Portfolio of Strategic Alliances
A strategic alliance portfolio is a portfolio of alliances established by a firm with different partners.
This can be also referred to as a strategic alliance network of direct ties, bilateral relationships of the firm. These direct firms are actively involved in focal firms’ business regarding competitive positioning within a market or market segment.
Advantages of Strategic Alliance Portfolio
The portfolio view of strategic alliances is more effective than a dyadic view in investigating the impact of strategic alliances on the performance of the focal firm.
This is because top management of the focal firm should not ignore the interdependence that exists between its partners, or between its activities with different partners. The focal firm needs to make trade-offs in resource allocation that arise from across its alliance projects, to ensure proper alignment and thus, effective synergies.
This is also because the portfolio view of strategic alliances may offer a larger scope of opportunities than a dyadic view, especially when the focal firm considers different combinations of resource and capability allocation among its partnerships. These value creation activities among portfolio partners may greatly impact the focal firms’ performance in profitability, innovation, and new business development.
Managing Strategic Alliance Portfolio
Several tasks are critical in managing a strategic alliance portfolio.
The first task is to develop and implement a separate portfolio strategy for each business unit while managing a corporate policy for all the alliances of the entire company.
Thus, the corporate level determines general rules concerning with whom, when, and how to cooperate using strategic alliance. The business level, in turn, specifies a strategy that aligns with those rules. The corporate policy strategically aligns all the alliance activities of the company with corporate values and corporate strategy.
The second task is to monitor the alliance portfolio in terms of implementing business unit strategies and corporate policies. Thus, this is a task firms do after the first task.
Each of the alliances is evaluated in terms of strategic measures and financial measures at the business-level. The firm must then do an assessment of these measures at the corporate-level, as in whether the corporate objectives are achieved with alignment to corporate policies.
The third task is to coordinate the portfolio activities to avoid conflicts and ensure synergies among alliances. Thus, the first two tasks concern more about strategy, while this task mostly aims at tactic and operation.
Due to interdependencies among alliances, the company needs to coordinate these alliance activities if top management wants to create synergies. The complexity of the task increases as the number of alliances in one business unit and the whole company increases. The firm must also take into consideration the number of partners of each alliance, and the overlap of those alliances if any.
In general, the interdependencies among alliances of a business unit are greater than among different business units.
The fourth task is to establish an alliance management system. This is the infrastructure that consists of organizational units, processes, tools to formalize and standardize the operation.
In most corporations, the corporate-level operations provide the methods and tools to support all alliances, while the business-level operations concern the day-to-day management of those alliances. Most of the time, each business unit has specialized positions for alliance management at the level of business. For corporations, these positions are usually less likely to exist.
Successful Portfolio of Strategic Alliance
Several factors are critical to the success of an alliance portfolio.
The first factor is the focal firms’ consideration when choosing portfolio partners.
Before selecting any partners, firms need to create relevant alliance criteria and develop an evaluation process. The evaluation process should include activities in which the focal firm can consider how the potential partner may fit into the existing ecosystem of its partners. This activity can assist the focal firm in planning. Thus, it can effectively avoid potential conflicts and at the same time, create greater synergies between alliances.
Another important consideration firms should make when selecting partners is the experience level the partner has in alliance participation. Firms must assess the depth of experience of potential partners in being alliance members because an effective portfolio of alliances usually requires alliance infrastructure already in place. A startup company with product research and development capabilities may have little experience in being a partner, thus it will require more time and effort to become an effective partner. A long-established company with less growth potential may take no time to coordinate in new partnerships.
The second factor is the focal firms’ building of a portfolio-friendly structure.
Firms need to establish a governance structure and related processes that can innately comprehend the existence of an alliance portfolio and its management. This also means having a disciplined alliance team that has necessary capabilities to implement alliances and evaluate results. Firms also need alliance managers with great experience in business development, marketing, and product management to anticipate and address potential alliance portfolio obstacles.
The third factor is the focal firms’ evaluation of portfolio growth.
Firms need to establish a ranking system that can determine the relative contribution to the corporate growth of each alliance partner within the portfolio. To do this, firms must be able to identify, capture, and track both financial (short-term) metrics and strategic (long-term) metrics at both business- and corporate-level. A centralized management group may be established with a sole responsibility to track these measures.
The result of evaluation can help firms ensure the success of each alliance of their business units, while also maintain a desirable level of synergies between these alliances.
Resources
Further Reading
Related Concepts
References
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2016). Strategic Management: Concepts: Competitiveness and Globalization (12th ed.). Cengage Learning.
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2019). Strategic Management: Concepts and Cases: Competitiveness and Globalization (MindTap Course List) (13th ed.). Cengage Learning.
- Hill, C. W. L., & Jones, G. R. (2011). Essentials of Strategic Management (Available Titles CourseMate) (3rd ed.). Cengage Learning.