intelligence Unit, 2006,’Economic, industry and corporate trends’  May

[6] The concept of ‘core’ and ‘context’ comes from:  Geoffrey Moore, 2006, ‘Dealing with Darwin’, John Wiley and Sons

[7] See also Roger Fisher & William Ury, 1987, ‘Getting to Yes: Negotiating Agreement without Giving In’, Arrow Business Books

[8] Forbes Magazine, 2004,  edition dedicated to Strategic Alliances, Fall