Alliance Strategy
Firms should define a clear guideline on how to design a strategic alliance strategy.
It is important to develop an alliance strategy that describes the type of alliances that the firm is seeking, criteria for selecting partners, and the sufficiency of current resources and capabilities in managing alliances.
Partner Selection
For a strategic alliance to work well, firms must select the right kind of partners.
A good partner has the following characteristics.
The partner must have resources and capabilities that the firm lacks and values. In this way, the firms can cooperate to achieve strategic goals, share costs and risks of new product development, or build core competencies.
The partner must share the firms’ mission and vision about the strategic alliance. If the firms are not coming from the same starting point, the probability is high that firms may eventually get into conflicts and end the alliance.
The partner should not conduct opportunistic behaviors for its end. Stealing technological knowledge while giving a little to nothing in return would be considered bad signs of the continuity of the alliance.
Alliance Agreements
Firms should spend time producing detailed documentation, explicitly states mutual goals, objectives, and other expectations.
Contract agreements should also cover (1) resources and capabilities that each partner promise to contribute to the alliance, (2) associated processes and measurements, and (3) contingency plans and exit strategies.
Governance System
A governance system with representatives from all partners is a critical factor for successful strategic alliances.
This governance mechanism balances trust and controls among firms, creates a unifying vision, aligns jointed goals and objectives, and establishes proper strategy with alignment to business strategy.
Firms should align strategy on strategic alliances with their business goals and objectives. Understanding the firms’ objectives of a potential partnership is a critical step toward a successful strategic alliance.
Resources Allocation Structure
Usually, people involved in strategic alliances also must deal with day-to-day tasks. Thus, the lack of dedicated resources to manage the differences in strategies, organizations, and processes may cause conflicts and problems that damage and destroy the alliance.
Firms should have a clear structure to allocate resources effectively. Having dedicated resources to handle the partnership is critical to successful strategic alliances. There are several ways firms can design these structures.
The first option is that firms can establish a multi-functional alliance office to integrate and provide necessary resources across the organization. These assets and capabilities can be applied to develop and improve alliance capabilities, provide alliance expertise and knowledge, and assess alliance best practices. Firms can assign separate alliance managers to manage their alliances.
The second option for firms is to build a management team dedicated to managing the alliance relationship, overseeing agreement compliance, and handling day-to-day operational activities.
Another option is that firms can dedicate an alliance integration leader who is responsible for integrating support, managing collaboration, and ensuring adherence to the alliance agreement.
Communication and Relationship Management
A strong focus on relationships between firms, communicating openly, having mutual respect, and agreeing upon mutual decision-making processes is essential to the success of strategic alliances.
Firms must communicate early and throughout the established processes to avoid conflicts between firms, or internally. Effective communication is essential to understand these differences. Firms should build social activities to collaborate with partners, or conduct periodic conferences and meetings to engage stakeholders, management teams, and employees of all partners.
Relational capital describes the interrelationships between the partners’ managers. Such partnership helps build trust, facilitate harmonious relations between the firms, and solve complex problems and conflicts arising.
For example, two companies joining a strategic alliance can facilitate a framework for meeting between the management teams. In such meetings, they can discuss not only the formal problems of the alliance but also get to know more about each other.
Management of Alliance Common Processes
Cultural differences between firms are among the most important issues that alliance management processes should address. Firms must not underestimate this issue and its impact on alliances. They must aim to understand and address the cultural differences between firms using their processes. The differences, then, can be utilized to ensure a more successful and productive alliance.
The annual planning process must include a gap analysis of core competencies, especially competencies to manage strategic alliances. Firms can use a combination of both internal specialists and external experts to identify these gaps and assess opportunities.
Firms should conduct processes of management review of the alliance status, plans, milestones, and deliverables on a regular basis. The assessment should address aspects such as whether the alliance is achieving its goals and objectives, or if it is meeting its established financial and operational metrics.
Information and Knowledge Management
Strategic alliances should be structured to minimize the risks of leaking too much information to the partners. Firms can put in place the following mechanisms to accomplish an effective alliance structure.
Strategic alliances should be designed in such a way that makes it difficult to transfer secret and proprietary technology. Firms must focus on structuring the design, development, and servicing of products to protect their sensitive information from partners.
Firms should write contractual safeguards into the alliance agreement to protect their knowledge from being exploited by partners.
Partners of a strategic alliance can have an agreement in advance to exchange important technologies and knowledge, thus ensure fair trade. One of the ways to do this is through cross-licensing agreements.
The less powerful firm of the alliance should extract a credible commitment from its partners. The purpose of this commitment is to ensure that firms do their best in contributing to the partnership. This type of commitment may come in the form of capital investments.
Partnership Termination Plan
Firms should consider their exit options before entering strategic alliances. At some point, firms may consider that either they have achieved the established objectives or have failed to do so.
Thus, exit strategies are an inevitable part of a strategic alliance plan.
Resources
Further Reading
- Success factors of strategic alliances in the construction industry (realkm.com)
- Success Factors of Strategic Alliances in Small and Medium-sized Enterprises—An Empirical Survey (sciencedirect.com)
Related Concepts
References
- Hitt, M. A., Ireland, D. R., & Hoskisson, R. E. (2016). Strategic Management: Concepts: Competitiveness and Globalization (12th ed.). Cengage Learning.
- Hill, C. W. L., & Jones, G. R. (2011). Essentials of Strategic Management (Available Titles CourseMate) (3rd ed.). Cengage Learning.
- Wheelen, T. L. (2021). Strategic Management and Business Policy: Toward Global Sustainability 13th (thirteenth) edition Text Only. Prentice-Hall.