Alliances: Simple Golden Rules for Success
Many companies account for up to one third of their revenue and value through corporate alliances, which grow by about 25 percent a year. However, 60% to 70% of them fail. What is going wrong?
Because alliances involve interdependence between companies that may be competitors and may also have vastly different operating styles and cultures, they demand more care and handling than other business arrangements.
I’ve outlined my principles—based on over two decades of work with alliances:
(1) Focus less on defining the business plan and more on how you and your partner will work together.
(2) Develop metrics pegged not only to alliance goals but also to performance in working toward them.
(3) Instead of trying to eliminate differences, leverage them to create value.
(4) Go beyond formal systems and structures to enable and encourage collaborative behaviour.
(5) Be as diligent in managing your internal stakeholders as you are in managing the relationship with your partner.
In my experience, a systematic “launching of the alliance” has worked well: workshops during which partners explore potential challenges, examine key differences and develop protocols for managing them, and establish mechanisms for making decisions on a daily basis. By regularly surveying both our own employees and our partners, we measure the quality of alliance progress.
Creating formal systems and structures, sure, these standard recommendations are all sensible; you’d apply them to any business arrangement.
Alliances, however, are not just any kind of business relationship. It requires a high level of interdependence between companies, which may continue to compete in the market. They require the ability to navigate—and often to actively leverage—significant differences between partners’ strengths and operating styles. As a result, alliance management is viewed as incomplete and misleading, causing companies to ignore or undervalue other, potentially more important drivers of success.
To begin achieving reliably higher success rates with your alliances, companies shift your focus to the principles that complement the conventional advice. This means:
Golden Rule 1
Focus less on defining the business plan and more on how you’ll work together.
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.
I know people involved in numerous failed alliances who 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 organisational structure, policies and procedures, and culture and norms. The partners should use that understanding to establish guidelines for working together.
Usually, if partners discuss the kind of relationship they want at all, they do so in such abstract terms that it produces little benefit. Laudable guiding principles are bandied about, but what they mean for each side is typically undetermined. For example, two companies may agree that a good relationship is characterised by mutual trust and respect for each other’s strengths. But unspoken assumptions about what that means in practice may differ sharply. One partner may think that acting with trust and respect means being direct and challenging decisions that seem not to make sense. The other may think it means that each side will defer to its partner’s judgment when the partner says it can’t do something. Such assumptions lie in wait ready to sabotage the relationship.
The resulting clarity has led to faster decision making, reduced frustration, and better follow-through once decisions have been made.
Golden Rule 2
Develop metrics pegged not only to alliance goals but also to alliance progress.
When partners sit down to create alliance scorecards, they typically choose such goals as increased revenue, reduced costs, gains in market share, and the like. They then immediately begin to measure alliance performance against those goals.
Rarely, however, does an alliance yield significant results in the first months or even in the first year or two. By their nature, alliances usually require considerable investment and effort before a substantial payoff is realised. Confronted with reports that show an absence of payoff, partners often lose confidence in the venture. Senior executives’ attention wanes, resources are redeployed elsewhere, and morale slumps, all too frequently leading to the alliance’s demise.
Instead of focusing exclusively on “ends” measurements of financial value, companies need to establish “means” measurements of the factors that will affect the alliance’s ultimate performance—leading indicators, if you will, of its success (or failure). Good results on these interim metrics can sustain corporate commitment precisely when it is needed most.
In the first months of an alliance these metrics may focus on things like information sharing between the partners, the development of new ideas, and the speed of decision making. Such measures may seem soft, but they are important—and the simple act of defining them is beneficial, because it can highlight differing expectations of how the partners will work together.
Golden Rule 3
Instead of trying to eliminate differences, leverage them to create value.
Allies form because their businesses have key differences they can leverage – different markets, customers, know-how, processes, and cultures. Most managers forget about this after two months in a new alliance.
In fact, in the majority of alliances a tremendous amount of time and attention is spent in efforts to minimise conflict and reach agreement on what should be done and how to do it.
This practice reflects more than a commendable focus on execution: It arises from a deep discomfort with differences and conflict and a mistaken belief that the same management strategies that (sometimes) work within a company will work equally well in collaboration with external partners.
“Our differences are slowing us down; let’s just figure out one way of getting things done and move on” is a common refrain—though what is usually meant is “you need to accept our way of doing things.” Unfortunately, because these efforts send a message that differences are bad, they tend to drive conflict underground. They erode the partners’ ability to make use of the very differences that prompted formation of the alliance in the first place.
Golden Rule 4
Go beyond formal governance structures to encourage collaborative behaviour.
Just as partners need to focus on building a strong working relationship at the start of an alliance, so they need to nurture that relationship throughout the life of the partnership. This means leaders must actively foster collaborative behaviour among all the people who work on the alliance. Although effective governance structures, such as joint steering committees charged with providing oversight and direction to alliance teams, can facilitate collaboration between individuals, they cannot guarantee it.
Perhaps the most difficult behaviour to overcome in alliance teams is a tendency to assign blame the minute something goes wrong. This very human propensity needs to be replaced with something that doesn’t come naturally to most people: a dispassionate analysis of how both parties contributed to a problematic situation and what each can do to improve it. An emphasis on inquiry rather than judgment acknowledges that in a complex and interdependent relationship, difficulties usually result from the actions (or inaction) of both sides.
Adopting this mind-set frees up time and energy (otherwise devoted to figuring out who is at fault or to fending off blame) for productively diagnosing problems, such as to what extent a missed milestone resulted from the diversion of resources by intervening priorities. Dispensing with finger-pointing also helps prevent the alliance partners from defensively withholding information from each other—information, such as significant testing data, that may be important to their mutual success—for fear that it will be used as evidence of incompetence or poor performance. This does not mean that issues of accountability will never arise—only that they will be dealt with more effectively after the parties have together explored all the factors that contributed to the problem.
To encourage behaviour that furthers the goals of our alliances, we created a list of formal protocols to be followed by people working on the alliance. Here are some of them:
“We agree to escalate issues [communicate them to senior executives for resolution] jointly, rather than unilaterally up our own management chains.”
“We agree to share information regarding internal strategic [and] business environment changes, so we can discuss their potential impact on the alliance.”
“[When discussing challenges] we will present possible solutions, not just problems.”
“We will use objective criteria to decide among multiple possible options—criteria that set good precedent for solving problems going forward.”
“We will strive to generate multiple, creative options for mutual gain.”
“We will share with one another complaints we hear from internal constituents [people within our own company] with the understanding that a) we are not defending or accusing but sharing information, b) we agree that we will jointly decide when something is significant enough to take action, c) we will collect data together about the situation, analyse and draw joint conclusions, and develop jointly any actions or plans in response to the problem.”
“We will hold regular meetings even if there are not critical issues at hand.”
The end result has more often than not been an alliance characterised by innovation and efficient execution.
Golden Rule 5
Spend as much time on managing internal stakeholders as on managing the relationship with your partner.
This last principle may sound heretical. Managers set out to maintain a laser-like focus on their alliance partners and the customers they jointly serve. Indeed, they sometimes strive with such fervor to make the partnership work that they are accused of over-identifying with “the other side.”
But again, though eminently reasonable, the conventional advice—to serve the partnership at all costs—is insufficient. Equally important, and often more difficult, is maintaining commitment from and alignment among the business units and functions (finance, legal, R&D, sales) in your own company that are affected by the alliance or on whose contributions its success depends.
Companies are not monolithic, yet alliance advice tends to gloss over this basic reality and treat partners as if they were simple, homogeneous entities. Although most counsel on alliances highlights the fundamental importance of trust, it rarely delves into what our experience indicates are the biggest barriers to trust: mixed messages, broken commitments, and unpredictable, inconsistent behaviour from different segments of a partner organisation.
Companies are making huge investments in alliances and are increasingly reliant upon them as vehicles for growth, yet more than half of them fail. The advice managers have been following is not so much wrong as it is incomplete.
The best quote I have had on this recently, “Alliances require ways of working with partners that are very different from what is required in traditional business relationships. The future will belong to those companies that embed alliance management capabilities into the fabric of their culture and how they do business.”
Clearly, the rewards of rethinking your alliance practices can be great. The risks of not doing so may be even greater.
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About the Author
Jason Novobranec is Implementary’s Chief Operating Officer.
With over 20 years of Consulting, Program Management & Senior Leadership experience, Jason has delivered initiatives for large multi-national / multi-regional organisations as well as SME’s and is an expert in shaping solutions to fit a customer’s project needs.