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Strategic Alliances & relationship Fit Successful
alliances are assessed for relationship fit long before the deal is sealed. With the improvement in the economic outlook comes a renewed interest in
mergers and alliances. As attractive as these deals seem, managers must keep in mind that they’re
not as simple as signing a contract. In the more than 100 companies that was
recently surveyed, each of which had multiple alliances, it is found that 70% of
their relationships failed outright or achieved only initial goals. Too often,
poor relationship fit is to blame. The survey also found that 45% of all
alliances fail as a result of relationship issues. These include breakdowns in
trust, feelings of disrespect, a buildup of negative partisan perceptions, a
lack of joint problem-solving skills, questions about partners’ motives, and
festering conflicts. Thus building and maintaining a strong working relationship
ought to be a high priority at all times in the alliance life-cycle: when
evaluating and selecting an alliance partner, in negotiating an alliance, and in
managing an alliance over time. In fact, many companies do invest lots of time
after the deal is done, and some do during the negotiation stage. But
adversarial, drawn-out negotiations often cause significant damage to the
alliance before it’s even formalized. The best approach is to assess relationship fit before formal negotiations
even begin. This requires focused inquiry and honest conversations very early on
in the alliance process. Why relationship fit matters It has been found that those companies that take the time to evaluate
relationship fit at the outset tend to be more successful at building and
managing strong alliances. There are three fundamental reasons for this. First,
these companies make better decisions about with whom to form an alliance. They
know not to jump into a relationship with the first partner that approaches
them. What’s more, they understand that adding an assessment of relationship
fit into the selection equation affects not only which partner they choose but
also influences their decision about whether to partner at all. “Understanding
when you can’t partner is as valuable as understanding when you can.” Second, once the candidate has been chosen, companies that have made the
effort to assess relationship fit understand more about their future partner and
therefore have a better idea about where they might run into relationship
problems and how best to deal with them. Finally, these companies understand
that an explicit discussion of the working relationship is critical to the
success of the alliance because it helps align the partners on this issue and
sets the tone for how they will work together. Unfortunately, many companies don’t realize how important relationship fit
is until it’s too late. These companies often base their selection of an
alliance partner exclusively on factors such as financial viability, strategic
direction, technological capability, quality of products and services, and
market reach. They either pay little attention to relationship fit or dismiss it
altogether as “soft stuff.” Research done at the California Institute of Technology found that at
the beginning of the relationship, executive attention is very high when it
comes to the business reasons for being in that relationship, but very low when
it comes to addressing compatibility. As the alliance progresses, however, those
two concerns become inversely proportional to each other. When executive
attention is focused more intently on relationship fit and compatibility early
on, the alliance tends to be more successful and to last longer. Some companies think that relationship fit is a matter of intuition rather
than the product of systematic analysis. This often leads to sloppy partner
evaluation. Financial viability and technological capability are the obvious
criteria that most partnering companies use. However, differences in
decision-making processes, escalation procedures, problem-solving approaches,
business practices, and information-sharing standards get short shrift. Since
few organizations have an established method for evaluating these relationship
issues, they often neglect this kind of fit assessment altogether and rely on a
“gut” assessment. In so doing, they confuse “getting along” with having
a good relationship fit. How to assess relationship fit No single company has all the answers or the perfect process for assessing
relationship fit. So start off the conversation with a potential partner by
explaining why you think it’s important to conduct a systematic
relationship-fit assessment together. Share your ideas for how to go about doing
so, and ask your prospective partner to do the same. It may be helpful at this stage for each organization to develop a list of
its own capabilities and challenges. Sharing these lists will help build a
working relationship, since both organizations will learn about how the other
collaborates and sees itself. 2. Discuss each company’s culture and processes.
It’s not enough to discuss these elements on a surface level; you
must work to truly understand the what and the how of each. For example,
potential partners could each honestly assert that they escalate “only as a
last step,” but one potential partner’s escalation process could include a
number of steps that the other’s doesn’t. Thus what one partner considers
the last step might be only the third-to-last step for the other partner. In
high-stakes situations where professional and personal reputations might be at
issue, misunderstandings like this could lead to breakdowns in trust that can
fester and, in time, destroy the relationship. This is why it’s critical to
look closely at both parties’ escalation processes and identify where they
diverge. In many cases, these conversations will form the basis for a productive working relationship; in some cases, of course, the differences between potential partners will be so great that an alliance doesn’t make sense. A case in point Doan knows how crucial it is that the subcontractors with which NTMI forms
alliances share NTMI’s defining cultural values: an employee-centric emphasis
on quality and fairness. “The last thing you want is for your partner’s
employees to be defecting to your company,” says Doan. “So we want to know
that they pay their own employees fairly before we will partner with them.”
When NTMI discusses with a potential partner how it defines alliance success,
Doan and her employees are careful to make sure that issues of joint gain, fair
bidding, and fair pricing are part of the conversation. Doan has found that
because many subcontractors are eager to win a bid at any price, they underbid.
So Doan has her employees reformulate all bids with their subcontractors to be
sure that these smaller companies make money in the alliance. “I don’t want
them bidding so low that they get the job, but then can’t perform because they
are going out of business,” Doan says. Doan knows from long experience that the worst kind of relationship-fit assessment is the one that never takes place. There is simply too much at stake in a critical business relationship to leave success to chance. By conducting a relationship-fit assessment, you’ll signal to your prospective partner early on just how critical the working relationship is to you and just how much each party must be willing to invest in it for the alliance to be a success—for both partners.
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