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How to Manage Alliances Strategically

Book Description

Two key strategic alliances were crucial to the early success of Tesla Motors Inc. A partnership with Daimler AG provided a much-needed cash injection; a partnership with Toyota Motor Corp. gave Tesla access to a world-class automobile manufacturing facility located near its headquarters in Palo Alto, California. In 2014, Tesla Motors signed yet another strategic alliance -- this one with Panasonic Corp., a world leader in battery technology. The alliances highlight the fact that companies may not need to own all of the resources, skills, and knowledge necessary to undertake key strategic growth initiatives. When conditions are uncertain and the stakes are high, partnerships can be an attractive alternative to going it alone or to mergers and acquisitions. Accordingly, many companies now maintain alliance portfolios. As a result, executives must manage multiple alliances with diverse partners across the globe simultaneously. However, the skills required to develop and manage alliances are still not well understood. In this article, the authors attempt to address these shortcomings by offering an integrative and holistic framework of alliance management along with practical guidance. Although strategic alliances are often viewed as a critical tool for pursuing growth opportunities, recent survey data suggest that roughly half of alliance portfolios underperform. Although the assessments of performance are subjective, it is fair to say that many alliances fail to live up to expectations. Why? As the authors found in their research, companies move at different rates down the learning curve related to managing alliances. Smaller companies may have advantages in this relative to larger partners because they are usually less complex internally and have stronger incentives to learn. Moreover, the benefits of alliance experience depend on the extent to which the organization can actively capture and leverage its experience (for instance, one partner may be able to draw additional benefits from an alliance, while the other may continue to make the same old mistakes). Hence, the authors argue, companies need to take a holistic and strategic approach. Tesla, for instance, doesn’t view its alliances as individual deals but as part of an overall strategy to establish a new standard in automotive technology and, along the way, to gain a competitive advantage. Much prior research on alliance management has tended to focus on one aspect of the process -- for example, how to manage a stand-alone alliance. The authors note that executives often need to manage multiple alliances at once with partners in different geographies and at different stages of the alliance life cycle. Using the experience of Lego A/S as an illustration, the authors present a process framework with five distinct steps (partner selection, deal negotiation, execution, exit, and portfolio management). In addition, they offer a set of critical questions that can help executives undertake and manage alliances more effectively.