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Home arrow Management arrow Strategic Management in the 21st Century. Corporate Strategy

MAKING ALLIANCES WORK: ALLIANCE CAPABILITY AS A CORE COMPETENCE

Ensuring that resources and relationships are sufficiently developed so as to achieve alliance success is a difficult and complicated task. If it were easy, the percentage of alliances considered to be successful would be much higher. A critical question is thus: how can partner firms enhance the degree to which alliance success factors are developed and maintained? The answer is that firms must make a substantial and ongoing effort to develop their ability to effectively deploy and manage alliances. Furthermore, given the strategic nature of alliances, some have argued that all firms should view alliance capability as a core competence.

That an alliance capability can and should be viewed as a core competence is suggested by empirical research that reveals that firms that tend to outperform their peers are superior at finding, developing, and managing alliances.58 Alliance capability does not guarantee alliance success but does significantly increase the degree to which such firms are successful in their alliance efforts. It also appears to increase overall performance, including the stock price performance of publicly held firms.59 Alliance competence has been argued to comprise a sufficiently high degree of three key elements of alliance capability: alliance experience, alliance management skill, and the ability to identify/secure alliance opportunities. Corning, Hewlett-Packard, and Eli Lilly are three examples of firms that both possess these dimensions of alliance competence, and have been noted for the alliance success that results from it.60

Alliance Experience

Though firms are well served by taking advantage of literature, books, and training programs, much of the requisite knowledge required to develop alliance competence must be acquired from experience. It is important for firms without alliance competence to recognize that developing such competence requires failure in some early attempts at alliances, and that this failure will comprise a key part of their learning. To this end, firms' early attempts with alliances should be of relatively low importance, modest, and uncomplicated. With increasing experience and knowledge of best practices, firms can then take on more ambitious alliances.61

To effectively leverage alliance experience, firms must develop a knowledge and skill infrastructure. This is the institutional memory, in the form of a repository of lessons learned and best practices, that facilitates the growth of a firm-wide alliance competence. For example, a business development manager at Hewlett-Packard said that for each alliance, "we hold a postmortem with all the involved (HP) parties. We look at the original objectives, the implementation, what went right what went wrong."62 This information then goes into a written management briefing, and subsequently an alliance database. Hewlett-Packard thereby uses its alliance experiences to create a knowledge resource that helps the entire organization. It should be noted that effective investments in alliance experience can constitute a competitive advantage that is fairly unique and hard for competitors lacking similar investments to imitate. It has been shown that firms who attempt to quickly develop alliance capabilities are in general less successful than those that thoughtfully develop required levels of alliance experience over a period time.63

Alliance Management Skill

Firms do not manage alliances, rather this is the role of alliance managers and an alliance management group within firms.64 Firms that wish to develop alliance competence must therefore build the capability of alliance managers. This is vital because alliance managers are responsible for the most important human interactions between alliance partners, and thus set the tone with respect to relationships and the degree to which a climate of cooperative norms exists. It is these managers who are most directly involved in the planning and navigation of the mechanics and processes of the alliance, as well as being most intimately involved in ensuring that roles and responsibilities are clearly spelled out and mutually agreed upon. They are also responsible for assessing, on an ongoing basis, the fit of the mission and processes of the alliance with a changing environment, and for making modifications as necessary.

Since alliance managers are the face of the collaboration and the focus of the firm's alliance efforts, it is not surprising that firms that have better-than-average alliance success also have highly skilled alliance managers.65 Research suggests that competent alliance executives possess several key attributes. In particular, they have the emotional intelligence required to relate to others, and a full range of leadership and managerial acumen.66 Research has also explored the role of alliance management with respect to the differing requirements of prescribed and emergent structures. Managers must address the thorny question of how to reconcile the demands of both the formal and the evolving/ emerging network.67 Given the evolving nature of alliances, effective alliance management thus requires that managers be flexible and possess the ability to work outside well-defined and/or prescribed routines. They should also be able to leverage persuasion and influence within the emergent social network of the alliance.

Research on alliances points to the criticality of social bonds and the central role they play in the development of an alliance and in its ongoing ability to create value and endure. Management by fiat will simply not work and is indeed a recipe for alliance failure. Since alliance management must span the boundaries of independent partner firms, managers of the respective firms must agree to work together for there to be effective collaboration. Moreover, compromise, influence, and trust are key operative conditions whose emergence one cannot dictate. One must gain a partner's willing agreement on mutually compatible goals, and jointly/collaboratively develop processes to achieve these goals. In this context, formal contracts have, at best, a nominal effect on sustaining the relationship between partners. Indeed, studies have consistently shown that alliance managers discount the relevance of a contract. Research indicates that relational norms and trust far more accurately reflect the strength and reality of the alliance, and its ability to hold at bay the intrinsic instabilities that make alliances so delicate.

To successfully address the management challenges of alliances, managers must also possess strong functional skills and knowledge across a variety of areas in addition to possessing strong interpersonal skills. Managerial capabilities thus go beyond those required to be a competent line manager. Indeed, research indicates that successful alliance managers are different from successful line managers.68 Due to the complexity of alliances and their management, it has been suggested that the most effective alliance managers are those whose perspectives accentuate both learning and creativity. Further, parallels have been drawn between the roles played by, and the requisite attributes of, successful project leaders, team leaders and/or parallel team leaders, and those for competent alliance managers:

[A] commitment to learning, to seek challenges, to reflect honestly on success and failure is consistent with the suggested profile. The successful alliance manager is the symbol of the learning organization . . . [a] life-long learner as one who is risk taking, reflective, a careful listener, and open to new ideas.69

Finally, capable alliance managers also possess significant and systematic hands-on alliance experience. This is epitomized by Corning, a firm widely and consistently viewed as having effective alliance managers. At Corning, there has long been a realization that alliances are both incredibly important to the company and pervasive throughout it. As a result, Corning needs a lot of people who are good at managing these things. Senior management, who has historically been responsible for staffing alliances, certainly knows this. Young, highpotential managers are often rotated into a joint venture very early in their career. At first, they are likely to be in a support role, learning the special dynamics of collaboration. If they prove themselves there, then they might get a little joint venture to run themselves. And, if they continue to prove themselves, they could become the alliance manager representing Corning's interests on a billion-dollar alliance.70

Ability to Identify/Secure Attractive Alliance Opportunities

Firms with alliance competence also have well-developed capabilities with respect to identifying attractive alliance opportunities.71 They have superior processes to proactively and systematically scan the environment for potential partners with complementary resources that can be used to develop competitive advantage through an alliance. They also have effective capabilities to enable them to quickly and efficiently conduct due diligence to confirm partner potential with respect to complementary resources and their track record with alliances. These alliance identification and assessment capabilities often provide the opportunity to develop a first-mover advantage with respect to finding and securing the most attractive partners. As a result, these firms can preempt competitors in securing scarce resources, making it even more difficult for competitors to match the resource capabilities of their alliances. For example, Swiss pharmaceutical companies such as Roche and Novartis (formerly Sandoz and Ciba-Geigy) have over the years garnered significant first-mover competitive advantages due to their early identification of and partnering with promising emergent firms in the biotechnology sector.72 By doing so, they have been able to not only produce new drugs, based on biotechnology discoveries, more quickly than their competitors, but by gaining timely access to these innovations, they also have additional barrier-to-imitation competitive advantages. Their ability to beat their competition to alliances is due largely to the emphasis they place on processes for scanning the environment for emergent firms possessing promising new technology. Not only did they invest heavily in biotechnology partnerships and processes (at the time, Roche, for example, was spending 50 percent, or $700 million of its basic research budget on efforts focused outside the company), but within their firms they developed high-level biotechnology alliance czars who were in charge of processes and results. As a managing general partner of a biotechnology venture capital fund noted about Novartis, "They know about companies we're starting when they're just in the crystal ball."73

 
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