By all accounts, strategic alliances are on the rise in today's economy. Attractive rates of internal growth are hard to sustain, and lower share prices in a down market make it tougher to acquire companies through stock swaps.
When it comes to managing IT activities, a growing number of companies are expecting greater value from forging relationships with key technology providers than from developing software in-house.
So, how do alliances measure up? Industry experts agree that most fail to meet the expectations of one or more partners. "Seventy-five percent of alliances are failing or underperforming," says Stuart Kliman, director of Vantage Partners LLC, a consulting firm in Boston.
Vantage Partners recently surveyed 150 corporate alliance managers to explore the reasons and remedies for alliance failures. For the purposes of Vantage's study, alliances included a continuum of relationships, ranging from joint ventures to outsourcing.
Kliman and others have found that the relationship aspects of alliances as opposed to their substantive performance are what trips up companies most often. "Fifty-two percent of those surveyed named poor or damaged relationships as the cause of failure," says Kliman. "This involves factors such as a breakdown in trust and a buildup of negative perceptions."
Companies often enter alliances in the same way many consumers buy used cars -- without knowing what they're getting into. The better approach, say alliance experts, is to regard the relationship like a tenuous marriage: Prodigious effort and a mature attitude will yield either an improved relationship or a civil parting of the ways.
Vantage Partners has found that most companies lack a significant institutionalization of alliance-building and maintenance capabilities. Instead, companies hand off those responsibilities to "people persons" and neglect to develop processes designed to promote alliance values on an organizational basis. For example, only 29 percent of the respondents in Kliman's study reported that alliance managers are consistently assigned to manage such relationships.
Alliance practitioners echo Kliman's conclusions. "Our problems with alliances have stemmed mainly from communications," says Kevin Bott, vice president for product and technology management at Ryder System Inc., a logistics provider in Miami. Four years ago, Ryder stopped developing software in-house and started developing strategic partnerships with technology providers such as i2 Technologies Inc., Manhattan Associates Inc. and Qualcomm Inc.
"We're a US$5.5 billion company with many operating locations around the world," says Bott. "We could overwhelm our providers by having 50 people calling them at one time." Instead, Ryder channels communications through two key managers one from business and one from the technical side who act as contact points for managing the relationships.
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Leveraging an Alliance Methodology
As in a marriage, it's probably a good idea for both parties in an alliance to get to know each other well before tying the knot. To help make that happen, Matthew Sagal, senior partner at the Alliance Management Group Inc. in Gladstone, N.J., has developed an alliance planning and negotiating system.
Sagal, a 20-year veteran of managing alliances at Murray Hill, N.J.-based Lucent Technologies Inc. and AT&T Microelectronics, says his experience fed the development of his Alliance Framework.
Sagal's methodology requires that potential deal-killers issues like splitting the financial pie or allocating ownership of intellectual property must be identified and dealt with upfront to foster this crucial mutual understanding.
How? "Each company addresses a set of elements," Sagal explains. These are dimensions of the deal such as objectives, roles, resources, branding and finances in which both sides develop negotiating positions.
"The process forces both sides to formulate positions carefully and expose them early on in parallel to the other side," says Sagal. "Addressing the elements in parallel rather than sequentially forces deal-killers out on the table early. They don't get to talk about the fun things first."
The point of the process, he says, is to avoid the all-too-common phenomenon of alliance failure, which includes "wasting time, effort and resources on a deal that never happens."
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Tale of Two Deals
For Vaughn Hovey, senior vice president for enterprise computing at Bank One Corp. in Columbus, Ohio, past experience demonstrates that assigning the wrong people to manage an alliance can lead to an inappropriate focus and damage the relationship. He tells the tale of two alliances he managed when he was an IT executive at Rochester, N.Y.-based Eastman Kodak Co. one with IBM and the other with Digital Equipment Corp. The partnership with IBM proved successful; the association with DEC was ditched after its initial five-year term.
Each alliance partner took a different approach to allocating human resources. IBM brought in general managers and operations people; DEC offered only operations types who were focused on current numbers. "Alliances that get hung up on short-term performance problems obscure the potential strategic value," says Hovey.
The parties to the IBM alliance enjoyed effective communication that was facilitated by a proper governance structure, he says. This included monthly advisory council and quarterly management board meetings to assess the progress of alliance projects.
"With the DEC alliance, the council did not meet, and the companies were not able to deal with problems and opportunities in a balanced way," says Hovey. As a result, he says, the DEC relationship degenerated into a blame game over perceived performance shortfalls on both sides.
"The IBM alliance had tactical issues, but we were able to look at the longer term," says Hovey. "With DEC, the focus was too tactical."
The Requisite Win-WIN
Alliances clearly must offer a deeper and more valuable relationship to both parties than just strict licensing deals. "We maintain these strong relationships to get what we need," says Ryder's Bott. "If we a need major enhancement for one of our customers, we get the developer to reprioritize its development plans." This communication takes place at regular meetings of senior management or at special negotiating sessions, he says.
The leverage that Ryder exerts on its partners is balanced by rewards. Recognizing that third-party technology deployments can generate potential revenue, Ryder offers compensation beyond the usual enterprise license. "We pay them based on the number of users," says Bott. "As the numbers go up, we pay them more. The objective ... is not to cut costs." Instead, he says, the partners focus on joint strategic goals, such as maximizing revenue and penetrating new markets.
That's one lesson that's not lost on Wendell Jones, CEO of Gaithersburg, Md.-based consultancy Outsourcing Advisors International and a former IT executive in the aerospace industry. "The provider wanted so much to get our business," recalls Jones of one of his aerospace outsourcing deals, "that we hammered them hard on price. We thought we were tough negotiators and that we got one hell of a bargain.
"But when the dust cleared, the poor account executive had to explain to his higher-ups why they weren't making any money," adds Jones. "In retrospect, I would have negotiated a better deal for the vendor."
For Jones, alliances are built on trust, and relationship factors are as important as performance. "Some people are constantly measuring how well their partner is doing," he says. "What really causes trouble are the loss of trust, assigning blame and not taking joint responsibility as in a good marriage."
Marriage counseling is precisely Gene Slowinski's inspiration for figuring out what makes alliances work. "When the expectations of the husband and wife map to one another, you probably have a good marriage," says Slowinski, director of strategic alliance research at Rutgers University in New Brunswick, N.J. "The further expectations diverge, the worse the marriage will be. If they get too far apart, the best you can do is to help them divorce neatly."
Slowinski suggests that the same principles apply to alliances. That's why he developed a tool called "expectation mapping," which is designed to bring parties to an agreement about their roles in a relationship. "Each party fills out a sheet on how it sees its own role and its counterpart's, and then they negotiate," Slowinski says. "They either get to a deal quickly, or they part as friends."
