Alliance: Best Practice

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BEST PRACTICE

Simple Rules for Making Alliances Work
Conventional advice about alliances hasn’t reduced their dismal failure rate. Success requires shifting your focus to a complementary set of principles.

by Jonathan Hughes and Jeff Weiss

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122 Harvard Business Review
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Studies show that the number of corporate alliances increases by some 25% a year and that those alliances account for nearly a third of many companies’ revenue and value – yet the failure rate for alliances hovers between 60% and 70%. And despite an abundance of advice on how to make alliances work, that dismal record hasn’t improved in the past decade. The conventional advice from the experts is quite consistent: Create a solid business plan backed up by a detailed contract. Define metrics for assessing the value your alliance delivers. Seek common ground with partners and pay close attention to managing your interface with them. Establish formal systems and T’S A REMARKABLE PARADOX:

November 2007

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hbr.org

Ken Orvidas

structures. The recommendations are all sensible; you’d apply them to any business arrangement. Alliances, however, are not just any business arrangement. They demand a high degree of interdependence between companies that may continue to compete against each other in the marketplace. They require the ability to navigate – and often to actively leverage – significant differences between partners’ strengths and operating styles. These characteristics make the common wisdom about alliance management both incomplete and misleading, causing companies to ignore or underemphasize other, potentially more important drivers of success. To begin achieving reliably higher success rates with their alliances, companies need to shift their focus to five principles that complement the conventional advice. This means: PLACING LESS EMPHASIS ON .

Principle 1
Focus less on defining the business plan and more on how you’ll work together.

. . . AND MORE ..
EMPHASIS ON

defining the right business arrangement creating ends metrics eliminating differences establishing formal alliance management systems and structures managing the external relationship with partners

developing the right working relationship creating means metrics embracing differences enabling collaborative behavior managing your own internal stakeholders

When companies can make such a shift in emphasis, they improve their chances for success tremendously – a conclusion based on our 20 years of experience working with both successful and failed alliances and on systematic research we have conducted over the past six years. In this article we will illustrate the five key principles of this approach to alliance management, using several companies we have worked with as examples.

Companies have learned the hard way not to enter into an alliance without a detailed business plan and contract. But sound business planning is only half the battle. Dwelling on a formal plan can obscure the critical need to explore and clarify up front the nature of the partners’ working relationship – not just what they will do but how they will interact. People involved in the hundreds of failed alliances we have seen over the years have consistently pointed to breakdowns in trust and communication and the inability to resolve an inevitable succession of disagreements as the most common causes of failure. Better business planning was cited rarely – and more carefully crafted contracts almost never – as something that could have saved those alliances. Successful alliances depend on the ability of individuals on both sides to work almost as if they were employed by the same company. For this kind of collaboration to occur, team members must know how their counterparts operate: how they make decisions, how they allocate resources, how they share information. That, in turn, requires a clear understanding of each partner’s organizational structure, policies and procedures, and culture...
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