Strategic alliances are back. Last month, Nortel’s stock jumped
several percentage points at the mere mention of the idea of a partnership
with Cisco. “I believe in strategic partnerships,” Cisco’s
CEO John Chambers said during the question and answer session following
a speech in Toronto. And then the magic words: “I would love to
have Nortel as a partner.”
Even though I make my living studying alliances and teaching how to manage
them, I am concerned when I see such an immediate, positive reaction by
investors. What are they thinking? Did they forget how many alliance announcements
in the dot-com years were mere ruses for companies that had no viable
strategies? Perhaps they are betting that Cisco will acquire Nortel, bidding
up its stock. If so, did they forget how many recent big acquisitions
have failed or become stuck in courts? My guess is yes on both counts:
Investor myopia is back too.
So, how should investors react when they catch high-tech CEOs singing
love songs to each other? First, with cautious optimism. Alliances can
indeed help companies leverage each other’s strengths. Just look
at Airbus, Wintel, Canon and HP, or Cisco’s own ecosystem of allies.
But many alliances fail to become happy marriages, let alone produce dividends.
Just look at IBM-Apple, Disney-Pixar, or one or two in Nortel’s
own history that it would rather forget.
Every manager in a failed alliance has a pet theory for why some alliances
fail and others succeed. But research and experience across many cases
has found one common success factor -- the trick is to look beyond the
deal. How do the alliances contribute to the company’s business
strategy? How does the company manage its alliances? What resources does
it devote to implementation after deals are signed? Do the firm’s
various alliances reinforce or interfere with each other? Companies that
look beyond the deal and attend to these broader questions succeed in
their alliance strategies; those that don’t, fail.
So, the second reaction of investors hearing about a new alliance should
be to ask more questions. Place an opening bet, if you wish, but be ready
to fold – or raise – depending on how the CEOs answer these
five tough questions:
- What is the strategy behind the deal? A “strategic alliance”
without an “alliance strategy” is doomed to fail. Find out
how this deal fits into the broader business strategy for each company.
The deal itself is never an end in itself. If the CEOs get mushy at
this point, fold right away.
- Is the alliance designed to maximize cooperation and minimize conflict?
Don’t fall for the 1990s talk about “co-opetition”
– it does not work. Well-matched partners don’t have reason
to fight; and where they do have differences, they must show you how
they will manage these.
- How will the alliance be governed? The right answer here is: flexibly.
An arrangement whose terms are set in stone is not an alliance. Yet,
neither is one that is left too loose. The partners must create a relationship
contract that lets them make joint decisions on unforeseen issues.
- How will each of the partners prepare internally to manage their relationship?
Face it – company marriages are not natural acts. Managers don’t
cooperate instinctively with outsiders. The firms must consciously train,
coordinate, and tool-up their alliance managers. And, by the way, if
the CEOs don’t know about this function – alliance manager
– turn in your chips.
- How will other partners – and rivals – respond to the new alliance?
Every new alliance creates a new friend and often more than one new enemy. The key
is to make sure the partners on your team are friends. In other words, each new alliance
should reinforce or at least not conflict with other important alliances
of the firm.
These are not easy questions to ask, and worse yet, to answer. They are
not amenable to the quick give-and-take typical of meetings with analysts.
The good news is that these questions are not discreet, stand-alone queries;
they are part of a whole – they each probe into one aspect of how
prepared a company is to use alliances effectively. Good analysts will
use these questions not just to generate points on a scale; they will
also connect the dots. Does the firm seem to master the requirements for
an effective alliance strategy? That is the fundamental question.
A firm can be good, mediocre, or downright miserable in designing and
executing an alliance strategy. Just as some firms are good at lean manufacturing,
others are good at customer service, and others are good at high-tech
wizardry, so too with organizational strategies. Corning, for example,
has a long tradition of success with 50/50 joint ventures; it has many
and runs them expertly. Other firms are master acquirers; Cisco is among
these. Some are good at managing complex networks of inter-locking partners;
global airline companies today are vying for first honors here. Still
others are good at using partnerships to commercialize external inventions;
Eli Lilly and other pharmaceutical companies have made great strides in
this area recently.
A firm that masters alliance strategy will talk candidly and concretely
about how alliances fit in its strategy. Its top executives will signal
publicly that cooperating with partners is part of their winning game
and they will create the conditions necessary to enable the organization
to carry out this plan. Middle managers, in turn, will know that alliance
management is not business as usual and will double-up their efforts to
do it right. To be sure, there will be failures. But a firm seeking to
master alliance strategy will learn from these failures. It should glean
“best thinking” from outside, but it should know that another
firm’s “best practice” may not fit its own situation.
Ultimately, therefore, the firm will only gain mastery from homework,
experimentation, and experience.
When love-struck CEOs can tell this story, then by all means put your
money on their marriage plans. But, if they hem and haw, remember
that T-bill rates are on the rise.
Ben Gomes-Casseres has studied alliances for 20 years, teaches at
Brandeis University, and consults worldwide. He wrote “The Alliance
Revolution” (Harvard Press), one of the first studies of high-tech
alliance networks, and co-authored (with James Bamford and Michael Robinson)
“Mastering Alliance Strategy” (Jossey-Bass), which elaborates
on the ideas in this article. His work has appeared or been cited in Harvard
Business Review, Sloan Management Review, New York Times, Wall Street
Journal, and other periodicals. His articles and presentations are at www.alliancestrategy.com |