9. Alliances—Finding Ways to Leverage Your Collective Capabilities
Chapter Contents
Handling Related “People” Risks
Applying Tangible Culture to Research/Negotiation Phase
Applying Tangible Culture to Leverage Phase
Overview
This chapter applies Tangible Culture to business alliances. The business and culture challenges for alliances are discussed, then Business Practices, Right vs. Right and Outcome Narratives are applied to them, using composite examples from our experiences. We will also provide a list of benefits. Those planning or implementing a multi-enterprise venture will find value in this chapter.
Introduction
Alliances are essential in today’s business environment. Few, if any, companies can perform all capabilities needed to compete globally. Unfortunately, alliances often suffer from culture clash (see Chapter 1, “Introduction—An Overview of Tangible Culture“). Choosing to “go it alone” is not an effective option for most companies, so business leaders need ways to address the inherent culture risks.
Business Challenges
Partnerships and alliances[1] come in many different flavors, from joint ventures to strategic alliances to outsourcing to joint teaming. Some alliances are strategic, whereas others are primarily transactional; some involve multifaceted multi-organizational linkages, whereas others are relatively simple with straightforward connections.
In the 1990s, many alliances were formed to outsource noncore activities to providers offering lower cost. Today, for several reasons, business leaders are rethinking notions of core and noncore, and driving instead to achieve world-class capabilities in every area:
Economic and competitive pressures are escalating and compelling companies to seek new sources of productivity and growth.
Open standards are more widely adopted, which enables interconnectivity within and among companies.
Free trade agreements, and explosive skills growth in emerging nations, are opening new opportunities.
These factors point toward even broader interorganizational relationships, and to new relationship models, in the hunt for productivity and effectiveness gains.
In addition, alliance structures are becoming more complex. Many companies partner and compete with the same companies in different markets and for different products. And there are multi-partner alliances. Think about the cross-organizational requirements for Homeland Security and current military efforts, which cross military branches and governmental agencies—and, increasingly, allies. Although many business alliances tend to be one on one, indications are for more multi-organizational alliances in the future.
Alliances are important, with a typical corporation relying on them for 15 to 20 percent of revenues, assets, or income. Although many alliances are successful, others are not, and the overall success rate is about 50 percent over an average life of five to seven years. (Ernst and Bamford) “To add to CEOs’ woes, research suggests that 40 to 55 percent of alliances break down prematurely and inflict financial damage on both partners.” (Dyer, Kale, and Singh)
An early business challenge is ensuring all partners understand and agree to the nature of the relationship. Every alliance should be unique because the objectives and parties are specific to that relationship. Even new alliances among existing partners should differ because of new objectives.
After agreeing to the objectives and relationship, the partners may face other challenges:
Priorities that shift over time
Lack of skill in dealing with alliance complexities
Lack of technology to manage the communications and content of the relationship (for example, portals, repositories, collaborative software)
Difficulty in establishing planning protocols (for example, perform the work separately and later combine, or perform jointly; one approach or varied situational approaches)
Differences in organizational ability to adapt to the changes
Loss of key experts
Unforeseen problems with the viability of the project
Ineffective relationships
Arguably, this last challenge is a culture challenge—so we cover that topic next.
Culture Challenges
Let’s go deeper on relationships. After negotiation, the alliance deal teams are disbanded and an execution team is assembled, sometimes with little overlap. The execution team may know little about the detailed discussions that led to the words in the agreement and how performance and success are to be measured—this is where many relationship issues begin. We strongly believe that real relationships are built on more than service level agreements—and that relationships are needed at many levels, not just among executives.
“Right vs. Right business practices sound so basic, but I can say from experience that it’s hard to determine what’s happening when cross-organizational teams clash or are at a stand still. Business leaders often don’t think about culture, and they often lack the background and tools to address the culture challenges that lead to issues and risks.”
Cindy Berger
Vice President
American Express
To better explain what goes into an effective relationship and further describe the culture challenge, Table 9-1 mentions some important, and difficult, alliance elements.
Table 9-1. Alliance Elements
Given the types of alliances and their potential complexities, Table 9-1 lists just a sample. However, this list hints at some reasons for culture risk: Intertwined with each element is a series of Business Practices that define how best to decide, communicate, enact, resolve, and manage them. Each company brings its own answers—and they need to decide some together, which may give the partners their first taste of culture clash.
When deciding what to do together, each is likely to expect its own preferences will be adopted—because, indeed, they are right answers. Unfortunately, these often-assumed expectations promote direct conflict between the partners. No matter how well the agreement is written and what has been clarified through principles, values, and behavior statements, unreconciled Right vs. Right Business Practices can lead to failure, even dissolution and major losses.
If you think companies walk away from deals that indicate poor cultural fit, you may be surprised. The Corporate Strategy Board indicates that cultural differences rarely stop alliances from going forward. Their recommendations: Assess cultural fit, and then plan and deal with the issues through effective governance, accountability, and performance management. We agree and believe even more can be done.
“Alliances mean no longer owning the work—and often changing preferred ways of working. Assuming you know how your partner operates—and that it is just like you do—destines your partnership to failure. It is essential for both partners to understand each other’s practices, and the change impacts. Right vs. Right enables a neutral discussion to resolve the predictable tension.”
Janet Young
President
Change Edge Consulting, LLC
In some ways, alliances share M&A culture risks. However, there is one key difference: The partners often carry responsibilities that inter-lock only in specific areas, whereas in M&As, groups often blend by functional area. Although some alliances do that (see Chapter 8, “Mergers and Acquisitions—Managing the Common Sources of Culture Clash,” where that is the case), many are crafted to leverage diverse capabilities. This means, for culture purposes, a combination strategy is needed: reconciling Right vs. Right for interdependent areas, and acknowledging and managing expectations in areas where each company will retain its own Business Practices.
Handling Related “People” Risks
A number of actions are needed to address inherent alliance challenges. The rest of the chapter focuses on culture, so here we offer some brief advice on related topics:
Governance is vital, and how it is initially established sets the tone for the relationship between the companies and people involved. Structures, decision making, roles and responsibilities, and performance measurement are just a few of the elements that need to be covered. Facilitators can help the partners know what is needed and can help set an environment where trust can be built.
Communications are tricky because they cross organizational boundaries and are often extra sensitive. Each partner needs its own communication team, and these teams need to coordinate. During the initial stages, be sure to answer: “Who are the key players on the other side? What are the objectives? Who does what?”
Organizational change management helps employees achieve full functioning as quickly as possible. Remember that you are enabling a transition that is new for many people—participating in a cross-organizational team. Selecting leaders with strong influence skills and compatible working styles is critical. Also, do not assume that little needs to be done if people will perform the same work they have done in the past (for example, in outsourcing). Alliances bring interaction complexities, which often require additional knowledge and skills.
Alliances that skimp on these vital steps increase their risk of failure. Even if one partner does extremely well at addressing the risks, the alliance may fail if the other partner does not. Holding each other accountable is an important risk mitigation strategy.
In addition to these vital steps, companies are encouraged to jointly develop principles, values, and behavior expectations. It is good to compare and discuss existing values and other stated expectations to understand how they are the same or different. These discussions promote effective relationships and cross-organizational transparency.
When these efforts are launched, it is appropriate to turn to the sources of culture clash and proactively address them before ineffective norms become entrenched. Tangible Culture applies to two alliance phases: research/negotiation and leverage. Research/negotiation starts when the alliance is explored and continues until an agreement is signed. Leverage picks up when the partners begin working together.
Applying Tangible Culture to Research/Negotiation Phase
Effective alliances begin with careful partner selection. It is like pre-marital discussions: Ask the right questions before the big day, and hope to experience fewer surprises later.
During research, the partners evaluate each other’s ability to perform. This often involves a series of discussions about capabilities on topics that could include markets, products and services, processes, technology, and human resources—just to name a few. Cultural fit is relevant but tends to be under-represented in the discussions.
“After interviewing dozens of CIOs about outsourcing, AMR Research recognizes that most companies lack a structured evaluation process, and therefore they don’t adequately evaluate cultural fit when selecting a partner. Offshore outsourcing exacerbates the problem—not only must you must consider work-related alliance elements (decision making, knowledge sharing, and governance), but also the broader geography and historical cultural issues.”
Lance Travis
Vice President, Research
AMR Research
A Vantage Partners study of 130 cross-industry companies involved in alliances showed that only 9 percent have an institutionalized capability to evaluate relationship fit, corporate culture, and operating style. Instead, many rely on the intuition or “gut senses” of those involved with the deal. (Ertel, Weiss, and Visioni) This seems hard to believe given the acknowledged failure rates for alliances. Perhaps people do not know what to ask.
We advocate that each party assess cultural fit during research/negotiation using the lens of Business Practices and Right vs. Right. These concepts provide specific questions to ask and can identify areas where action will be needed if the alliance goes forward. See Table 9-2 for ideas on how to assess cultural fit.
Table 9-2. Work Steps to Assess Cultural Fit
A Vantage Partners study of negotiation best practices reinforces that research and selection should be done by both sides. Also, frequently done in parallel with research, negotiation needs to be collaborative and undertaken as a foundation for building good working relationships rather than as an opportunity for each company to push for its own very best deal. (Hughes and Gordon) We agree.
Applying Tangible Culture to Leverage Phase
The leverage phase incorporates three stages: transition, manage/ measure, and advance/grow. We focus on transition and into the manage/ measure stages, but many of the same steps can help the partners advance and grow their relationship, too.
Figure 9-1 shows the overall process for leverage, expressed in key outputs.
Figure 9-1. Method for leverage phase.
Let’s start with an example of how the outputs would look, and then identify the steps in getting there. We use an outsourcing context for this example. The story line is not taken from any one situation; instead, it represents a composite of relevant experiences.
Example
Context: The agreement is for outsourcing a company’s technology operations. The primary goal is immediate cost reduction. The company is growing and also wants to ensure that operations are a progressively smaller percentage of total costs. The company is also expanding into new markets and product areas and wants the outsourcer to help them in areas that may be innovative for both companies. Finally, the CIO wants the outsourcer to help instill a greater degree of standardization and process adherence.
Table 9-3 shows excerpts from the practices charter and the Right vs. Right decisions.
Table 9-3. Practices Charter Excerpts
Table 9-4 shows an example Outcome Narrative to clarify future-state expectations.
Table 9-4. Example: Outcome Narrative 1
Table 9-5 shows excerpts from the gap assessment.
Table 9-5. Gap Assessment Excerpts
Table 9-6 shows excerpts from the prioritized action plan to align the environment with the future state expectations.
Table 9-6. Prioritized Action Plan Excerpts
Table 9-7 shows excerpts from the progress evaluation and additional actions needed.
Table 9-7. Progress Evaluation Excerpts
Work Steps
To create the outputs above (for Figure 9-1), follow the steps in Table 9-8. And, visit www.almaden.ibm.com/tangibleculture to download applicable tools and templates.
Table 9-8. Work Steps for Leverage Phase
Benefits
The overall benefit of applying Tangible Culture to alliances is risk mitigation. In addition to the benefits we have mentioned in earlier chapters, you will find
The health of the alliance is less vulnerable to leadership changes and the personal relationships between key individuals.
Consistency is enhanced, which establishes and manages expectations (especially important for large alliances and ones that function in multiple geographies).
Confusion is reduced, particularly role confusion about who needs to do what.
Conclusion
At some point, most organizations will engage in the risky business of alliances—and many rely on them extensively. Although they take many different forms, all alliances must acknowledge and address culture risks to be successful. Using Tangible Culture starting with the research/negotiation phase, and continuing into the operations of the alliance, the partners can enhance their chances of achieving their original expectations and fully capitalizing on the alliance’s potential.
Now that we have discussed two types of multi-enterprise situations, let’s look at culture within a single enterprise, starting with restructuring efforts.
References
Corporate Executive Board. “Joint Venture Toolkit,” Corporate Strategy Board, November 2002, p. 3.
Dyer, J. H., P. Kale, and H. Singh. “When to Ally & When to Acquire,” Harvard Business Review, July–August 2004, p. 109.
Ernst, D., and J. Bamford. “Your Alliances Are Too Stable,” Harvard Business Review, June 2005, p. 133.
Ertel, D., J. Weiss, and L. J. Visioni. Managing Alliance Relationships: Ten Key Corporate Capabilities. Boston: Vantage Partners, 2001, pp. 12, 34.
Hughes, J., and M. Gordon. Negotiating and Managing Key Supplier Relationships: A Cross-Industry Study of 20 Best Practices. Boston: Vantage Partners, 2003, p. 11.
Hughes, J., and J. Weiss. Making Partnerships Work: A Relationship Management Handbook. Boston: Vantage Partners, 2001.
Kosits, M., D. Hawk, and D. Ing. Relationship Alignment: Reducing Friction, Realizing Value. IBM Corporation, 2004.
Kreeger, L. D. “Alliance Leadership: Intersecting Two Indistinct Borderlands,” 2004.
Lajara, B. M., F. G. Lillo, and V. S. Sempere. “Human resources management in the formulation and implementation of strategic alliances,” Human Systems Management 21, IOS Press, 2002, pp. 205–215.
Parkhe, A. “Interfirm diversity, organizational learning, and longevity in global strategic alliances,” Journal of International Business Studies, 1991, pp. 579–601.