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The Pitfalls to Successful Strategic Alliances

By Ed Rigsbee, CSP, CAE

(3032 Words)

Caveat Pars, partners beware! 

Partnering, as with any activity, has its unexpected challenges and pitfalls. Actually, this is probably more so than in traditional adversary relationships. In adversary relationships you must always watch your back. In relationships based on trust or what is perceived as trust, one can be lulled into a false sense of security. While you need to protect yourself from these dangerous situations, you do not want to create them by exhibiting the wrong attitude.

To keep your alliances healthy, conflict should be dealt with immediately. This is your best chance for moving forward in any relationship. But, improperly challenged, conflict can be the death sentence to an alliance.

Alliance conflict emanates from five core areas:

1.      Values

2.      Goals

3.      Facts

4.      Procedures

5.      Misinformation

Conflict doesn't have to be a roadblock to a successful alliance if you and your partnering alliance members are willing to resolve the conflict at the core level, in a timely manner. In fact, the resolved conflict can lead to a stronger relationship through improved communication. Unfortunately, conflict that is left unresolved will lead to fatal flaws that will erode the relationship.

Some of the more common areas of conflict in alliance relationships are accessibility, culture clashes, hidden agendas, management tenure, poor communications and unrealistic expectations. Many advocates and consultants for alliances believe that the alliance mortality rate is around 50 percent.

If you wait to build partnering relationships until all the potential pitfalls are unearthed, your industry will pass you by. Others, who you might have considered as possible members for strategic alliances, might be aligned with your competition. Be realistic though, as with a spouse, partnering alliance members don't change with time. They do not become, who and what, you want them to be. But rather, evolve to whom and what they desire. If you suspect core problems, you probably are accurate in your assessment and the chances for a successful alliance is greatly diminished. Partnering, like marriage, will not change people. What it does do, is to remove the facades, and exposes the good and bad.

Trust in others and the belief that alliance Partnering starts at the top are crucial elements to your success. These two topics are frequent causes for failed Partnering agreements when they're not followed. Also, in alliance agreements, be cautious of things you can't see now but may experience later. Little things like the small print in a detailed alliance contract. Don't let your enthusiasm cloud your judgment.

Just because you're working with a company of integrity, it doesn't mean they will look out for you. Even in a Partnering relationship, you are still accountable for your own success and well-being. Make sure your bottom-line expectations take into account that servicing the partnering agreement is going to require extra resources. Be certain of everybody's alliance partnering goals. Here are examples of potential Partnering pitfalls. Be aware of them before you enter an agreement. Your chances for success will increase.

At Timex:

Timex, for example, forfeited $60 million in lost revenue and learned about the challenges of Partnering overseas. You could say it took a licking and kept on ticking. After 18 months of frustration, Timex wanted out of the partnership it created in India. It all started a decade ago when it was illegal to export watches into India. Timex wanted into the market and proceeded to select a local watchmaker as its partner. Unfortunately Timex should have spent more time on due diligence and asked around a bit more about the partner to be. Timex assumed it could dominate the relationship and have the Indian manufacturer carry out its manufacturing needs on cue.

Was Timex surprised? The head of Timex’s joint venture in India, Robert Werner was quoted in a Los Angeles Times article as stating, “Until its Indian joint venture, Timex had been accustomed to owning companies outright, and its problems in India were a learning experience for many at Timex.” He said It took Timex six months of negotiations and an undisclosed settlement before the company could rid itself of the partner.

Today, Timex is happily partnered with Indian watchmaker Titan Industries, which is a subsidiary of Tata Group, one of the largest corporations in India. The Timex-Tata joint venture went to market in late 1992 and in its first year sold 400,000 watches. Two years later annual sales leaped to 1.9 million watches.

At Donnelly Corporation:

Founded in 1905, Donnelly Corporation started as a glass mirror manufacturer and supplier for the turn-of-the-century (1900) furniture industry. Today, through joint ventures and strategic alliances, they have operations in 12 countries. With net sales in 1998 of over $763 million (13.7% increase over 1997), they are successfully Partnering around the globe.

Dwane Baumgardner, chairman & CEO at Donnelly feels strongly about what it takes for Partnering to work. When we visited at their Holland, MI headquarters he said to me, "If you have management that is not operating on the basic believe, that it has to start at the top, those beliefs have to be held and permeated throughout the organization. For example, with employees (approximately 5,500 in 1999), if you have to believe your people can be trusted, that they want to work together in a supportive and cooperative fashion. The same must be true with another company; you have to believe when you form a strategic alliance that they will operate with the same motive that you operate. If you don't have those beliefs, I think you're going to run into problems."

Values Based Pitfalls

In looking at the issue of values, frequently partners of an alliance will have core values that are conflicting. This is especially a problem with issues like trust and integrity. Corporate culture clashes; employee turf protection, and resistance of certain employees to new ideas can wreak havoc on your efforts to maintain a prosperous alliance.

When one of the alliances partners does not completely embrace the principles of Partnering, big challenges occur. This can include top-level executives or even supervisory and functional employees in departments, divisions or regions within a Partnering organization. As an example, DuPont believes that if a contractor is looking just to maximize his profits, on just one job, then Partnering with that contractor is not for DuPont because they know there will be problems in the relationship.

Because the dynamics of alliance relationships are constantly changing, inflexibility of partners can kill an alliance quickly. Each member must be willing to give a little, especially in times of change for a Partnering agreement to work. Just as devastating is a partner making a Partnering commitment, and having a hidden agenda that would be destructive to the alliance. Not quite as bad is a partner deciding they don't want to follow through, or one that does not have the capability to fulfill their commitment.

Supplier relationships can become challenging, especially when business is great. Suppliers can make the relationship mistake of conveniently forgetting about the loyalty of smaller long-term customers, and snubbing them for the larger orders. This is short-term profitability and long-term disaster. When those large order companies go out of business or are consolidated, the supplier could be left without any customers.

Complacency of either partner is an insidious relationship-killer. Continuously ask your alliance partner questions in a way that encourages them to relate performance problems and shortcomings. Ask, "What haven’t we done lately?" And ask, “What is it you really need from us?”

Dependency on your alliance partner can put your business at a similar risk. If you become the weak link in the alliance and your alliance relationship no longer delivers value to your partner, more than not, they will discontinue the alliance.

If you or your alliance partner is not relationship oriented little problems can easily escalate. Then anger comes and the blaming others for your current situation. The not invented here, mentality often exhibited by senior management is a result of low relationship tolerance. Also the lack of commitment to the alliance or innovations developed by alliance partners can easily slay your relationship.

There is the situation where you might lose control of a technology or best practice to an alliance partner who later becomes a competitor. Staples and Office Depot were going to merge but it did not work out. A problem for Office Depot was that Staples learned of an Office Depot best practice during the merger talks. Office Depot was delivering COD to small businesses in the northeast and getting most of the business. After the failed merger, Stapled duplicated Office Depot’s practice and took away Office Depot’s competitive advantage in the area.

Goals Based Pitfalls

In situations where a customer is the driving force behind a Partnering arrangement, you can be left holding the bag. Be sure to examine each Partnering proposal in the context of your company's overall business strategy. This challenge was recently apparent to IBM and it discontinued its alliance with Somerset PowerPC and Motorola, in producing microprocessors for Apple.

When sitting down at the Partnering table a partner might find the relationship seat uncomfortable. It could be that your partner has a different level of emotional and physical comfort, or sometimes it is simply a change in corporate strategy or a restructuring which leads away from a partner's product and/or technology causing the partners distress. It is important that you know the short and long-term goals of your alliance partner.

When you try to partner with a potential or current customer and have them renege on the promise of purchasing from you, the disloyalty challenges that can occur can be wasteful. Be cautious, as there is also the possibility of your partner being unethical and attempting to capture your technology or trade secrets. This is a difficult area from which to protect yourself, but if you do your due diligence, your chances for success increase.

Facts Based Pitfalls

Relinquishing some control with the expectation of greater shared returns can be a difficult waiting game. Additionally, your resources can get pulled in too many directions based on collective alliance decisions. Be certain you can spare the resources you devote to your alliance. Otherwise you may put the success of your entire operation in harm’s way.

The lack of third-party cooperation can be a true relationship problem. All the primary members of a Partnering agreement will have to give a little for your agreement to work. Worse yet is your partner receiving unfavorable or harmful media coverage. This is because you are usually pulled into the picture and believed guilty by association. Real or perceived, image and reputation are critical to any company's success.

Be careful in global alliances. Contracts with an overseas market, for instance, often take a long time to finalize. By the time you get going, in the technology industries, your competition may have already gotten started. If you are already behind and you have developed an alliance with a partner organization that is weak and bleeding, they will only bring you down faster and harder.

Procedures Based Pitfalls

It is easy to underestimate how much time, energy and resources will be necessary to commit to your new alliance. Then not having access to your alliance partner’s employees is an important issue. The closer the planned relationship between the two companies, the greater the importance of the linkages between them. You might find yourself in a situation of a small company Partnering with a large company. A challenge in working together will be that of the representatives, usually top executives of the small can make decisions on the spot. Unfortunately, the employees of the giant must take a proposal up the chain of command. This sometimes slows progress to a snail’s pace.

Culture clash is a frequent Partnering challenge. The failed alliance of IBM and Apple is a typical example. The heralded fall 1991 announcement promising cooperation eventually spawned Taligent Technology and Kaleida Labs. Unfortunately the two could not coexist so the alliances eventually gave way to a quiet winter 1995-1996 breakup.

Putting all your alliance relationship eggs in the basket of only one executive or manager is not a smart idea. The management tenure of your alliance contact can signal success or failure. If you have a one-person relationship, what happens if they get promoted out of the area, fired or even die? You are out of luck. Build relationships with several key contacts in the organization of your alliance partner.

What if your partner’s internal or external rewards structure interferes with the success of the alliance? This could apply to employees, customers or suppliers. If you are a supply partner and your partner has traditional rewards for their buyers, the buyers will only be interested in concessions and cost reductions. On the flip side, sellers usually offer rewards for sales performance and this also can be challenging in making a relationship work.

There certainly is a difficulty in communicating across various time zones. Solving problems quickly when your Partnering factory is located halfway around the world is hard enough, but when also speak a different language, that just makes it more of a formidable task.

Inertia, not having the emotional ownership in getting started is a true pitfall. Add this to chaos, seeing too many alliance choices and ways to create an alliance, some never do get started. The two sides of the sword are, if you wait for everything to be perfect, they never will. And if you do not put enough energy into an intelligent choice, your alliance could be doomed from its inception.

Misinformation Based Pitfalls

You could easily be guilty of underestimating the complexity of coordinating and integrating corporate resources, and overestimating your partner's abilities to achieve the end result. Self-doubt and not believing you have the skills and tools to create an alliance can crop up here.

Eventually, Partnering success depends on management’s abilities, skills, commitment, aspirations and passions in assembling the pieces of the puzzle. When unequal dependence in a relationship occurs, the partner with the least dependence could be less likely to compromise and put energy into the relationship.

Meanings assigned to words by different cultures can cause serious problems. In one culture quick delivery could mean one day and in another it could mean one month. This opens the can of worms often referred to as unrealistic expectations of a partner's capabilities. The areas commonly include technology, research, production skills, marketing might, and financial backing.

We also have the unexpected inefficiencies or poor management practices of a partner that can be the demise of a well-intended alliance plan. Also at risk is the area of developing an alliance with multiple partners, who later become rivals to one another. This puts a serious strain on the integrity of the remaining alliance.

Now that you've had a view of Partnering from the downside, don't let these hurdles stop you. Be clear on what alliance partnering is not. It is not instant gratification, nor a quick fix.  It is not a flavor of the month management strategy. Strategic alliances are separate entities that have come together to solve their individual problems in a way that serves the whole mutually. It is sharing core competencies that overlap and create synergies. The struggle is a necessary part of any relationship that is valuable and lasting. 

To reduce the effects of Partnering pitfalls, David Elliott, senior vice president and chief administrative officer at Technicolor in Hollywood, CA shared his thoughts with me. "If a partner fails to meet their responsibilities, a clear agenda is necessary that both sides are operating from. When the agendas are different or conflicted—that’s a problem.” He went on to say, “We don't have partnering horror stories because we include an exit strategy, before going into the relationship.”

Elliott's advice for others entering into partnering relationships is to do your homework, know the agenda of all partners in the relationship and measure against it. If after doing your homework you're still not completely sold on partnering with a company, start small. Begin your alliance by partnering with another for a simple or small promotion and get your feet wet. If you do stumble, then having the ability to regenerate after a fall is crucial, especially if you or a partner simply make a mistake.

Having knowledge of the alliance unknown should keep you from becoming immobilized and waiting for opportunities that could easily pass you by. Sure, there are some risks, but to lessen the effects, do your homework, know the agenda of all partners in the relationship and measure against it. If after doing your homework you're still not completely sold on an alliance relationship with a company, start small. Begin your alliance by Partnering with another for a simple or small promotion and get your feet wet.

If you do stumble, having the ability to regenerate after a fall is crucial, especially if you or a partner simply makes a mistake. Be careful when events and circumstances are not what you hoped or planned for.  You might go to a place of apathy.  If you remain in a toxic mind-set, you'll wait and wait for things to get better before you move into action. The trouble is that things rarely get better until you propel yourself into a state of activity.

To be successful at partnering you must commit to functioning at a higher level. A level that will allow you to stretch your comfort zone and then commit to moving into action. Without these two issues in concert, you might not get started or restart when necessary.

Once you get back in the action, you can go after small wins to reestablish your confidence to take risks in pursuit of an even larger prize. The key is to not wait for all to be perfect before you commence.  It's okay to subscribe to the idea of: ready, shoot, aim. Do though; take the time to adjust your aim after you begin. Be like a commercial airline pilot and course correct regularly. Keep your future focus on the partnering journey. Keep it improving. Be decisive, and show the qualities of a leader in your industry. You will be rewarded.

 

To access helpful additional information from Ed Rigsbee at no charge, please visit www.rigsbee.com/downloadaccess.htm.

 

Copyright 2001-2013 Ed Rigsbee

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Adapted from PartnerShift-How to Profit from the Partnering Trend by Ed Rigsbee, CSP,CAE, published by John Wiley & Sons, New York, October 2000. All of Rigsbee’s books are available from Amazon.com.

Ed Rigsbee, CSP, CAE, is the author of PartnerShift, Developing Strategic Alliances and The Art of Partnering and has over 2,000 published articles to his credit. Ed travels internationally to deliver strategic alliance keynotes and workshops. When you need a speaker or consultant on partnering, Ed can be reached at  ed@rigsbee.com or visit www.rigsbee.com.

 

The Member ROI Guy: Ed Rigsbee, CAE, CSP

805-498-5720 or Ed@Rigsbee.com or Skype: Ed_Rigsbee

Rigsbee Enterprises, Inc. (Est. 1981), 1746 Calle Yucca, Suite 200, Thousand Oaks (Los Angeles area), CA 91360 USA

 

     

 

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