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Alliances, partnerships, and relationships of all kinds in the business environment, whether with external parties such as suppliers or distributors, or internally with the groups and divisions of the same company, require a repeatable process and discipline to be successful. Partnering concepts are easy to think about, and alliances are even easy to create. But their value only becomes clear upon the implementation of the relationship. And sadly, that is where many companies fail. We have found that those companies who are the best in class in the area of alliance management are those for whom alliance competency is a corporate capability and a business process seen as critical to the company's success.
Companies are increasingly looking to alliances for strategic, economic and competitive advantage. Many, however, are finding that their alliance results are either wholly disappointing or, at best, inconsistent. These companies recognize that in order to improve their alliance results, they need to become better at building and managing their alliances, but few of them know what "better" would look like, or where to start. Specifically, many companies lack an awareness of the 'best practices' for alliance management in other organizations. Even when they have knowledge of some of the effective practices of their competitors or other companies, they do not know how to incorporate these practices into their own plans for improvement. Without such operational advice, companies struggle to improve their alliance management practices.
In my upcoming book on "Measuring the Value of Partnering" (AMACOM January 2004) a number of global companies with best practices in alliance management, are examined and discussed. In order to gain these insights, I evaluated the organization's current alliance capability, and did a comparison of its capability to that of other organizations.
One such organization is IBM. In the software group, IBM has implemented a series of alliance best practices that have elevated alliance management and value perceptions to the very highest levels of the company. Sam Palmisano, CEO of IBM, now includes alliance performance as one of the agenda items for his direct reports, and the software group took a leadership role in socializing the concept of alliances company-wide. In addition to extensive processes and accountability charts, access to immediate data and information on the alliance managers, the products and services being offered and the status of ongoing discussions and alliance activities, there are rewards and compensation systems that are aligned with alliance management and process. IBM goes through an extensive evaluation process in the presentation, discussion, evaluation, negotiation, approval and implementation of their alliances in the software group. Below is one of the process charts IBM shared with me for my book which relates to their alliance relationships with Independent Service Providers.
Maximizing the Value of Alliances
Alliances have become critical to the successful execution of business strategies. They are a flexible alternative to acquiring or building organically, and can provide access to unique capabilities. With the growing number and complexity of alliances, however, not every company is as process focused and disciplined as IBM. Many companies are finding it increasingly difficult to capture the full value of their alliances. It is commonly accepted that 50-70% of alliances under-perform or fail outright. In 2001,Vantage Partners published a ground-breaking study on the causes of alliance failure and the key corporate capabilities which enable companies to more effectively manage alliances and achieve greater alliance success. Additionally, through our client work over the past twenty years, Vantage Partners has found two root causes for failure: insufficient attention to the working relationship between partners, and lack of a corporate alliance management capability.
In a research study into 235 companies at Caltech, I found that a majority of companies who considered their alliances to be failures did so due to: the lack of compatibility in corporate cultures; individual personality and team conflict; and differing project priorities between the parties. These issues of compatibility were significant in contributing to alliance failure. But they were not alone. Companies who are more successful in alliances are those who commit to institutionalizing alliance management by integrating all aspects of alliance success - from linking alliances with strategy, to building and maintaining healthy working relationships with partners.
Our research over the past 20 years has proven that being successful in the creation and implementation of relationships requires the installation of an alliance management framework. This provides a structured way of thinking about what the organization needs to do and how they need to do it, in order to maximize the value of its alliances and to achieve repeatable alliance success. For some companies who have multiple alliances, these partnerships must be managed at a portfolio level. There the company has to be focused on the following critical areas:
Alliance Portfolio Management
In order to manage a group of alliances, the alliance manager must have a clear vision of the strategic alignment and impact of the relationships. Only then will the appropriate resources and skills be contributed in a timely fashion to implement the relationship. Strategic alignment will also allow for adjustments to the relationship midstream as well as an assessment of the right team members for the alliance itself at varying stages of its lifecycle. The combination of a team selection process to manage the alliance that has an awareness built in of corporate and personality differences, combined with a strategic vision and focus, is a winning package to launch the alliance on a positive path.
When companies have multiple alliances with multiple partners, the need arises for tiering (i.e., systematically categorizing) alliances and allocating alliance management resources and executive time accordingly. Oracle and Siebel are two companies that tier their partners into different levels depending on the degree of integration with the company. In the automobile industries, suppliers are tiered extensively into top tier, middle tier and non-tiered with responsibilities and rewards in alignment with these priorities.
One of the major jobs of an alliance portfolio manager is capitalizing on synergies across the portfolio (minimizing costs and finding ways to leverage common needs and interests across alliances)
To enable consistent and effective operation at both the portfolio and individual alliance levels, companies need to develop Alliance Management Capability. Given the size, scope, and complexity of today's alliances, companies simply cannot rely on a few talented individuals and their innate skills and intuition. Rather, companies need to invest in building a corporate capability, and thinking about alliance management as a business process. Here is an example of what a process for building alliance competency might look like:
All the steps in the process have a series of activities that are supported by tools that can be used for diagnosis, as well as remediation and solutions to issues that arise in the alliance development and implementation process. In addition, this process recognizes the need for alignment across multiple levels of corporate functions, business units with the corporate organization as well as the policies and procedures that need to include the compensation and reward structures ( as with IBM).
Much of the success of the alliance after the planning and formation processes are over is the operation and revision of the relationship done by the alliance managers and those who manage the actual alliance portfolio. Here are some of the tasks at which an alliance portfolio manager needs to become adept:
Alliances are the black box of management expertise to most companies - yet the science and art of alliance knowledge has in recent years become available through the many courses, books and consulting groups that offer services in this arena. No longer does the alliance manager have to be the lonely voice of collaboration in a company that wants to go it alone. Economic realities and the pressure of time and shorter product and service lifecycles have mandated that companies partner to achieve mutual goals. The above processes and approaches professionalize and expedite the creation, launch and operation of successful relationships.
Many more articles in Partnering & Alliances in The CEO Refresher Archives