How To Make Strategic Alliances Work

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New research shows that among today's numerous strategic alliances, the most successful are in companies with a department specifically assigned to overseeing alliances. Management professors Jeffrey H. Dyer, Prashant Kale and Harbir Singh came to that conclusion after conducting an in-depth study of 200 corporations and their 1,572 alliances.

The number of strategic alliances has increased dramatically over the past decade, with more than 20,000 reported during the last two years alone. On average, the top 500 global companies each participate in 60 major strategic alliances. Fraught with risk, almost half fail. The authors set out to discover why some companies manage alliances effectively when others fail.

They found that organizations such as Hewlett-Packard, Oracle, Eli Lilly & Co. and Parke Davis, which excel at generating value from alliances, have a dedicated strategic-alliance function. Companies with a dedicated function were better at solving problems related to the four key alliance-management elements — knowledge management, external visibility, internal coordination and accountability.

A dedicated function, the authors show, acts as a focal point for learning and for leveraging feedback from prior and ongoing alliances. It systematically establishes processes to articulate, document, codify and share alliance know-how.

The authors found that one benefit of creating an alliance function was that it compelled companies to create metrics for evaluating the performance of all their alliances. And regular evaluations alerted senior managers to intervene when a particular alliance was struggling.

Many companies with dedicated alliance functions report codifying alliance-management knowledge. They create guidelines to help with specific aspects of the alliance life cycle, such as partner selection or alliance negotiation. Some companies establish training programs, both formal ones and informal ones — such as roundtables that let managers of various alliances share their experience.

When done properly, dedicated alliance functions offer internal legitimacy to alliances, assist in setting strategic priorities and draw on resources across the company. That is why, the authors advise, the function cannot be buried within a particular division or be relegated to low-level support within business development.

Jeffrey H. Dyer is a professor of international strategy at Brigham Young University's Marriott School in Provo, Utah. Prashant Kale is an assistant professor at University of Michigan Business School. Harbir Singh is a professor of management at the Wharton School of the University of Pennsylvania. Contact the authors at jdyer@byu.edu, kale@umich.edu and singhh@wharton.upenn.edu.

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