Rationale for strategic alliances
Faced with increasing competition and limited resources, companies are using strategic partnerships to cooperatively bring products to market. While partnerships focus the complementary strengths of two firms on the market, they can be complex arrangements to manage. Today, rather than one firm doing everything itself, large and small firms are combining their resources in strategic partnerships and focusing those resources on areas of mutual interests.
The Genentech and Eli Lilly collaboration on human insulin is an example of what we mean by a strategic partnership (2). Genentech contributed its novel new source of insulin to the relationship, while Eli Lilly contributed financing, FDA experience, distribution channels, and marketing. This partnership resulted in the product Humulin being brought to market.
The hope of such partnerships is that two firms working together can commercialize technology more effectively than either firm working alone. However, the reality is that these relationships have had limited success.
For example, only 50 percent of the partnerships studied in the fields of biotechnology and machine vision survived three years (1) and the situation in other fields is no different. While this survival rate may be comparable to the success rates of other in-house projects, the question remains: What can managers do to improve the effectiveness of their strategic partnerships?
What is strategic alliance?
To begin, we must have a definition of strategic alliance. In her book, Intelligent Business Alliances (3, p.4), author Larraine Segil defined an alliance as "a relationship that is strategic or tactical, and that is entered into for mutual benefit by two or more parties having compatible or complementary business interests and goals." Within an alliance, each organization retains their independence and cooperates on a limited basis- pooling only the resources necessary to confront a specific situation, product or market.
The definition states that the partners must have compatible or complementary business interests. This identifies the first question they must ask themselves. Are my interests in alignment with those of my potential partner or am I really interested in simply raising dollars? Do I really want a strategic alliance, or will other mechanisms serve my purposes, for instance a vendor relationship or outsource relationship? The potential pitfalls of failing to ask these questions can be dramatic.
What should I, as a manager, do?
I presumed myself a manager of a consultancy organization that specializes in strategic technology alliances. From this point of view, the purpose of my work will be to identify managerial competencies that are crucial to make such relationships feasible and that contribute to the success.
To be able to name the particular competencies, skills and abilities I'd need to develop in the particular managerial position of a consultancy firm that specialize in alliances, I'd first have to know the nuts and bolts of the alliance concept as well as its challenges. From the articles I've read for this assignment, I can say that there are two things for me to maintain an effective alliance capability; creating the right alliances and making those alliances work.
To create the right alliances: I have to;
-Identify the purpose of each alliance and be prepared to react quickly to changes in strategy or environment,
-Identify the best partners,
-Make sensible trade-offs between internal efforts and alliances.
To manage the alliances and make them work:
-Use performance measures that reflect the firms' overall business objectives,
-Manage your relationships with alliance partners
-Capture and adopt best practices (4)
What follows are the three things I can do immediately to begin managing the alliances more effectively;
- Create a dedicated management team: Alliance management requires experience and skill, so I need to assign some of my best people to alliance management, not just those looking for something to do.
- Create a standard alliance management process: By creating standard alliance management processes and then creating learning opportunities that help people perform in desired ways, alliances can be managed more effectively.
- Attend to the performance management imperatives of alliance management: Part of effective alliance management is looking at the way people are motivated to do their work and how they need to be motivated differently (5).
So, according to those should-do's what are the competencies I must possess?
From the job definitions described above and from my experience in working with large corporations on strategic projects, where competency of the manager was a critical to the success of failure of the project, I've observed four critical success factors that apply to personal competency. These critical success factors still focus on the behaviors, but also on personal risk tolerance of the manager. The personal competency critical success factors that I have consistently seen are:
*Business understanding, which means understanding the nature of the business my company is in and what kind of a role my company plays in its domain.
*Ability to advise the firms with consultative leadership. Where are we going? How do we proceed? What are the risks, and why?
*Ability to have the firms trust us with their projects as if they would trust use with their children as well as my in-company teammates. Trustworthy relationships (6) with the firms and comrades are relationships that provide any kind of manager a level privilege and insight.
*Ability to take on a level of personal risk that is controllable, but neither too comfortable nor too burdensome. Personal risk acceptance is having a vested interest in the outcome of the project, enjoying the journey more than get just the destination.
These actions and behaviors are more difficult to measure; however, with a little practicality and common sense, these behaviors can be easily recognized, learned and measured (7).
Which of those competencies do I have, and how could I develop those competencies I don't yet have?
I've got the above four competencies to some extent. However, what matters is that extent. Dynamics of the modern era demands many new skills from the managers and no one can ever predict what they'd be (8). For some people, facing the challenges is the primary tutor while some other may prefer ordinary education. For me, both ways are indispensable. The best way to develop the competencies I don't have yet is through facing some contemporary as well as comprehensive challenges. However, this doesn't mean I ought to wait until troubles find me but I must improve my managerial skills anytime I get opportunities. Pursuing MBA degree would definitely boost such kind of required skills considerably, but there is much thing to learn by experience in the real life (9).
1. Hull, F. and Slowinski, E. Nov.-Dec. 1990 pp. 16-20, Partnering with Technology Entrepreneurs. Research, Technology, Management.
3. Larraine D. Segil, Aug 1996, Intelligent Business Alliances: How to Profit Using Today's Most Important Strategic Tool. Crown Business; 1st edition.
4. Harvard Business Review on Strategic Alliances. Feb 2002, Harvard Business School Press .
5. Palmer, Dominic M. and Mullaney Patrick. Jan. 2003, Successfully Establishing and Managing Strategic Alliances. Association Laboratory Inc.
8. C.K. Prahalad, G. Hame. May/June 2000, The Core Competence of the Corporation, Vol: 68, Iss:3 Harvard Business Review.
9. Buckingham, M. & Coffman, C. (1999). First, break all the rules: what the world's greatest managers do differently. New York: Simon & Schuster.