Strategic Alliances Needn’t End Up in Divorce CourtPublished: December 10, 1999 in Knowledge@Wharton
More than ever before, companies today join hands in alliances. Like real-life nuptials, many of these corporate marriages - nearly half of them, according to some studies - tend to end in painful separation. Yet a firm that can keep its alliances off the rocks is obviously in a better position to take on its competition. Can companies actually learn to manage their alliances more effectively? The existing literature on the subject is inconclusive, suggesting at most that experience helps: Companies with a longer track record in business alliances seem to manage them better than firms that are relatively new to the game.
Harbir Singh, who chairs the management department at Wharton, and Prashant Kale, a Wharton Ph.D. student who has now joined the faculty of the University of Michigan Business School, are not satisfied with such a minimalist explanation. According to them, experience is a necessary but not a sufficient condition for successful alliance capability. Something more is needed. In a new paper, "Alliance Capability & Success: A Knowledge-Based Approach," based on empirical research of the experiences of 140 U.S.-based companies, they say that companies can actually learn how to manage alliances better through knowledge management, or, as they put it, "proactive efforts to accumulate and leverage alliance know-how associated with prior experience." Their study is part of a major research initiative on managing strategic alliances, sponsored by the Emerging Technologies Management Research Program at Wharton.
According to Singh and Kale, companies that practice some of the knowledge-based alliance capability processes described below enjoy "on average, an increase of nearly 50% in alliance success compared to companies that don't." Kale cites Hewlett-Packard, Oracle and Xerox as particularly high performers in this regard.
Managing knowledge of alliance building, the researchers add, will increase capabilities in a range of other strategic areas. Kale and Singh outline four ways that firms can build, and sustain, alliance capability.
1. Knowledge Articulation. The skill to manage alliances normally resides in individual employees who have actually done the job. Since these often very personal skills tend to be lost with the lapse of time or employee turnover, it is important that they be converted into some articulated form such as spoken or written words coupled with the use of metaphors, analogies or models - for others to learn from. A repository or database can, for example, be created containing the firm's entire alliance history as well as informal and formal de-briefings of alliance managers. Hewlett-Packard regularly de-briefs its alliance managers so that their personal knowledge is articulated and others have access to their experience.
2. Knowledge Codification. A company can codify its alliance know-how in guidelines, checklists or manuals. For instance, Hewlett-Packard has created a 400-page manual, which provides codified tools, templates and other resources for managers in the process of forming and managing alliances. Examples include partner due diligence checklists, negotiation frameworks, draft alliance contracts, alliance termination checklists, company-specific case studies, and so on. Lotus, an IBM subsidiary, has created what it calls "35 rules of thumb" for similar purposes.
The knowledge codification process is different from articulation: It distills articulated knowledge and transforms it into a form that can be used productively in future alliance situations. So it is an attempt to transfer past experience to manage similar situations in the future. Kale and Singh point to a hidden danger, however. Codification in books and manuals can hinder managers in idiosyncratic contexts and even preclude efforts to analyze on-going alliance experience.
3. Knowledge Sharing. Not all prior alliance experience is easy to articulate and codify. Even if it is, the knowledge arising from alliance management is not necessarily spread throughout an organization merely because it is articulated and codified. A process of knowledge sharing also has to be put in place. This can take several forms: Informal conversations and discussions between managers, formal mechanisms such as alliance committees and task forces etc. A practice of rotating experienced alliance managers across different collaborative relationships within the firm is another way of sharing alliance know-how. Companies like Corning have created various formal and informal forums for their managers to engage in personal, one-to-one meetings where alliance managers can swap their experiences and exchange war stories.
4. Knowledge Internalization. Finally, it comes down to people. Individual managers ultimately need to imbibe relevant alliance management know-how in the form of mental models: they have to absorb organizational knowledge into individual knowledge, both tacit and explicit. So the focus is more on having the recipient absorb the knowledge than on having the originator share his knowledge. Training programs and briefings are traditional mechanisms used by companies for knowledge internalization. Companies like Bell South, Northern Telecom and others have created in-house alliance training programs and apprenticeships for their managers. In addition, Parke-Davis has a program that attempts to provide alliance-related training not only to senior and middle managers but also to field sales staff, if necessary.
Besides these four ways to manage corporate alliances successfully, the authors also stress the need to build "co-ordinative capacity." This would mean setting up a centralized function within a company to deal with all its alliances. Existence of such capacity can enable a firm to systematically implement the knowledge management processes described earlier. It also enhances the firm's absorptive capacity with regard to alliance management know-how, since the people involved will be in a vantage position to recognize the value of useful alliance management know-how, assimilate it and then share it across the rest of the firm.
Hewlett-Packard, Oracle, Xerox and several other companies have set up a dedicated group to coordinate alliance-related activity within their companies. Organizations that have set up such capacity, over time, not only are able to form more alliances but also to achieve greater success and value from them. In short, while the knowledge-based approach to managing alliances may not guarantee that corporate marriages will last forever, they do offer a good insurance policy against early divorce.