By Steven A. Zoller, project leader for two alliance projects at Procter & Gamble. This throwback article was first published in Research-Technology Management (RTM) in the March-April issue, 1999.
Strategic alliances have become commonplace in business, academia and government. Most people believe alliances are essential in today’s fast-paced, highly complex, and extremely competitive global business environment. However, are you really satisfied with the way your alliances operate and with their output?
Have you or your project teams ever gone so far as to ask the question, ‘‘Are alliances really worth the effort?’’ Sounds like heresy. ‘‘Of course they’re worth it.’’ ‘‘We must have this technology.’’ ‘‘We don’t have the resources to develop this on our own.’’ ‘‘We need their expertise to be successful in this category.’’ ‘‘It’s an integral part of our strategic thinking.’’ ‘‘Everybody’s doing it.’’
Sound familiar? These and many other motivations are often perfectly appropriate reasons to form an alliance. Forming an alliance may not only be an appropriate decision, it may be the only realistic option.
The intended benefits may be clear, but does the output from your alliances normally meet expectations? Probably not. In order to improve our satisfaction with the way an alliance operates, we must first get a sense of the issues associated with an alliance and how to deal with each of these issues.
As a result of the many practical problems they face, project teams in alliances often have a different point of view about the alliance from that of senior management. These problems can be grouped under three major headings: 1) dealing with unrealistic expectations when the alliance was formed; 2) developing ways to solve the incredible number of day-to-day problems that arise during the course of the alliance; and 3) building relationships and trust among the individuals responsible for making the alliance work.
Here are some things that can be done, both before and after the alliance contract is signed, to establish a good foundation for the project teams to build upon.
Clarify the benefits of the alliance for each company and create a crystal-clear vision and specific goals for the alliance—It is essential that the team forming the alliance be able to articulate the answers to the questions, ‘‘Why are we forming this alliance and what specific outcomes do we expect?’’ They must also clearly communicate these objectives to the project teams that follow. Too often, the working teams do not have a single clear vision of where they are heading, what must be accomplished and why.
Assess (realistically) the probability of success—There is a natural tendency to be optimistic during the early stages of an alliance. The people involved in forming the alliance often see it as a personal achievement, a ‘‘feather in their cap.’’ They are committed to making the alliance happen. Their enthusiasm for creating the alliance may make them less objective in assessing the risks, and overly optimistic in selling the alliance to their respective companies. Unrealistic expectations established at this stage can cause a multitude of problems later on for the project teams.
Budget (realistically) for the necessary resources—Again, the tendency is to be too optimistic, and to underestimate the effort and money needed to accomplish the alliance objectives. Alliances take a lot of work to start and to maintain. Any alliance, by its very nature, at least doubles the number of people involved in making a decision. Do not short-change the project by underestimating the resources needed to do the job.
Create (realistic) timelines— Everything takes longer than expected. Project planning must allow sufficient time for the project teams to get to know one another and learn to communicate, in addition to actually doing the work. The time needed to accomplish tasks may be much longer than for an internal project. There will be more travel required for periodic face-to-face meetings. Dealing with the different corporate cultures and often different objectives of the two partners also takes extra time. This is yet another area in which formation teams are often too optimistic and establish timelines that are unlikely to be met.
Imagine the hapless project teams trying to meet unrealistic goals and timelines with too few people, an insufficient budget, and without a shared vision of their objectives. This situation is a recipe for project disaster and employee dissatisfaction. And yet, it seems to be the norm for many alliances.
Define (clearly) specific success criteria—To avoid misinterpretation of the vision, it is essential that the project team convert the vision into specific and measurable success criteria. People and teams can deliver the objectives as long as they know what they are and that they are measurable. If you don’t know where you’re going, it’s impossible to plot the route.
Establish clearly structured project teams and define their roles—At Procter & Gamble Pharmaceuticals, we have found the need to define roles for three basic alliance teams:
1. The formation team is the group that establishes the alliance initially. This multifunctional team of senior managers must evaluate whether an alliance should be formed, and must establish the ‘‘pre-contract’’ items mentioned previously.
2. The project team is the group from both partners that does the work of delivering the objectives. It is highly desirable to have a team leader from each partner as co-leader of this team. These two people must be carefully chosen, as they will be the main conduit of information and work flow throughout the life of the alliance.
3. The third team is the ‘‘board of directors.’’ This team oversees the operations of the project team and needs to have the authority to provide resources and to arbitrate when the project team is unable to resolve problems. Although left out of some alliances, we have found this third team to be extremely valuable to the effective operation of an alliance.
Assign people to the teams with the goal of providing continuity—In today’s workplace, there is no guarantee of continuity. However, it takes a lot of time and effort to establish a sound working relationship with an alliance partner. Corning’s vice chairman Van Campbell stated, ‘‘We’re looking only for lifetime associations, because you have to invest an enormous amount of energy to make a partnership work. A partnership that’s going to last only five to seven years simply doesn’t warrant that kind of investment’’(1). Continuity of personnel is required in order to maintain this kind of working relationship. Frequent turnover of key people on either side of the relationship will cause a huge loss of efficiency and trust, and could endanger the alliance.
Define the decision-making process—Many difficult and complex decisions must be made in the context of an alliance, and there are at least four different groups involved in that decision-making. From the very beginning, one should define both who these groups are and the limits of their authority.
The first two groups are internal—one management chain for each partner. For a variety of reasons, the usual internal decision-making procedures may not be sufficient in an alliance. There may be more interest from higher levels of management than usual, larger budgets requiring higher-level approvals than usual, or legal ramifications relating to the alliance that complicate decision-making and require new internal processes.
A third group of decision-makers is the alliance project team. Does one partner have the final say or do all decisions require mutual agreement? Does one partner have authority over certain areas, due to that partner’s superior knowledge or skill in those areas, while the other partner controls other decisions? Are the decisions legally binding?
The final group is the alliance ‘‘board of directors.’’ The board of directors and the project team both need to understand the board’s authority and the procedures for changing budget and project scope, and how to approach them for arbitration.
Develop information-sharing procedures—Both parties are certain to have information they consider to be proprietary. This information may need to be shared in order for the project team to do its work. Clearly defining when and how information will be shared is another essential detail.
Develop a detailed plan, with a budget and timeline—The alliance formation team never has enough information to create a detailed and accurate project plan, and, therefore, cannot define the project budget and timeline, except in the most general way. Even so, the project team is often expected to meet budget and timing objectives projected early in the project by the alliance formation team. Understand that the project team will need to establish its own, more detailed budgets and more accurate timelines as information becomes available. They should then be held accountable for achieving these objectives, rather than the outdated, early projections of the formation team.
Clarify the logistical considerations—Decide where the teams will be located, what language will be used, how often they will meet face-to-face and where, and so Any alliance, by its very nature, at least doubles the number of people involved in making a decision. March–April 1999 11 on. Although these may at first seem like trivial details, issues of this type can either facilitate or become significant barriers to communications within the project team. Settle basic logistical issues early in the alliance, before problems arise.
Establish a strong link with the legal and human resources departments of both companies— Given all the potential issues outlined above, the human resources departments will be busy. They will need to work periodically with the teams on team-building exercises. Even though team members should expect added complexity and difficulty when working in an alliance, the human resources departments should still be prepared to counsel employees who become stressed from the additional work and frustration.
After the contract is completed, the legal issues are far from over. Unexpected issues will arise that will either require revisions in the contract or interpretations of gray areas. The legal department will be involved in ensuring that team members understand the contractual obligations throughout the life of the alliance.
Establish how to reward the team members—Remember, there will be times when this team will be overworked and frustrated. Effective work within the context of an alliance requires considerable commitment and creative problem-solving on the part of team members. Establishing how to reward team members for their contributions to the alliance is critical for keeping good people on the team and for recruiting new team members over the life of the project.
In the enthusiasm of establishing a new alliance, don’t underestimate the amount of effort required to make an alliance work. Make sure that every alliance team has a clear set of realistic success criteria and the resources and processes to achieve those goals. Do not forget to reward the team for its hard work in keeping the alliance going day-by-day.
Trust, Trust and More Trust
Members of the alliance must continually work to earn, build and maintain trust. No discussion about the issues with alliances would be complete without at least mentioning trust. The root cause of much of the conflict between members of an alliance is a lack of trust. Each side thinks the other does not understand its viewpoint, and is only acting out of self-interest. Trust is the foundation of an alliance; without it, the probability of failure is high. See (2) for a more detailed discussion of this subject.
‘‘Are You Satisfied With Your Alliances?’’
Realistically, the answer to this question is often ‘‘no.’’ From a corporate viewpoint, success is often the exception rather than the rule, with 30–40 percent of alliances failing (1,3,4). Even those alliances that are considered to be successful, frequently fail to meet expectations. From the employee viewpoint, the challenges of working in an alliance can create prolonged frustration and burnout. The overall result may not be what either the company or the team members hoped for at the start.
To give your alliance the best chance to be everything you want it to be, follow these five guidelines:
1. Create a crystal-clear vision, goals, and success criteria up-front and make sure they are effectively communicated to the project team.
2. Be realistic in estimating timelines, budgets and people resources.
3. Establish effective team structures and clear decision-making responsibilities.
4. Recognize and reward contributions by team members.
5. Work diligently to establish and maintain trust and continuity.
Alliances, with all their challenges, are a vital part of doing business. The advantages of a carefully selected and well-run alliance will generally outweigh the disadvantages. By recognizing some of the common pitfalls associated with alliances, we believe we have increased our chances for successful ventures, and you can, too.
1. Sherman, Stratford. ‘‘Are Strategic Alliances Working?’’ Fortune, September 21, 1992, pp. 77–78.
2. Wolff, Michael F. ‘‘Building Trust in Alliances.’’ Research-Technology Management, May–June, 1994, pp. 12–15.
3. Park, Seung H. and Russo, Michael V. ‘‘When Competition Eclipses Cooperation: An Event History Analysis of Joint Venture Failure.’’ Management Science, June 1996, pp. 875–890.
4. Killing, J. P. ‘‘Strategies for Joint Venture Success.’’ Praeger, New York, 1983.
Zoller, S.A. (1999). “Are You Satisfied With Your Technology Alliances?” Research-Technology Management, Vol. 42, No. 2 (March-April), pp. 10-12.