For example, competing in the high and medium price range of a market with a premium product may leave the firm vulnerable to a low-priced entry. Another example of strategic alliances that block competitive threats are the airline alliances that permit route-sharing among carriers. The two primary determinants of customer flight selection are routing and cost.
Therefore, the adoption of route-sharing alliances by the airlines blocks the competitive threat of preferential routing in the specific markets in which the airline chooses to compete. In essence, strategic alliances within the airline industry ensure competitive parity with respect to routing and force other factors such as on-time departures and customer service to become the bases for competitive differentiation. From a longer-term perspective, an alliance that is not fundamental to achieving a business objective today could become critical in the future.
For example, in , a U.
The Power of High Performance Partnerships
Faced with the prospect of European competition at some point in the future, the firm made a strategic decision to invest in an alliance with a distribution and support services company that had incremental distribution capacity in the U. With the option to expand into European distribution at any point, the firm could work to sew up the U. When an alliance is driven by intent to mitigate significant risk to an underlying business objective, the nature of the risk and its potential impact on the underlying business objective are the key determinants of whether or not it is truly strategic.
Dual sourcing strategies for critical production components or processes are excellent examples of how risk mitigation can become the context for supply-side strategic alliances. As process manufacturing companies advance the yield of their operations, suppliers often collaborate with the manufacturer to ensure their new products fit within its new operations. The benefits of such an alliance are cost savings to the manufacturer and accelerated product development for the supplier.
Among relationship commitments, joint ventures and equity investments are closest to the strategic end of the spectrum.
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However, investing a large sum of money in a partner does not automatically make the relationship strategic. One needs only to survey the wreckage of the dot-com era for proof of failed minority equity investments in alliances. For example, if the achievement of a core business objective, such as access to a new market, were enabled by the investment, then it would be strategic to the firm. How, then, should strategic alliances be managed differently than traditional alliances? There are countless lists of reasons why alliances fail.
Lack of executive sponsorship is often a source of alliance failure. With strategic alliances, the key to effective executive sponsorship is visibility and accountability. Metrics determine just how the alliance and accountable executives are kept on track. While clear metrics are required of any alliance, shared metrics between the partners are absolutely critical to the success of a strategic alliance.
Shared metrics bring immediate alignment of focus between the parties, and when executive sponsors are held accountable for the shared metrics, the two firms become aligned as one. Poor alliance governance structures are another common source of alliance failure. Strategic alliances are best served by formalized governance structures with clear mandates that are directly linked to the shared metrics underpinning the partnership.
The attending executives represent the business unit s and core functions that are critical to execution of the strategic alliance. Regular meetings of executives from the partner companies continue the relationship building that begins while formulating and negotiating the terms of the strategic alliance.
Trust is perhaps the foundation of a strategic alliance and these relationships are the building blocks for establishing trust amongst the individuals who represent the two parties in the strategic alliance. The real reason that most alliances fail is the constant change in the business environment. Trust allows the parties in a strategic alliance to have the difficult discussions that will transform the alliance over time and give it longevity.
When corporate strategies change as a result of a changing business environment, the assumptions upon which the strategic alliance was originally based also change. What was once a strategic investment may no longer remain strategic without modification to the terms of the alliance.
In the most extreme cases, the trust built between the two companies enables the adaptability—even renegotiation of the financial terms—to accommodate changes in market or other conditions that impact one of the partners. Strategic alliance organizations are feeling increased pressure. As critical personnel become stretched and financial resources become scarce, strategic alliance organizations must allocate their resources in the most efficient manner possible so that truly strategic alliances can support and accelerate the strategy of the business.
The five strategic criteria outlined in this article are primary determinants of the strategic value of an alliance. Using these criteria to identify genuine strategic alliances in the portfolio today and as a guide for developing future strategic alliances are the first steps to improving the impact of an alliance organization. The management principles, also described above, are the next steps towards improving the effectiveness of the strategic alliances themselves.
Books by Richard Gibbs (Author of Strategic Alliances and Marketing Partnerships)
Caslione, John A. Chintu, Namukale Chiu, Raymond B. Christensen, Clayton M. Cohen, Steven P. Colbeck, Carol Colson, Thomas J. Cooper, Robert G. Cunningham, Robert A. Doshi, Viren Dotlich, David L. El Namaki, M. Endo, Takahiro Enns, Douglas J. Febbraro, Sam Feiner, Michael C. Geis, George T. Gelinas, Patrice Gentile, Mary C. Herman, Lawrence L. Hoffman, Carl Hollenbeck, George P. Iyer, Bala Jackson, Eric M. Jackson, Ira A. Jackson, Stuart E. Jacobs, Charles S. Carl Johnson, Jeff S.
Keenan, Frederick J. Kindra, Gurprit S. King, Michael R. Kippin, Henry Kitzis, Ellen S. Kohli, Chiranjeev Konrad, Alison M. Kouzes, James M. Kozan, Jeff Krishnan, Rishikesha T.
Ramesh Kunsch, David Kwon, O. Laudicina, Paul A. Their discipline is the science and practice of connecting people and organizations. They help to improve the way collaboration -in alliances, networks, chains and partnerships- work by providing advice on the subject, by directing the processes, by lecturing, by researching the field, and by publishing about it.
They were the co-authors of the book, Organizing in between, design and governance of inter-organizational relations , and many articles on cooperation and the capacity to connect. They earned their PhDs with the co-authored doctoral thesis, Executives make sense of alliances and networks Tilburg University, Their book, Learning to Collaborate between Organizations, was published in , and was honored with the Dutch Management Book of the year award in Both are partners in Twynstra Gudde Adviseurs en Managers, member of the management consulting partnership, Cordence Worldwide.
He got to understand the importance of effective collaboration during the period he worked in chain logistics at Nedlloyd. The main focus of his consultancy, research and management activities is on cooperation in and between organizations. He is especially interested in complex and strategic collaborative issues. He also gives training courses in collaboration, chain management and strategic business development.
He has more than 25 years of experience as a consultant.
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He wrote his first book in Delayering organizations, how to beat bureaucracy and create a flexible and responsive organization. He advises executives and managers on strategy and governance, positioning, and collaboration.