Are Too Stable by David Ernst and James Bamford
Executives often bemoan the instability of their business partnerships. But what really makes them hard to manage is their rigidity.
LLIANCES PLAY A MAJOR ROLE i n
/ \ almost every industry-from airlines to oil exploration, from pharmaceuticals to semiconductors. In fact, we've found that the typical corporation relies on alliances for 15% to 20% of Its total revenues, assets, or income. While some alliances are highly successful-Airbus,
Cingular, and Visa International, for instance - many have a less-than-stellar track record. The overall success rate of alliances hovers near 50%, and the average life span of a joint venture is just five to seven years. It's no wonder executives complain about their inherent instability. But, in fact, they've got it backward; most alliances are actually too stable for their own good.
Organizations tend to use alliances in uncertain circumstances - to enter an unfamiliar market or to develop a disruptive technology, for instance-or in maturing industries as a step toward
consolidation. Because these ventures operate in the midst of change, they must continually evolve to succeed. Yet their corporate parents routinely fail to intervene to correct their (Performance problems or address their exposure to risk. Some companies wait too long to expand successful ventures; others defer shutting down alliances that have served their purposes or have little hope of being successful under the current ownership structure.
Corporations are missing an enormous untapped opportunity: A 2004
McKinsey survey of 30-plus companies reveals that more than 70% of them have major alliances that are underperforming and in need of restructuring. Likewise, our research indicates that JVs that broaden or otherwise adjust their scope have a 79% success rate, versus 33% for ventures that remain essentially unchanged. In China,