Newswise — CHARLOTTESVILLE, Virginia — Businesses form alliances to promote growth and access new markets and technologies. Despite this "alliance reliance," 60 to 70 percent of business-to-business (B2B) pacts fail, according to Tayloe Murphy Professor of Business Robert Spekman. The University of Virginia Darden School of Business expert on B2B marketing recently published research in which he offers tools to help managers counter this trend. Professor Robert Spekman
"This failure rate has not decreased significantly in 20 years," Spekman said. "Such mixed results present a paradox: Firms need alliances to compete effectively in the global economy, but their track record is not very encouraging."
Corning and Siemens are two companies that got it right.
Their alliance eventually formed Siecor, a fiber optics company located in North Carolina. Spekman explained that Corning had the fiber optics skills and Siemens had the cabling expertise. Together, the companies tapped into a whole new market for network communications.
"The skills that each party brought were complementary, and they established a governance structure that had a no-blame review process in which the partners attempted to solve problems through conflict resolution techniques," Spekman said.
He added that the managers who handled the alliance on both sides worked well together, recognizing the "give and take" required in any relationship. The attitude served them well.
"Corning's name comes second in this formation, for example," said Spekman. "While both firms have egos, Corning and Siemens did not to let them get in the way."
Corning is no stranger to successful alliance formation. It has formed a myriad of partnerships with companies, including Dow (Dow Corning), Owens (Owens Corning Fiberglass) and Ciba (Ciba-Corning).
To form alliances successfully, Spekman advises that managers from command-and-control backgrounds acquire certain "soft skills" in addition to humility.
Elements of Alliance Competence
Spekman puts forth three main activities associated with managing an alliance:
His work also defines the five elements that enable a firm to support alliance-like behavior and affect alliance performance.
1. Alliance know-how entails knowledge and experience in alliance management. It is the ability to articulate, codify, share and internalize alliance management wisdom that is critical. In starting from a point of competence, managers are able to build upon existing strengths, which is bound to lead to better performance.
2. Alliance mindset relates to those relational variables - trust, commitment, communications - that enhance a firm's ability to partner. It captures the underlying social contract that guides the interactions between partners and addresses the question of what it means to partner.
3. Alliance bench depth is simply the depth of talent within a firm that is "alliance ready." These types of firms can easily assign the role of alliance manager. Alliance managers cross many boundaries and may be considered "boundary-less." They must balance the needs and desires of the parent companies and their home companies and the day-to-day management of the alliance. On an interpersonal level, alliance managers maintain relationships with superiors, peers, and subordinates both in the alliance and the parent organizations.
4. Alliance learning addresses the institutional mechanisms by which alliance skills are recognized and taught and are institutionalized. Learning is the codification of the processes that foster alliance competence and can be accomplished a number of ways. An example is through the use of templates and forms that encourage others to ask questions and collect data that they might not otherwise do.
5. Supportive processes and structures are the mechanisms that facilitate the sharing of alliance knowledge among partners as well as within the firm. Organizational structure and processes can impact both the firm's ability to leverage its existing alliances and its ability to develop new skills in the future. In alliances, bureaucracy can stifle the firm's ability to innovate due to the rigid rules that standardization and centralization manifest. On the other hand, an adhocracy — a primarily unstructured organization focused on addressing challenges — encourages the expression of communication, discussion and information sharing that, in turn, promotes a culture in which alliances are more likely to succeed.
"We believe that these five elements explain much of the variance between high and low- performing alliances," Spekman said. "Successful alliances do not just happen by accident. They take effort and hard work."
In addition, trust is an essential ingredient to the transfer of knowledge because it acts as a counterpoint to opportunistic behavior.
"Said simply, trust is the currency that determines knowledge accessibility. It is fragile, easily damaged and should be repaired quickly," Spekman added.
Building Essential Processes
Spekman also found that supportive structures and processes are critical to the success of alliances because they enable the type of behaviors upon which successful alliances are built.
Processes that enable the free flows of information encourage risk taking and establish reward systems that facilitate teamwork and are more likely to result in high-performing alliances, according to Spekman.
Structural elements that discourage silo-like thinking and encourage higher levels of participation in decision-making are more likely to exist in higher performing alliance partners.
The degree to which firms are alliance-friendly converges on the following four factors:
1. Not silo-bound: the absence of internal barriers that prohibit an enterprise view.
2. Information sharing: the firm's encouragement of information transfer and communication among units.
3. Decentralization: the decision-making ability of the firm's people and their ability to take action.
4. Monitoring systems: the existence of systems that self-correct and oversee performance.
"To be a good alliance partner means that a firm must demonstrate internally the type of behavior that it wishes to see in its external relationships," Spekman advised.
In addition, Spekman's work demonstrates the counter-intuitive nature of being competitive - the requirement of effective cooperation.
About the Darden School of Business
The University of Virginia Darden School of Business is one of the world's leading business schools, offering MBA, Ph.D. and Executive Education programs. The unique Darden experience combines the case study method, top-ranked faculty whose research advances global managerial practice and business education, and a tight-knit learning environment to develop responsible and complete leaders who are ready to make an impact.
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