Developing a Strategic Alliance

Conceptual Viewpoint

Strategic alliances focus on combining resources of various organizations through acquisition, joint venture, or contracts. The main purpose of an alliance is to create one or more generic advantages such as product integration, product distribution, or product extension (Pearlson, 2001). In alliances, information resources of different organizations require coordination over extended periods of time.

Bronder and Pritzl (1992), suggest a strategic alliance exists when the value chain between at least two organizations (with compatible goals) are combined for the purpose of sustaining and/or achieving significant competitive advantage. Four critical phases of strategic alliance, namely, strategic decision for an alliance, alliance configuration, partner selection, and alliance management are shown in Figure 1. These four phases provide a basis for a continuous development and review of the strategic alliance, which increases the likelihood of the venture's success.

Figure 1: Strategic Alliance Phases (Bronder & Pritzl, 1992)

The details of activities included in various phases are described below:

Phase I: Strategic Decision — Is this Strategic Alliance Justified?

1. Situation Analysis — Are we presently set-up for this strategic alliance?

   1. Globalization

   2. Deregulation

   3. New markets

   4. Developments in technology

2. Identification of Strategic Cooperation Potential — Are we compatible?

   1. Internal trends

   2. Own strengths

   3. Own weaknesses

   4. Time as a competitive weapon

3. Evaluation of Shareholder Value Potential — Is the cost/benefit worth it?

   1. Contribution to free cash flow

   2. Value drivers

Phase II: Configuration of a Strategic Alliance — How Should We Set-Up the Alliance's Structure?

1. Field of Cooperation — What direction of cooperation and value chain activities should be involved?

   1. Horizontal, vertical or diagonal direction

   2. Research and development, marketing and sales, production and logistics, procurement and recycling

2. Intensity of Cooperation — How deep should our alliance be?

   1. Time horizon

   2. Resource allocation

   3. Degree of formalization

3. Analysis of Opportunities for Multiplication — How deeply should the alliance infiltrate our network?

   1. Systems

   2. Processes

   3. Products/services

   4. Competencies

   5. Brands

Phase III: Partner Selection — One of the Most Important Success Factors of the Strategic Alliance

1. Fundamental Fit — Do the company's activities and expertise complement each other in a way that increases value potential?

   1. Common intention

   2. Compatible vision

   3. Balanced positions of power

   4. Mutual gains

   5. Controlled risks

   6. Potential for increasing shareholder value

2. Strategic Fit — Do our strategic goal structures match?

   1. Harmony of business plans

   2. Common specification of appropriate configuration

   3. Similar planning horizons

3. Cultural Fit — Is there a readiness to accept the geographically and internally grown culture of the partners?

   1. Pluralism

   2. Assimilation

   3. Transfer

   4. Resistance

Phase IV: Managing a Strategic Alliance — How do We Continually Manage, Evaluate, and Negotiate Within the Alliance to Increase the Odds of Continued Success?

1. Contract Negotiations — How do we protect ourselves and still allow enough freedom for the venture to work?

2. Coordination Interface — Who and what do we need to put in place to keep the alliance working properly?

3. Learning, Adaptation, and Review — How do we deal with conflicts and opportunities that arise from the alliance relationship?

Bronder and Pritzl (1992) suggest the development process of a strategic alliance should be considered a strategic problem that utilizes a structured analysis. Their framework provides a way to conceptually analyze a strategic alliance opportunity.

Before an organization commits to a strategic alliance, they should have a management plan developed to deal with the human behavior aspects of the new organizational unit. Once a strategic alliance is a "done deal," the organizations must manage the alliance. Parise and Sasson (2002) discuss the knowledge management practices organizations should follow when dealing with a strategic alliance. They break the creation of a strategic alliance down in to three major phases:

• Find — making alliance strategy decisions and screening and selecting potential partners.

• Design — structuring and negotiating an agreement with the partners.

• Manage — organizations should develop an effective working environment with the partner to facilitate the completion of the actual work. This phase includes collecting data relating to performance and feedback from both partners on how they think the alliance might is progressing. Managing relationships and maintaining trust are particularly critical during the Manage Phase.

Parise and Sasson (2002) stress knowledge management techniques are especially important for a successful alliance. They discuss the need to develop a systematic approach for capturing, codifying and sharing information and knowledge, a focus on building social capital to enable collaboration among people and communities, an emphasis on learning and training, and a priority on leveraging knowledge and expertise in work practices. They also state their study indicates easy access to information and knowledge is a recurring theme in successful alliances.

Parise and Sasson (2002) provide what they call the building blocks of alliance management. Four of their building blocks relating specifically to human behavior factors are:

• Social capital. Building trust and effective communication with the partner are necessary ingredients for an effective relationship.

• Communities. Communities of practice allow for the sharing of personal and experiences and tacit knowledge based on a common interest or practice. Communities can be realized using electronic meeting rooms and forums or more formal alliance committees.

• Training. Companies that rely heavily on strategic alliances should have formal training for managers and team members.

• Formal processes and programs. Alliance know-how should be institutionalized. An example of this is Eli Lilly, a leading pharmaceutical firm, created a dedicated organization, called the Office of Alliance Management, responsible for alliance management.

Companies that use alliance management techniques that stress knowledge management are more successful than those who do not. Parise and Sasson (2002) stress that leveraging knowledge management across a company's strategic alliance is a critical success factor for partnering companies.

Practitioner's Viewpoint

Gonzalez (2001) suggests the following practical steps in developing strategic alliances, which are based on the planning, implementation, and evaluation processes:

1. Set-up an alliance strategy — What is the vision and strategy for the partnership, including analyses of our market potential, competition, organizational strengths and weaknesses, and organizational culture?

2. Select a partner — Are we strategically aligned and culturally compatible?

3. Structure the alliance — How should we set-up our financial and legal obligations?

4. Manage the alliance — How do we make the alliance work on an ongoing basis? What should be addressed in our implementation plan?

5. Re-evaluate the alliance — How do we determine if our alliance is work? What do we measure and how do we make adjustments, if necessary?

Gonzalez also lists several common pitfalls experienced by companies developing strategic alliances:

1. Many organizations do not have an alliance strategy that addresses the gaps in their business strategy.

2. Many organizations do not develop an explicit joint strategy with their partners.

3. Too often, a disproportionate amount of attention is paid to the financial aspects of the deal at the expense of — and sometimes neglect of — the strategy and the focus on implementation.

4. Lack of ongoing commitment to the alliance by different parties, which would derail the alliance.

5. Lack of realistic expectations and assessment of efforts.

Gonzalez recommends the above steps, as they have been successful in partnership formation in Canada, the U.S., Asia, and Mexico. Her experiences show the steps work well regardless of the industry or type of business. She believes strategic alliances are the best way for companies to succeed in the global economy.