Long Range Planning 42 (2009) 164e193
http://www.elsevier.com/locate/lrp
Building Successful Strategic Alliances Strategic Process and Analytical Tool for Selecting Partner Industries and Firms Stevan R. Holmberg and Jeffrey L. Cummings
Successful business alliances are a critical strategic component in many industries, but too many strategic alliances fail to meet their partners’ objectives. While the reasons behind alliance failures are complex, and vary according to type of alliance and industry, many failures result from ill-conceived overall alliance strategies, narrowly focused industry and firm partner selection analytical thinking and models, and poor alliance management, execution and implementation. In particular, the well-informed and strategically driven selection of alliance partners is a core element in building successful alliances. To that end, this article provides alliance managers and researchers with (1) a strategic managementbased industry and partner selection process, (2) a new dynamic partner selection tool for evaluating target industries and specific firms, which is applicable to multiple alliance and industry contexts, and (3) an alliance-rich global travel industry application that illustrates the robustness of our partner selection process and analytical tool. The article fills a gap in the literature with respect to service-business alliances, which have traditionally been understudied. Lastly, perspectives are offered for future managerial and research actions. Ó 2009 Elsevier Ltd. All rights reserved.
Introduction Strategic alliance formations have increased dramatically over the past decade and, in many U.S. and E.U. industries, alliances are now a central strategic component and a core offensive and/or defensive competitive weapon. Strategic alliances have shifted the fundamental competitive paradigm in many domestic and international markets from traditional firm-to-firm competition to more alliance-based, network-vs.-network competition. Consistent with this shift, Booz-Allen & Hamilton estimates that more than one-third of the revenues of the top 2,000 U.S. and European 0024-6301/$ - see front matter Ó 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.lrp.2009.01.004
companies come from alliances. Lorenzoni and Baden-Fuller characterize firms positioned at the center of large multi-firm alliance networks as ‘shining examples of how firms can change the rules of the game by creative and imaginative thinking.’ Moreover, as strategic innovations (such as online travel, auctions and banking; digital communications and entertainment, including mobile phones, digital television, Apple’s iPod and iPhone and RIM’s Blackberry; pharmaceuticals, etc.) create powerful shifts in customer value propositions through new combinations of performance attributes, an individual firm’s competitive advantages can be taken back to zero. Joel Barker found that paradigm shifts are often created by firms using non-traditional thinking, unrestrained by current industry practices, which raises the importance of having a strategic perspective about alliance formation. Firms seeking to identify, develop and maintain sustainable competitive advantage increasingly use a collaborative paradigm that looks beyond their own boundaries to develop sophisticated, effective and flexible alliance strategies.1 However, despite the growing numbers and increasing significance of strategic alliances, many fail, while an even greater proportion perform poorly.2 Although such failures may be for many interrelated reasons - and may be defined in various ways - two common causes are poor partner selection and poor alliance management. Even superior alliance management skills may not be able to overcome poor initial screening and targeting. This article focuses on partner selection, presenting a strategic management-based process for evaluating target industries and firms that can help managers avoid the emotional drive to ‘do the deal’ - a key partner selection pitfall - as well as other factors that may inhibit appropriate partner selection.3 This process also provides a new dynamic partner selection tool for evaluating target industries and specific firms, and we illustrate its use by applying it to the alliance-rich global travel industry, one of many industry contexts where the tool can be used. This article fills a number of important gaps in the existing alliance partner selection literature, much of which: neglects to link partner selection to broader strategic management issues; fails to consider an overall strategic alliance partner selection process; focuses on general rather than specific motivations behind selection; tends to be conceptual, rather than offering operationalized analytical tools; pays insufficient attention to dynamic considerations and changes over time; and neglects the needs for weighting and rating the many specific elements embedded in an alliance partner selection analysis. Our process and analytical formation criteria help address both the multiple problems associated with ‘strategic expediency’ (where, as Bierly and Gallagher note, alliance decisions must be made with limited time and information) and those situations where firms, and/or individuals, trust of potential partners is based on their knowledge of them as derived from social networks, cultural and organizational similarity or reputation, rather than as a result of conducting a rigorous analysis of their potential fit as alliance partners.4 We provide a practical illustration of the utility and robustness of our proposed partner analysis process and analytical selection tool in the context of the travel-tourism industry which Lorenzoni and Baden-Fuller noted that the travel industry is ideal for studying alliances, given its wide variety of alliance types and cross-industry relationships and the rich diversity of significant strategic and/or tactical impacts these different collaborative arrangements have on the industry and on its players. However, our process and tool can also be applied to other service and product industry alliances, and to different alliance types. As service businesses have been underrepresented in the alliance partner selection literature, we have chosen co-marketing alliances, increasingly common in the service-related sector, as this article’s context.
Any collaboration begins with analyzing potential partners. realizing potential alliance benefits depends on selecting appropriate partners. Long Range Planning, vol 42
2009
165
The crucial importance of alliance partner selection Any collaboration begins with the need to analyze potential partners, as realizing the potential benefits of an alliance will depend on the selection of appropriate partners. Draulans et al. find that the knowledge, skills and competencies needed to both select appropriate partners and then manage the ensuing collaboration make ‘an important contribution towards enhancing alliance success.’ Simonin called this capability ‘collaborative know-how,’ while Kumar and Nti termed it ‘alliance process knowledge.’ Hoffman notes that, no matter how it is characterized, this collaborative capability extends from managing individual dyadic alliances to large and complex multi-firm alliance portfolios, and demands not only expertise in alliance management and governance, but also in alliancerelated searching, negotiations and terminations.5 As one might expect, the alliance literature widely agrees that partner selection is an important topic, and that partner selection know-how is central to operating successfully in an alliance rich environment. Ireland et al. found that ‘effective alliance management begins with selecting the right partner’, while Geringer’s study of international joint ventures strongly supported ‘the assertion that the partner selection ‘process’ as a whole, and partner selection criteria in particular.’ is an important topic for managers and researchers and has ‘received relatively scant attention’. Gomes-Casseres found that selecting partners is critical to ‘knowing how to maximize the benefits and minimize the risks of partnerships’ and that ‘the choice of partners determines the raw material, so to speak, for collaboration’, while Harbison and Pekar note that ‘Partner selection is of critical importance to any alliance. Inexperienced firms often fail to pay enough attention to this, concentrating on their objectives and rationales instead of conducting a detailed analysis of potential partners.’ Finally, Pangarkar’s alliance study documents the importance of pre-alliance preparation and deliberation and indicates that short-lived alliances produce limited benefits and have high out-of-pocket and opportunity costs.6 The many diverse types of alliance (including joint ventures, marketing agreements, research and development arrangements, project-oriented alliances and so on) and the variety of organizational types involved (e.g., firm to firm(s); firm to nonprofit organization/association; nonprofit to nonprofit; firm to government agency) make partner selection and other alliance competencies even more important, and the need for superior collaborative know-how is particularly acute considering the high percentage of alliances that fail to meet their stated partner objectives.7
Methodology We used three resources to develop and refine our strategic management-based process and analytical tool for selecting alliance partners. First, we conducted an extensive review of the strategic alliance literature and, more specifically, the alliance partner selection literature, which revealed that a structured, strategy-focused process and a new partner selection tool were needed. We extend the current literature by developing a process that links corporate objectives and alliance objectives and strategies. The tool presented in this article also incorporates specific critical success factors (CSFs) for the firm conducting the analysis and the industry in which it operates. Second, we performed a thorough review of the academic and professional literature on alliances in the travel, tourism and hospitality industry and related segments, seeking to identify industry issues and trends, firm strategies, and more specifically, alliance activities and partner selection issues. (One particularly informative publication was the 1999 Travel Industry Association of America’s Building Strategic Alliances.) We used this information to develop our application of the tool to the travel/tourism industry. Third, we tested this article’s overall process and analytical tool with seasoned executives and managers in Executive MBA classes. Testing the tool in this situation allowed us to further refine both it and the process, and illustrated the advantages of using a strategy-connected dynamic partner selection tool to assess alliances first-hand (a detailed methodology explanation is presented in the Appendix). We observed that, when not using the tool, executives focused on current critical 166
Building Successful Strategic Alliances
success factors, ignoring the fact that they might change over time, and also tended to go straight to the firm level, a narrowing of scope that meant bypassing important questions that would have been revealed by an industry or industry-segment analysis of strategic alliance opportunities. Specifically, working without the analytical tool, executives tended to focus on the general importance of CSFs, without considering any specific weighting per success factor, or developing any underlying assumptions about how they might be given relative ratings. Their subsequent use of the partner selection tool demonstrated its ability to overcome each of these shortcomings.
Executives [tend to] focus on current critical success factors, ignoring how they might change over time, go straight to the firm level and bypass alliance opportunity analysis at industry or segment level. The following sections review the gaps in the current literature and then present our partner selection process and its related analytical tool, illustrating their use with online travel industry examples. While our focus here is primarily on an alliance-rich service-related industry, the process and its associated selection tool can also be applied in analyzing product-related alliances, and in analyzing existing as well as potential new alliances.
Gaps in the alliance partner selection literature Somewhat surprisingly, almost all the research efforts addressing partner selection have used the lens of generic strategic alliance motivations or partner-attribute considerations, rather than presenting specific selection processes or tools for day-to-day management use. Doz and Hamel identify (but do not operationalize) three primary motivations behind strategic alliances: (1) co-option e co-opting potential rivals, as well as those with complementary products/services, helps a firm gain competitive strength; (2) cospecialization e synergy from combining complementary specialized resources, skills etc. contributes to a firm gaining unique skills and resources; and (3) learning and internalization e learning and internalizing new skills contributes to a firm’s stock of tacit or embedded skills. Generic alliance formation motivations are also described by other researchers. Child and Faulkner group generic motivations into five primary categories (some of which overlap) consisting of: (1) transaction-cost motivations e where the primary alliance motivations revolve around achieving transaction-cost economies and efficiency of assets, operations and strategies; (2) resource-based motivations e supplementing existing resources or securing missing resources (3) strategic-positioning motivations e increasing the strength of the firm’s strategic competitive positioning in the industry (including both offensive and defense alliances); (4) learning motivations e alliances involving formal and tacit learning as a core motivation (which all alliances feature, to some degree); and (5) other motivations e risk reduction/management, first-mover advantage, speed-to-market, increased flexibility, reduced uncertainty etc. Park and Zhou note that alliance motivations are generally based on market positioning and uncertainty and the firm’s resource conditions, including the anticipated industry and competitive dynamics generated by alliance activities. From a slightly different perspective, Bierly and Gallagher note the roles that trust and a rational strategic-fit approach play in partner selection, and develop the concept of ‘strategic expediency’ as a way to deal with the challenges of having limited time and/or information and the tendency to overvalue trust when making partner decisions. They believe firms develop strategic-expediency competencies by having policies, procedures and analysis templates in place and by giving managers opportunities to practice their use. While prior research is typically more general in nature, this article builds on these suggestions by providing a specific partner selection process and template, in this case, in the form of an analytical, dynamic partner selection tool.8 Long Range Planning, vol 42
2009
167
Some research has attempted to develop more specific procedures for choosing alliance partners. Unlike the generic-motivation approaches, Pan develops alliance partner selection criteria based on a review of 13 published studies on the topic. His motivations and partner selection criteria include: complementary strengths, task-related and partner-related criteria; considerations of culture, economic behavior, and other criteria; how a potential partner fits into the value chain of a firm’s partners; 30 criteria grouped into partner and task related factors; tangible and intangible assets; trust that benefits can be achieved by both parties; criteria or resources that can be bundled and bridged to offer superior value to consumers; criteria varied over different market goals; coordination, commitment, communication and conflict resolution; complementary strengths; and the reality that most businesses do not employed formal, sufficiently rigorous partner-selection processes.9 However, while the papers he reviews discuss the overall concepts and criteria that need to be considered, his analysis demonstrates that they do not produce a coherent strategic partner selection process, or an operationalized selection tool adaptable to individual firm use.
Selection research focused on partner motivations results in conceptual approaches, checklists and criteria that [don’t] consider critical strategic factors or operationalize practical selection tools. Not surprisingly, the predominant focus of prior partner selection research on generic motivation considerations has resulted in conceptual partner selection approaches, checklists and criteria that often fail to consider critical strategic factors fully or to operationalize a practical and specific partner selection tool. Firms using such static, general models may realize only limited benefits from the alliances they form. As an example, early managers of airline alliances typically used partner selection checklist methodologies that emphasized economies of scale and extended geographic scope. This was exemplified when Delta and Swissair formed a strategic minority equity alliance (the companies purchased 5% of each other’s common stock) essentially aimed at capturing code-sharing and marketing advantages to bridge the U.S. and European markets.10 But Gomes-Casseres notes that the original alliance logic began to melt very quickly and strains began to appear in the relationship. First, Delta bought European landing rights to expand its own flights into Europe, and second, as it did not share Swissair’s focus on quality service, Swissair customers increasingly became dissatisfied when they were transferred onto Delta flights. The selection checklist process, criteria and tools used by the two partners seemed unable to pick up on the dynamic aspects of the relationship such as each firm’s future expansion plans - and failed to recognize the potential problems involved in the partner’s divergent goals and strategies. This example illustrates (as Geringer suggests) that a more complex and systematic partner selection process is needed. With international joint ventures, for example, he notes the need for weighting different critical success factors to differentiate task- and partner-related selection criteria, and to consider the potential of dynamic changes over time when evaluating and selecting appropriate partner firms. Although still conceptual, his paper represents a major step forward in recognizing the need for an analytical approach to alliance partner selection. This article builds on these (and other) conceptual advances to extend the existing alliance-partner selection literature by presenting: A Practical Alliance Partner Selection Process e Determining alliance motivations is useful, but is only one part of a rigorous approach. Partner selection motivations need to be linked back to overall corporate objectives, and forward to specific alliance objectives and strategies, all within a strategic management-based approach. Many alliance-focused papers present topic areas that should be included in a comprehensive partner selection process, but do not offer a systematic overall process with analytical tools: this article fills this gap. 168
Building Successful Strategic Alliances
A Practical, Operational, Dynamic Analytical Alliance Partner Selection Tool e The existing partner selection literature does not operationalize various partner selection considerations, or present specific analytical tools for managers’ use. This article presents a practical and flexible tool that can be applied to product or service alliances - new or existing - and incorporate firm-specific considerations. Following Geringer’s conceptual paper, our tool also incorporates dynamic considerations of how variables, weights and ratings may change over time.
Industry snapshot: travel industry and online travel alliances The travel industry is a major service industry, and exemplifies the increasing role and prevalence of service-related alliances. Ireland et al. define strategic alliances as ‘cooperative arrangements between two or more firms to improve their competitive position and performance by sharing resources’, and (consistent with this definition) Pansiri notes that travel industry alliances are mainly targeted towards improving competitive position, increasing revenues and sharing and leveraging resources and learning. Travel industry alliances range from strategic to tactical in nature; vary in their objectives, scope, structure and management; may be simple or complex; can take many forms; and can be short- or long-term. The long-standing existence of these alliances - and their rapid growth since the 1980s - has been well documented by prior research: indeed, Evans, reviewing past travel industry alliance research, found that ‘collaborative arrangements of various types have become an increasingly important strategic method of development in the travel industry’.11 In the late 1980s and early 1990s, for example, airlines formed strategic alliances with other airlines that focused on code sharing (allowing travellers to book seamless tickets on one or more participating airline), coordinated flight scheduling, marketing agreements, joint frequent-flyer points programs, and shared arrangements for aircraft maintenance, equipment purchasing and baggage handling. During this same period some airlines also created joint ventures - for example, British Airways and the Soviet airline Aeroflot created an independent airline to service routes between Europe and the Soviet Union. In this early period, car companies and hotels also formed cross-marketing alliances with airlines. Today, travel industry groups have been formed among and between airlines, online travel websites, hotels, rental cars, tour companies, destination sites, resorts, cruise lines, etc., and strategic alliances are at the core of almost every firm’s business model and revenue streams. Paul Brown, President of Expedia’s Partner Services Group, reports that Expedia is ‘focusing on longer-term relationships with these companies [partners]. This means longer-term business contracts, so we can focus more of our efforts on what’s driving business between us and these hotel partners’. Sam Gilliland, Chairman and CEO of Sabre Holdings (owner of Travelocity), who recently signed five- to seven-year agreements with major airline suppliers, stated ‘We’re focused on developing a balanced distribution model for everyone, including travel agents and corporations. The deals are cost-efficient for airlines, require us to continue our own cost reduction focus at Sabre, and drive acceptable balance between long-term stability and efficiency, and incentive reductions for travel agents.’12 Travel and tourism have been recognized as among the most highly integrated industry sectors, one where (as Pansiri notes) ‘one defining characteristic .. is the proliferation of strategic alliances within the industry., and between the industry and other sectors of the economy’. The online travel industry is composed of firms of many types, all of which receive substantial amounts of their revenue from strategic alliances with suppliers, customers, channel facilitators and e in some cases e their traditional competitors. Some large online travel firms have diversified travel product portfolios that include reservation systems (global distribution systemsdGDS), direct reservations with consumers, services to travel agents and corporate customers and, in many cases, extensive non-travel product portfolios. Major such U.S. and European firms include IAC/ Interactive (Expedia.com, Hotels.com and other online travel sites, etc.); Sabre Holdings, Inc. (Sabre Global Distribution System, Travelocity.com, etc.); Cendant Corporation (Apollo and Galileo Global Distribution Systems, etc.); two other major traditional GDS companies (Amadeus Global Travel Distribution S.A. and Worldspan, L.P.); and a number of GDS regional reservation systems. The three major diversified online travel firms have expanded their brand offerings, largely Long Range Planning, vol 42
2009
169
through acquisitions, to address many differentiated market segments. Table 1 shows the major distinct Internet travel sites of these three firms (many of which have been recently spun off). The travel industry also encompasses traditional brick-and-mortar travel agencies with online components, as well as smaller online travel firms, and suppliers (airlines, hotels, rental car agencies, cruise lines, etc.) who sell direct to individuals and business customers online. Many online search engines and other Internet sites also have partnerships with travel industry firms, while other businesses (such as American Express and the American Automobile Association) also have significant travel components, both traditional and online. As the table shows, the travel industry also contains numerous other online and offline businesses selling services and products in travel or related industry segments. As with many other industries, the online travel industry has been experiencing two significant challenges: one from ‘channel shifts’ (where suppliers are increasingly selling direct to consumers), and the second from industry consolidations involving suppliers (airlines, hotels, rental car agencies, cruise lines, etc.), traditional travel agencies, online travel service companies and corporate in-house travel departments. Such channel and firm complexities are further accentuated by some online travel firms participating simultaneously in both the traveller-direct and distributionintermediary channels (e.g., Sabre Holdings’ Sabre GDS and Cendant’s Apollo and Orbitz GDS), where subscribing travel agents and corporations can book airline, hotel, car rental, cruise line and tour packages. The global travel industry’s gross revenue is estimated to rise from $768 billion in 2004 to $903 billion in 2008, with the online industry accounting $198 billion (approximately 22 per cent) of this Table 1. Three Major Online Travel Firms’ Differentiated Market Segment Internet Sites
IAC/InterActive Corp.
Sabre Holdings
Travelocity Expedia.com B travelocity.com hotels.com B Travelocity Business Hotwire B lastminute.com TripAdvisor Media B Travelocity Europed28 whollyNetwork owned brands Classic Vacations Expedia Corporate Travel B Travelocity Asia-Pacific (zuji) (Egencia) B Cubeless Expedia International B GetThere Brands B Holidayautos.com B eLong B IgoUgo B 9 other international B Nexion B ShowTickets.com brands B SynXis QuickConnect Expedia Local Expert B Trams B TripTailor B World Choice Travel Sabre Travel Network (GDS) Sabre Airline Solutions
Formerly Owned by Cendant Corporation (now separate corporations) Orbitz Worldwide B Orbitz B CheapTickets.com B ebookers.com B HotelClub.com B RatesToGo.com B Away.com B Asia-hotels B Orbitz for Business Travelport B Galileo by Travelport GDS B Worldspan by Travelport GDS B GTA Travel Intermediary (Gullivers Travel Associates; Ociopus Travel.com; Needahotel.com; Travel Bound) B Business Intelligence (Shepherd Systems) B IT Services & Software
As of October 2008. Notes: IAC/InterActive Corp. – Completed a spin-off of Expedia, Inc. to IAC shareholders on August 9, 2005 (Nasdaq National Market, Symbol EXPE). Sabre Holdings e Acquired by Silver Lake and TPG, March 2007. Cendant e In April 2006 announced its intention to divide its businesses into four separate companies through a spinoff to stockholders. The consumer travel business (Orbitz.com, CheapTickets.com, ebookers.com, etc.) and business-tobusiness (Galileo, Travelport, etc.) travel businesses would be combined into Travel Distribution, and then sold to The Blackstone Group and other partners (announced June 30, 2006). In July 2007, Orbitz Worldwide became a separate publicly traded company.
170
Building Successful Strategic Alliances
figure.13 Table 2 shows 2008 projected global travel gross revenues by region, supplier, segment and channel, as well as by offline and online categories.
Strategic alliance partner selection process Despite the significant growth in alliances, and firms’ growing sophistication and experience with them, ‘much of the conventional wisdom and strategic analytical tools used by senior managers actually encourages impulsive alliance formation.’14 In contrast, a strategic management-based selection process would include a more comprehensive analysis of issues and variables than just trying to answer the question ‘Which firms would make the best alliance partners?’ Dyer et al. note that some of the risks in alliances can be mitigated by linking corporate objectives to alliance objectives systematically and specifically through a comprehensive partner assessment and section processes - in other words, by following a strategic management-based approach such as we outline here. As Hambrick and Fredrickson find, ‘true’ strategy is more comprehensive than simply linking objectives and actions; it is also about intentional, informed and integrated choices about arenas (where the firm will be active); vehicles (how the firm gets there, including alliances); differentiators (how the firm will win in the market); staging (pace and sequence of actions); and economic logic (how profits and returns will be generated).15 Each of these components of strategic decisions also apply to alliance strategies, and therefore to partner selection considerations. Informed by the strategic management, strategic alliance and travel industry alliance literatures, our partner selection process (Figure 1) includes four key steps: (1) aligning corporate and strategic alliance objectives; (2) developing appropriate sets of critical success factors against which to evaluate potential alliance activities; (3) mapping potential partner industries, industry-segments and firms; and (4) using a dynamic partner selection analysis tool to evaluate the potential of various targets. Each step is described below, and illustrated with practical applications in the online travel industry. Step 1: Aligning corporate and strategic alliance objectives While the degree of performance tracking and objective alignment is likely to vary by company, it is vital to clarify how a prospective alliance might create value for a firm, and to identify specific links to corporate objectives, so the first step in our selection process is to ensure that alliance objectives and strategies are explicitly aligned with overall corporate objectives. Based on work with numerous firms’ alliance strategies, Harbison and Pekar found that ‘too much emphasis cannot be given to the importance of rigorous evaluation in defining strategy and objectives. The most successful alliance
Table 2. 2008 Projected Global Travel Gross Spending (in US$ Billions)
Region
Supplier
Asia/Pacific Latin America Europe, Mid. East & Africa U.S. & Canada
$267 $53 $290 $293
Total Gross Spending
$903
Rail Cruise Hotel Car Air
Segment
$82 $12 $436 $42 $331 $903
Corporate Leisure
$361 $542
$903
Channeld Indirect-Direct
Channeld Offline-Online
Indirect Direct
Offline Online
$508 $395
$903
$705 $198
$903
Channel direct sales are sales by providers (airlines, hotels, etc.) directly to the customer; indirect sales are sales made by third parties to the customer. Source: Sabre-Holdings 2004 Annual Report. Data source: PhoCusWright, Jupiter, Euromonitor, Sabre Holdings Analysis. Long Range Planning, vol 42
2009
171
Step 1: Align Corporate and Strategic Alliance Objectives (see Table 3)
Step 2: Develop an Appropriate Set of Critical Success Factors (CSFs) (see Table 3 for input re- potential CSFs)
Step 3: Map Current and Potential Alliances on a Value Net (see Figures 2 and 3 for industry-group and industry-segment maps)
Step 4: Analyze Targets Using Dynamic Partner Selection Analysis Tool (see Figure 4)
Figure 1. A Strategic Management-Based Alliance Partner Selection Process
companies have learned that an ad hoc or soft evaluation places an alliance in a precarious position from the start’. Firms facing dynamic external and/or internal environments have an even greater need to align their corporate and strategic alliance objectives systematically. However, this critical alignment step may often be missing in practice, as Sleuwaegen et al. found in most of the Dutch companies they studied. As we have noted, alignment of objectives is an important and often overlooked step in the process of forming alliances. Alliance ‘deals’ only make sense if they support and leverage corporate objectives and strategies more effectively than alternative approaches. Inkpen and Ross indicate that deferring such considerations to after alliance formation increases the likelihood of alliance issues becoming intertwined with individual managers’ personal career implications and internal political agendas, rather than following the broader objectives of the firm. From their extensive review of alliance literature, Todeva and Knoke found that specific alliance objectives, which can vary according to both firm-specific factors and environmental considerations, can include:16 172
market seeking; acquiring means of distribution; gaining access to new technology and converging technology; learning and internalization of tacit, collective and embedded skills; obtaining economies of scale; achieving vertical integration, recreating and extending supply links to adjust to environmental changes; diversifying into new businesses; restructuring, improving performance; realizing cost sharing and pooling of resources; developing products, technologies, resources; reducing and diversifying risk; Building Successful Strategic Alliances
developing technical standards; achieving competitive advantage; gaining cooperation of potential rivals or pre-emptying competitors; achieving complementarity of goods and services to markets; obtaining co-specialization; overcoming legal/regulatory barriers; and legitimization and bandwagon effect, following industry trends.
As noted earlier, alliance-related objectives that are tied to corporate objectives must be developed beforehand: this process will then inform the design of the alliance, the search for potential partners and the analysis of partner fits. The following industry snapshot shows how alliance-related objectives can be specifically linked to corporate objectives as part of the initial strategy development process.
Alliance objectives [must be] tied to corporate objectives beforehand: this informs alliance design, the search for partners and the analysis of partner fits. Aligning online travel corporate and alliance objectives e an example Based on our extensive review of online travel firms’ corporate and financial documents, press releases and trade and academic literatures (including Todeva and Knoke’s excellent overview of past theoretical and academic alliance research) we identified eight basic corporate objectives central to online travel firms’ ability to create superior value propositions and economic returns (see Table 3, column 1). Research indicates that travel industry alliances are formed both for efficiency and effectiveness objectives,17 although, of course, many are designed to address both simultaneously (see Table 3, column 2). Efficiency objectives are targeted towards reducing costs (as when airline alliances facilitate sharing information systems, maintenance facilities and personnel, or take advantage of economies of scale in distribution and marketing), while effectiveness objectives are focused on growing revenues and increasing market share (as illustrated by the United Airlines/Lufthansa alliance, where customers gain extra value through code-sharing reservations and expanded geographical market coverage). While both sets of objectives in Table 3 were developed for the online travel industry, some are likely also to be appropriate for other types of industries (R&D, technology, software, manufacturing, etc.). However, non-service sector firms will need to identify the items and their related metrics that are most relevant to their internal and external situations – fundamentally, the process here is designed to ask specifically ‘Which corporate objectives should the alliance be designed to support?’ Although undeniably important, aligning corporate and alliance objectives and strategies is not easy. While at first blush the process involves simply identifying congruent objectives - such as accessing new knowledge, driving innovation or learning - realizing these objectives often requires implementing well-thought-out systems and processes to facilitate and support the alliance, and not attending to these matters as part of the partner analysis and selection process may lead to lessthan-desirable outcomes.18 As Lie and Slocum found, mismatches can result when alliance partners have incompatible alliance goals, such as where one firm’s overarching objectives are long-term (focused perhaps on learning new skills) while the other seeks primarily short-run financial gains. Aims/objectives may also vary across organizational units of both partners, or be further complicated by individual manager’s objectives and career aspirations e and those who eventually implement the alliance may have very different perspectives, incentive systems and organizational or personal aims than those who negotiated the deal in the first place. The role of knowledge facilitators and inhibitors is magnified in industries such as the online travel industry where multiple partners (travel/tour firms, suppliers such as airlines and hotels, Long Range Planning, vol 42
2009
173
Table 3. Step 1–Alignment of Online Travel Firms’ Corporate and Strategic Alliance Objectives
Corporate Strategic Objectives
Strategic Alliance Objectives
Strengthen Customer Value Proposition
Product Mix and Diversification
Effective cost position/structure
Enhance Net Income
Strengthen Defensive Competitive Position
Spread Risks
Speed to Market
Enhance Firm’s Intangible Assets and Organization Skills
Attract new online customers Improve, recreate, renew price-value relationship Provide more complete customer solution Offer new travel related products/services Enhance offering scope Increase customer loyalty and reduce customer turnover Fill product gaps Provide total travel and related solutions Enhance cross-selling Extend products Expand international product markets Increase website traffic Lower market access costs Lower product development costs Lower R&D/technology costs Increase economies of scale e purchasing, distribution/supply chain management, marketing, etc. Reduce asset/investment needs Ensure shared risk and returns Reduce financing and capital needs Offer new travel and related products/services Build brand recognition/visibility quickly Support new business and leisure customer segments Utilize new technology and R&D International customer, supplier or production access Enhance knowledge, skills and learning Support technology and R&D Develop standards of practicedsecurity, services and accessibility Support international markets and business practices Enhance leadership and organization culture Improve business processes Leverage assets to use same or smaller asset base to generate higher revenues and profits Increase revenue Lower operating costs Co-opt active and/or potential competitors Lock out competitors from strategic alliances and positions with other competitors, customers, suppliers, and others Lock in potential customer, supplier, etc. potential alliance partners Manage government intervention
and traditional travel agents) all depend on timely and sophisticated customer and product knowledge and technology.19 In addition, successfully aligning corporate and alliance objectives also depends on a firm’s ability to address the variety of short- and long-term orientations that are likely to exist in different levels and areas of both the focal firm and its potential partners. It is important to recognize, as Das and Teng noted, that ‘a long-term orientation provides needed commitment to a good working relationship, whereas a short-term orientation stresses prompt results that vitalize the alliance . . . strategic alliances need to walk a thin line by maintaining an uneasy balance.’20 174
Building Successful Strategic Alliances
Step 2: Developing an appropriate set of critical success factors The specific activities a firm must perform well and that act as sources of advantage over its competitors can be called its critical success factors (CSFs). These CSFs would be selected from a broader list of strategic alliance objectives appropriate to the specific projects scope. The second step in considering any potential alliance is to develop a set of firm CSFs, and then determine how well they each fit with each potential partner.21
The second step is to develop a set of firm CSFs, and determine how they well each fits with each potential partner. A firm entering a new foreign market, for instance, will generally be exposed to several entry challenges that might be too difficult, costly or time-consuming for it to overcome alone. Gaining access to local distribution channels, building a local brand, developing customer knowledge and establishing positive host-government relations are all likely to be particularly difficult in foreign countries where the entering firm has no foothold. (Other factors associated with successful foreign-market entry can include access to local capital markets, strong local management, legal rights, transferable patent rights and distribution channel sophistication.) For a focal firm to find a hostcountry partner that can offer an appropriate fit for its foreign market entry objective, the foreign partner (be it an industry group, segment or firm) needs to possess resources and/or capabilities that can ease the challenges facing the entering firm. The CSFs to use in evaluating whether a firm is worth considering as a potential partner are those that directly relate to the focal firm’s strategic objectives (as illustrated in Table 3 for the online travel industry case). In other words (consistent with a strategic management-based perspective) developing the CSFs a firm needs to use to assess potential alliance partners begins with identifying which CSFs relate to its specific strategic objectives. Making this connection back to firm-level strategic objectives ensures that the key contexts and considerations that experts suggest are essential to alliance analysis - including firm strategy, project needs and industry and technological environments e are included.22 Specific alliance-related CSFs are then developed to guide alliance strategy development and implementation, based on alliance objectives (as illustrated in Table 3). Identifying online travel critical success factors Dev et al. note how travel industry alliances are frequently marketing-focused, and involve CSFs that seek to capitalize on complementary relationships to improve efficiency and/or effectiveness, often based on customer feedback. For example, airline marketing alliances with car rental firms and hotels can provide an enhanced customer experience. Specific travel industry CSFs can be developed from the objectives and strategies presented in Table 3, and alliance CSFs generally relate to ‘bridging’ gaps in product and or market offerings (e.g., the United/Lufthansa alliance) and/or to ‘bundling’ complementary products/services that provide customers with one-stop shopping for multiple reservations (e.g., with airlines, hotels, car rental firms, restaurants, cruise lines, etc.). One group of business analysts identified eight CSFs for leading U.S. and E.U. online travel firms.23 Building brand recognition quickly and attracting new online customers are important, because the major emerging online travel industry players are using their first-mover gains to create strong positions in these markets, and buying out smaller entrants. Consumers’ concerns for privacy and needs for assistance have also been identified as important, so establishing standards of practice related to security, services and accessibility is necessary to attract a critical mass of customers sufficient to allow firms to achieve some economies of scale in operations. However, other analysts claim that credit card security and privacy concerns limit online travel activities.24 Increasingly, well structured alliances, with appropriate security and privacy components, can help alleviate those fears and increase the online share of the broader travel industry. Managing government intervention to gain approval for delivering transaction services to non-U.S. and eE.U. customers and avoiding policies Long Range Planning, vol 42
2009
175
that lead to reductions in commissions are also very important to online travel firms. Other CSFs include increasing website traffic, deepening existing customer relationships and introducing new products. The online travel industry could seek to form strategic alliances with firms in other industry groups within and beyond the travel industry to pursue these CSFs, as well as others that may arise in the future. Step 3: Mapping alliance targets Once corporate-to-alliance objectives are clearly delineated (Step 1), and related supporting CSFs have been identified (Step 2), firms have a tendency to jump ahead to analyzing specific potential partner firms, bypassing important considerations about the different players already or potentially involved in related industries. But a better analysis of potential partnering options is achieved by focusing first at the macro level, specifically on those industry groups and segments most closely connected with the firm’s broader goals and objectives. Making such explicit linkages ensures that the assessment of potential alliance targets is related back to the firm’s value creation strategies and overall strategic management process. Step 3 in our partner selection process begins by creating a ‘potential partner map’ that conceptualizes the range of industry players and their component sub-segments and firms. We adapt Brandenburger and Nalebuff’s ‘value net’ framework to classify current and potential industry participants (suppliers, customers, competitors and complementors) who are, or might become, alliance partners.25 Competitors are firms that reduce the (actual or perceived) value of the firm’s offerings to customers, or make it harder for a focal firm to access needed supplies (represented by the negative (black) arrows in Figure 2). In contrast, complementors or ‘‘channel facilitators’’ - firms that make it easier to satisfy customers, enhance the overall value proposition or facilitate obtaining supplies - enhance customer value or supply opportunities (the positive (white) arrows in Figure 2). As in the previous step, the Step 3 value net mapping should show existing and potential linkages consistent with and relating back to the focal firm’s overall goals and alliance objectives identified in Step 1. The process, therefore, provides an important check on whether the firm’s alliance-related decision criteria are aligned with its overall strategies. While
Competitors
-
-
Make it harder to satisfy customers and obtain supplies
Suppliers Provide goods & services in exchange for money
+
Company (Focal Firm) Offers goods & services and supply opportunities
Customers +
Provide money in exchange for goods & services
Value Chain
Complementors +
Make it easier to satisfy customers and obtain supplies
+
Figure 2. Basic Value Net Framework adapted from A. M. Brandenburger and B. J. Nalebuff, Co-opetition, Doubleday, New York (1996) 176
Building Successful Strategic Alliances
sequential in design, in practice, these steps are likely to be iterative mapping current and potential linkages in step 3 and checking them back against previous steps allows for refining previous lists of objectives. There are several key aspects to be kept in mind when developing an alliance-focused value net. First, mapping both current and potential participants is greatly facilitated by starting with the construction of the value net at the macro level, focusing on potential target industries and industry segments, with specific target firms identified later in the process. At this level, firms create value in four fundamental ways: 1) by reducing input costs relative to their competitors and substitute products/services/channels; 2) by reducing operating costs relative to these same players; 3) by increasing customers’ willingness to pay more for their goods and services; and 4) by accessing profitable new markets (through innovative product development, effective prospecting, erecting barriers to direct competition, etc.).26 The value net sketches out the combinations of ways through which the focal firm seeks to create value, which are operationalized as links to various participants in each player category. For example, a firm that focuses on reducing input costs will naturally have extensive or deep linkages to suppliers, while one focused on maximizing customer willingness to pay more will have linkages to various participants that support its reach into the customer’s total economic system.27 In our work with executives, we have found that focusing initially on these four generic valuecreation approaches, rather than on specific strategic objectives or CSFs, encourages them to think more broadly about potential collaborators rather than immediately focusing on the micro or firm level. Just as there is often a ‘local search’ problem in firms’ environmental scanning efforts, there can be a similar affect on alliance assessments, with executives tending to think of known firms, rather than considering broader categories of industries and firms that may be new to them, but which also meet the ultimate test of creating value - or might even herald the next alliance and/ or industry consolidation wave: starting at the broader, macro level can help overcome this tendency. (Of course, initial project and incremental approaches still provide useful avenues to get to know new, unfamiliar firms to clarify their potential as partners). Second, the ‘value net’ framework should include all the current and potential future players who might affect the focal firm’s value creation activities. Whereas most firms start by only listing current participants in each player category, it is also instructive to engage in creative discussions and scenario-sketching activities about potential participants who are not currently operating in the industry, but who might affect the firm were they to become involved in the future. Some current and potential industry participants might seem to be unlikely partners initially, but should be included as they might provide significant offensive and/or defensive strategy potential over time. Indeed, it is exactly this type of analysis that can help firms identify potential future opportunities for crossindustry consolidation. Third, the value net framework allows firms to occupy multiple player positions, acting, for example, as customers and simultaneously as competitors. Thus, in the American and Delta example, the two firms compete for customers, gates, pilots and other supplies, but also collaborate as complementors in code sharing arrangements and other activities: today, many other airlines have developed similar joint arrangements. Fourth, ‘potential alliances’ can be included on the value net to identify and highlight the competitive opportunities and threats both within and across industry groups and subsegments, as well as the opportunities and threats related to alliance networks. Lorenzoni and Baden-Fuller have noted how, in some industries and industry segments, firms may occupy the strategic centers of one or more constellations of alliances, acting as value creators for partners, setting rules, building partner capabilities and leading the evolving network’s strategy and structure. It is particularly important in evaluating multi-firm alliance networks to identify systematically all the existing and potential industry-groups and segments in each category. Once industry-groups and segments are identified as being attractive in terms of alliance potential, the likely potential partner firms/organizations within these segments can be identified and evaluated carefully. Long Range Planning, vol 42
2009
177
The value net mapping process begins with identifying broad industry groups that might give opportunities to create value. .. attractive segments within these groups and specific firms are then identified. To recap, the alliance value net mapping process begins with a wide scope, seeking to identify broad industry groups that might give the focal firm opportunities to create value. Once attractive industry groups are identified, the most attractive segments within these groups, and then specific firms within them, are identified. In order to assess ‘attractiveness’ at each analysis level, the firm draws upon the CSFs developed in Step 2 to conduct a congruence or fit analysis, the subject of Step 4. But first, we present a value net for the online travel industry. Developing an online travel value net Airlines have been the early leaders in travel industry alliance activities: for many years, they have systematically and proactively formed code-sharing alliances amongst themselves and channel alliances with major online travel firms, as well as leveraging extensive and diverse global alliance portfolios with many other travel and tourism industry groups. Many hotels, car rental agencies and other industry players have also been active in alliances: for example, tour companies such as Mayflower Tours have developed multi-product and multi-geographic alliances with industry groups, including other tour operators, airlines, travel agencies, international travel administrators/operators, hotel, cruise and other suppliers, and with destination marketing organizations. A value net of current and potential alliances related to the online travel industry is presented in Figure 3. (The industry-types and industry-groups listed in the Figure are illustrative; others could be added, defined differently, and/or segmented in a more granular manner.) Supplier alliances and customer alliances represent the industry’s core alliances, but substitute/complementor alliances and channel facilitator/complementor alliances also have significant effects on the industry. A traditional value net (as in Figure 2) shows competitors and complementors acting primarily through suppliers and customers (rather than directly on another firm) to make it more or less difficult for the focal firm to do business. In an industry as complex as online travel, however, substitute/complementor alliances and channel facilitator/complementor alliances abound to such a degree that they can have direct positive and/or negative effects on the focal firm, as indicated by the additional positive and negative arrows from these players towards the online travel industry in Figure 3. Supplier Alliances e The online travel industry is based on strategic alliances providing reservation, cross-marketing or other services to a variety of travel service supplier groups. The online travel industry provides an important distribution channel for such suppliers, as well as providing value-added services for its customers. On the one hand, strategic supplier alliances consist of those where a firm has alliances with a number of competing and complementary firms simultaneously e thus, while hotels have alliances with multiple online travel companies, airlines, travel agents and so on, they are likely to still be available to other firms as prospective alliance partners. On the other hand, some travel industry segments form alliances with a limited number of selected partners: a particular airline may already be locked into an existing network alliance, and thereby not available as a potential partner for other airline networks. The partner selection tool presented below allows for the addition of variables such as these to account for the likely availability as a partner of a targeted industry or firm. Complementor/Channel Facilitator Alliances e Alliances with firms in this category have significant potential to support online travel firms’ strategic objectives. The category includes a number of very diverse industry groups, such as online and traditional meeting-management firms, meeting/event planners, Internet search engines, Internet service providers, mobile phone, media, 178
Building Successful Strategic Alliances
Substitute/Competitor Alliances
-
Traditional and Online Supplier Direct Sale to End-Use Customers Tour Operators
Traditional and Online Travel Agents (Domestic and International) GDS Subscriber Services/Software
-
-
Customer Alliances
Online Travel Industry
+
+
Consumer-Direct Channel -Individuals Business-Direct Channel -Businesses Small to Mid-Size Businesses Corporate Travel Departments Travel-Agency Channel Governments Associations/Nonprofit Organizations
Value System
-
+
Channel Facilitator/Complementor Alliances
+
Online and Traditional Meeting and Event Planners Online and Traditional Travel Agents Internet Search Engines Traditional, Broadband Cable and Satellite ISPs Telephone and Wireless ISPs Other Internet Sites (Travel, History, Books, Weather) Wireless Phone Companies
-
+
Supplier-Customer Direct Bypass
Supplier Alliances Individual Airlines Airline Code-Sharing Alliance Networks Hotel Chains and Independents Resorts and Theme Parks Rental Cars Ground Transportation Cruise Lines Local Sightseeing Companies Museums, Art Galleries, Entertainment, Shows, Sporting Events, and other Destinations Restaurants
Supplier-Owner Online Travel Companies Corporate Travel Departments Media Company Online Websites
Automobile Roadside Concierge/Vehicle Communication Credit Card Companies Financial Institutions, Currency Exchange Tourist Organizations (Government and Private) Air Travel Insurance Internet Hot Spots Software/IT Suppliers
+
Travel Magazines (InFlight and Freestanding) Travel Sections in Newspapers/Magazines Travel and History Television Channels/Programs Travel Guides, Books and Internet Sites Other Media Companies Online and Traditional Map Companies
Figure 3. A Value Net of Current and Potential Alliances in the Online Travel Industry
travel guide/book and map companies, financial institutions and credit card firms, retail locations and software suppliers. Search engines such as Google, Ask, MSN and Alta Vista, and ISPs such as America Online, MSN, AT&T, Earthlink, Comcast and Verizon, are strong potential allies, as they control the major gateways through which consumers access online travel services. As just one example, when IAC/InterActive Corporation (owner of hotels.com and other online travel brands) acquired the Ask Jeeves (now Ask) Internet search engine in 2005, the corporate literature noted that Ask Jeeves would be able to ‘vertically integrate transactions and offers from IAC . and . utilize IAC network to drive traffic.’28 Expedia was formerly owned by Microsoft Network in a fully integrated relationship, although this has since been transformed into an alliance: clearly, alliances with such corporate giants have a potential reach far beyond the ISP dimension. Media companies such as travel magazines and television channels and shows are potential allies that can facilitate online travel firms in building affinity programs and stronger brand recognition, while travel guide firms (Frommers, Fodors, etc.) and map companies (Rand McNally, Mapquest, GoogleMap and YahooMap, etc.) also provide offerings that directly complement online travel services. Competitor/Substitute Alliances e A third industry category that has strategic significance for the online travel industry is composed of competitor/substitute alliances. In the travel industry Long Range Planning, vol 42
2009
179
(as can be found increasingly in other industries) current and potential alliance partner firms/ sectors can co-exist as both collaborators and competitors. Note that while suppliers represent a separate industry group (as described above), their direct selling to the end-use customer through their own web sites, call centers or individual brick-and-mortar facilities also puts them in the competitor/substitute industry group. Traditional domestic and international travel agents are a significant industry-group alliance category to which online travel firms provide numerous services, including online reservation systems, private-label web site development and management, software systems, and agency management systems. But when a customer books a trip through a travel agent, rather than using an online company, the travel agent is being used as a substitute, and thus, effectively, becomes a competitor. Corporate travel departments and tour operators are other important groups that can exist both as competitors/substitutes, but with whom mutually beneficial linkages with the online travel industry can also exist.
Groups can exist as competitors/substitutes, but nevertheless offer mutually beneficial complementor/channel facilitator linkages. Customer Alliances e Online travel firms develop customer alliances within the business-direct channel, assisting small- and medium-sized businesses with their travel needs and even managing large corporations’ entire travel operations. (In January 2005 Travelocity Business announced a new alliance to provide all travel management services/support for Aetna’s employee travel). Traditional travel agencies, while forming part of the substitute/competitor segment, are also customers for a variety of online travel reservation and other services. Governments, nonprofit associations and other organizations purchase significant amounts of travel products and services, so diverse opportunities exist for strategic alliances to develop exclusive deals to provide all travel-related services for such customers. (Travelocity also has alliances with the American Medical Association and AARP, while Expedia provides travel services for the American Bar Association’s staff as well as its 400,000 members). Of course, strategic travel industry alliances can be found within and across all its many different categories and industry segments, not just those involving online firms. The market in which such alliances operate is made more complex by the fact that firms in many segments often (partially or entirely) bypass the online distribution channel to sell directly to end users (as shown by the shaded arrow in Figure 3). While online travel firms have long-standing strategic alliances with many suppliers, other supplier industry groups and segments (see Figure 3) might also offer the potential to contribute to the overall value system of an online firm’s alliance network. The exercise of mapping a firm’s current and potential alliance opportunities thus creates a comprehensive perspective for examining the inherent complexity to be found in this (and indeed, in most) industries. Step 4: Dynamic congruence analysis tool for alliance partner selection Focusing on linking corporate and alliance objectives (Step 1) and mapping industry-group and industry-segment potential partners (Step 3) helps firms avoid the frequent tendency of jumping to firm-specific partner issues when seek alliance partners, paying only cursory attention to their overall corporate strategic objectives or macro-industry considerations. Lei and Slocum have noted that executives too often encourage quick alliance formation ‘while discouraging careful thinking and strategizing of prospective partners’ intentions.’ The new ‘partner selection analysis’ tool presented in this article is designed to assist managers to assess proactive and/or reactive-follower alliance strategies, and to identify potential new alliance opportunities and partners. Evaluating the potential of partnering with various industry groups, segments and firms involves assessing the congruence or fit of each entity’s resources, capabilities, plans and prospects with those of the focal firm, as expressly delineated in the focal firm’s CSFs identified in Step 2. By testing industry groups and 180
Building Successful Strategic Alliances
segments and individual firms identified as potential partners in Step 3 against the focal firm’s CSFs, we are able to systematically evaluate how well a segment or a partner might help or hinder the firm in pursuing its strategic objectives. Step 4 in the selection process involves using the dynamic partner selection analysis tool to analyze the levels of congruence offered by different industry groups, segments and firms. The tool is used to ‘winnow down’ potential partner targets by helping managers identify the most attractive industry groups, the most promising segments within those groups and, finally, the most desirable potential partner firms within each segment. Since the analytic process is similar across each of these levels, we illustrate the tool through its application to the online travel industry within the complementor industry category, although nuances that apply to the tool’s use at various other levels of analysis are also discussed. As Figure 4 shows, the dynamic partner selection analysis tool involves applying a decision matrix process, where the focal firm uses the following steps: Step A e Identify one or more strategic objectives (obtained from Step 1 in the overall selection process); Step B e Identify and list key CSFs related to the firm’s strategic objective(s) (obtained from Step 2 in the overall selection process); Step C e Assign relative importance weights to each CSF across two time periods (new action); Step D e Rate the extent to which each industry group, industry segment or firm might help the firm achieve its CSFs (new action); Steps E to H e Compute weighted average scores and assign time-based importance factors (new actions). Step A
Define strategic objective(s): To grow online travel revenues by 20 percent above the industry growth rate. To expand our number of customers and market share in the online travel industry. To increase our market share by 5 percentage points. To provide new high margin, value added travel related services. To reduce operating costs by 5 percentage points.
Step B
Identify CSFs related to the strategic objective
Step C Assign relative importance weights to each CSF for EACH TIME PERIOD Current Future
Task-Related CSFs: Build brand recognition/visibility quickly Add new online purchasers Increase traffic on Internet site Enhance consumer value proposition Improve economies of scale/lower costs Manage government intervention Introduce new products/services Deepen customer relationships
25 20 15 15 10 5 5 5
20 20 10 5 0 10 15 20
100
100
Step D Rate each potential collaborator on each CSF (1 to 10) Internet Search Engines ISPs
Media
Maps
Financial Institutions
Software Firms
9 9 10 4 6 0 7 2
8 7 9 4 4 0 9 2
10 6 3 2 5 4 5 1
4 3 2 3 2 1 2 1
3 2 3 3 3 3 2 1
1 0 0 7 3 3 9 9
Partner-Related CSFs:1 Past alliance experience Alliance skills and systems Culture compatibility Willingness to partner Total Relative Importance Weights
* **
Step E
Compute CURRENT congruence rating
7.2
6.3
5.5
2.8
2.7
2.7
Step F
Compute FUTURE congruence rating
6.3
5.9
5.0
2.4
2.3
4.0
Step G
Assign TIME importance weights:
Step H
Compute OVERALL dynamic congruence rating
6.9
6.2
5.3
2.6
2.5
3.1
CURRENT FUTURE
***
70 30
Figure 4. Step 4 Conducting Dynamic Partner Selection Analysis 1 Note: This example illustrates the tool applied at the industry level of analysis, so partner-related CSFs do not apply; for firm level applications, partner-related CSFs similar to these would be added. * Weighted average of current weights ratings. ** Weighted average of future weights x ratings. *** Current time weight current overall fit rating + future time weight future overall fit rating for each segment Long Range Planning, vol 42
2009
181
At the industry-group level of analysis, the key question is ‘To what extent can different industry groups provide resources and capabilities, mitigate industry threats or open new industry opportunities so as to make important contributions to accomplishing the focal firm’s corporate objectives?’ Answering this question gives insights into potential future linkages and relationships across industry groups, thereby contributing raw data for developing scenarios and making strategic decisions. The answers also help managers assess shifts across and within industry groups and segments. Analyzing online travel industry groups As in many industries, the complementor/channel facilitator category has been identified as providing significant growth opportunities to leading U.S. and E.U. online travel firms that can leverage the segment’s resources and capabilities. As a result, we focus on this value net category to illustrate our analysis tool. For this task we will use the eight critical success factors identified earlier in Step 2. Step C: Assign relative importance weights to each CSF To evaluate the potential of the various industry groups within this category (see Figure 3 for industry groups within each of the four main alliance categories), we enter the eight CSFs from Step 2 into the matrix and then analyze each channel facilitator group against them in Steps C and D. A critical aspect of this analysis is assigning each CSF an importance weighting (which add up to 100 percent). While advanced statistical methods such as multidimensional scaling, administrative hierarchy process and conjoint analysis may be used to support this weighting process, executive teams that have applied the tool have found they gain valuable insights by having to make explicit arguments for each CSF’s importance weighting themselves, as doing so requires them to reveal and examine their underlying assumptions. Alliance evaluation processes that simply list CSFs without thoroughly considering and weighting their relative importance are simply checklist approaches that can lead managers to erroneous conclusions regarding potential alliance options. In Figure 4 (consistent with the earlier discussion of the online travel industry’s CSFs) increasing brand recognition and attracting new online purchasers are weighted more heavily than the other current CSFs, with increased traffic on Internet site and enhancing consumer value proposition falling into a second current importance grouping, and so on.
The relative importance of CSFs may change due to strategic and environmental conditions .failing to factor this in may lead to erroneous decisions about their importance, and about potential partnering fits. Note that in Step C, relative importance weights are assigned in two time periods - current and future (the specific time scale for ‘future’ will vary depending on the objectives, type of alliance, management judgment, etc.). These dynamic considerations are important since (as Hipkin and Naude´ note) a ‘shortcoming of past academic studies of alliances is that they are frequently examined at a single point in time e usually in the formative stages e without following the alliance through its life or even a business cycle as strategic and environmental conditions change.’29 Each CSF’s relative importance may change over time due to strategic and environmental conditions, and failing to factor this in may lead to erroneous decisions not only about each CSF’s importance, but also about each potential industry group’s partnering fit. (For example, actions by airlines to increase their direct online sales and decrease agent fees for ticket sales may decrease revenues and margins for alliances with airline suppliers: such changes may provide a basis for adjusting this industry group’s relative weighting and rating over time.) Similarly, strategy evolution research has shown that while 182
Building Successful Strategic Alliances
access to distribution channels may be key to initial market entry, other resources and capabilities, such as other distribution channels/supply chain dimensions and improved managerial skills, may become more important over time and as alliance networks are restructured.30 Note also that allocating different weightings across the two time periods allows managers to add, modify or delete CSFs in the future. For example, in Figure 4, economies of scale drops in importance from 10 percent currently to zero in the future, on the assumption that once a critical mass is reached, additional efficiency gains will be negligible, which effectively removes this factor altogether in evaluating potential partner segments or firms for the future. Its elimination in the future demonstrates that the CSF analysis is doing its job, and that partner industry groups, segments and firms should perform well both today and in the future. For example, increasing brand recognition might be a key CSF today as online travel firms seek new customers, but new services that deepen customer relationships to create customer retention (or ‘stickiness’) could prove even more important in the near future. Step D: Rate the potential of each industry group, segment or firm to achieve the focal firm’s CSFs This step uses a 10-point (or other) scale to assess how well each potential industry group (or segment or firm, depending on the level of analysis being conducted) might address the focal firm’s CSFs, and fills these values into the matrix presented in Figure 4. Developing an understanding of how well a partner might support the focal firm’s CSFs is not an easy process; it often takes significant research, and sometimes initiating small alliance projects may be an effective way to gather more information and insight about prospective partners. Our interactions with executives indicate that better results are achieved by using this matrix to drive discussions that expose underlying assumptions and firm-specific experiences, rather than focusing solely on the precise numbers entered. Indeed, with respect to both CSF weightings and potential partner ratings, it is important that senior management use the process to surface and test their team’s assumptions. To illustrate Step D in relation to the online travel industry, of the six major channel facilitator industry groups identified in Figure 4, Internet search engines, ISPs and media groups are all seen as potentially strong contributors in driving increased end-user Internet purchases and enhancing brand name recognition and visibility, and thus received relatively high ratings on these CSFs. In addition, the new products and services that software companies might offer to online travel firms are seen as strongly enhancing the CSF’s related to customer relationship and establishment of standards CSFs, resulting in high ratings for software firms on these factors. Steps E and F: Compute current and future congruence ratings Once the firm’s CSFs have been weighted for their relative importance and the various industry groups or segments have been rated for how well they support the achieving of each, the next steps involve computing each time period’s weighted average scores. Figure 4 shows current (Step E) and future (Step F) congruence ratings for each industry group. Higher scores, such as those for Internet search engines (7.2 and 6.3 respectively) and ISPs (6.3 and 5.9), indicate that these industry groups provide a better fit than other industry groups (all rated less than 5.5) in terms of helping the focal firm accomplish its CSFs and thus realize its strategic objectives. Step G: Time-weighted congruence scores In combination with the current vs. future importance weighting of the individual CSFs accomplished in Step C, Step G allows for a dynamic perspective on CSFs by allowing executives to decide how much emphasis should be placed on current vs. future time periods. In our discussing this element with executives, we have found that they sought to incorporate such temporal factors within the CSF weightings implicitly; but as their assumptions were not explicit, they were not communicated transparently, and such dynamic factors were not fully incorporated in their selection processes. Similar shortcomings may also be due to the Long Range Planning, vol 42
2009
183
use of more informal alliance development processes, executive reluctance to disclose assumptions, the firm’s culture, a lack of strategic thinking and insufficient due-diligence prior to alliance development. This tool addresses such problems in considering dynamic factors (i.e., factors over time) directly by including an overall time-based weighting in the matrix in Step G. One benefit of including the time-based element is to help identify expected change patterns over time across industry groups and segments. If analysis shows one or more industry groups or segments as predicted to increase or decrease in importance, assumptions may be made about the likelihood of future industry-group convergences or inter-industry-group/segment alliances taking place. Significantly, the same analysis can also be conducted retrospectively, furthering managers’ ability to discern meaningful change patterns over time. Step H: Compute overall current and future weighted average congruence ratings The final step in the dynamic congruence analysis is to compute an overall weighted average congruence (or ‘fit rating’), for each industry group. Figure 4 shows that Internet search engines and ISPs appear to provide the highest congruence over both time periods, suggesting (assuming the underlying critical success factor weightings and ratings are sound) that one scenario worthy of further consideration is alliances between online travel industry firms and Internet search engines and ISPs. If no alliance activity had yet occurred between these two groups, these findings would provide insights about potential proactive alliance opportunities and co-option strategies. On the other hand, if an alliance wave has already hit a given industry group or segment (such as the alliances currently being formed between online travel companies and Internet search engines and ISPs) the analysis can be used to identify alternative convergence opportunities e perhaps by highlighting other groups and segments that might soon follow, or to discern competitors’ first-mover strategies and identify potential counter-moves.
Where alliances have already [formed] . other segments that might soon follow, or competitors0 strategies and potential counter-moves [can be identified] Dynamic congruence analysis can also be used to identify CSFs that might support follower or imitation strategies. If other firms’ existing alliances fail to incorporate certain important future CSFs, viable potential partner industry groups or sub-groups may have been overlooked. Although alliances have already formed among online travel firms and Internet search engines and ISPs, for example, few have been announced with travel-guide firms and, given online travel firms’ increasing need for new service offerings, opportunistic co-option alliances with premier travel-guide firms might be available for proactive online travel firms. Managers can also use the matrix to conduct a dynamic congruence analysis from their potential partners’ viewpoints to ascertain their own firm’s potential alliance value points and the likely components of an alliance deal. Dynamic congruence analysis can also be shifted to the firm level to allow for assessment of potential target firms from the focal firm’s (or the target’s) perspective: such a firm-level analysis is discussed in the next section. Firm-level analysis using the dynamic tool Ring and Van de Ven argue that alliances are ‘socially contrived mechanisms for collective action, which are continually shaped and restructured by actions and symbolic interpretations of the parties involved’. This points to the importance of conducting a rigorous analysis of the potential partner firms chosen from promising industry groups and/or segments previously identified. Firm-level 184
Building Successful Strategic Alliances
analysis works the same as industry-group analysis, with individual firms being rated against the CSFs in the same manner. However, at this level, the list of CSFs is expanded to include not just the task-related factors identified above, but also those related to the potential firm’s partnering characteristics. Research has shown that successful alliances involve high levels of congruence - not just between partner firms’ resources and capabilities, but also (as Geringer has noted) between certain organizational attributes. Thus firm-level analysis involves the focal firm in identify important partner-related CSFs and incorporating them in Step B of the assessment tool. These might include a potential partner’s management, organizational and national cultures, favorable past alliance associations, and organizational size and structure - all of these (even given that task-related CSFs show high dynamic congruence ratings) could impact the degree to which that partner’s resources and capabilities are ultimately sharable by its potential partners.31 Given the wide range of alliance experience, organizational cultures and business environments affecting different firms, their partnering-related CSFs may vary considerably. Companies will need to dedicate some resources to and develop some expertise in identifying potential ‘good fit’ partners and appreciating their characteristics, which might include considering (as Hoffmann notes) ‘creating a dedicated alliance function and develop company-wide standards and customized tools for multi-alliance management.’ The analytical tool also accommodates varying situations relative to past experience with or knowledge about a potential partner firm. Managers can incorporate those considerations into Step 4 by adjusting their ratings of task- and/or partnering-related CSFs. As Hipkin and Naude´ have noted, alliance governance structures can have profound effects on alliance activities, both intended and unintended. Partnering-related CSFs may help determine what is acceptable and unacceptable in a workplace and define the likely types of interactions and working relationships between the parties, all of which can affect how well partners transfer knowledge, proprietary information and best practices between them, as well as the degree to which such resources risk being appropriated by the other.32 Additional considerations may come into play in such a firm-level analysis. First, Anderson and Narus suggest that identifying superior value contributions may require analysis be taken down to the level of specific product/service offerings (i.e., in our context, airline tickets, hotels, cruises, vacation packages) as well as by geographic area. Within each major industry groups, sub-groups also exist: for example, even alliances with airlines focused only on ticket sales could include two types one that sells tickets on a commission basis, and another that only handles them on a merchant basis, reselling them to various customer sub-groups e and each approach needs to be analyzed to determine which is the better alliance option. Second, alliances with specific industry groups may operate differently depending on the rules and norms governing behavior in the target industry.33 Thus focal firms may elect to use different alliance arrangements to span multiple industry groups and/or segments, thereby creating a diverse portfolio of strategic alliance relationships - or, alternatively, they may elect to treat all partners within industry groups, segments or sub-segments in a similar fashion.34 Dynamic congruence analysis facilitates evaluating the focal and potential partner firms’ mutual value contributions, as well as helping to identify a competitor’s positioning more accurately. Managers may benefit from further extending their firm-level analysis to individual strategic business units (SBUs) within their broader firms, which can provide an even deeper multidimensional understanding of potential alliance strategies. While many alliances are based on corporate-level objectives, equally relevant considerations in terms of reacting to competition and developing competitive advantages may take place at this level (or even below). While product offerings can be tailored to specific alliance partners, SBUs and/or product/service/geographic/account segments to achieve a coherent and effective strategy, some caution needs to be exercised. Many CSFs are process- and corporate-based and/or track across multiple SBUs; they will need to be identified, analyzed and fully captured in the analysis. Long Range Planning, vol 42
2009
185
Perspectives for managers and opportunities for alliance researchers Alliance partner selection perspectives for managers Ad hoc alliance deals focused solely on short-term goals, while common at various organizational levels, may be partly to blame for the widely reported failure rates for strategic alliances. Alliance strategies that produce win-win results for all parties over time are based on clear linkages between a firm’s alliance strategies and its corporate strategy foundation. Winning alliance strategies are also produced by using robust analytical tools that incorporate potential alliance complexities appropriately. Table 4 highlights some perspectives for managers in selecting partner industries and partner firms. While checklists are frequently used in the partner selection process, it is more valuable to commit to a more systematic and analytical partner section process. The process presented in this article avoids basing alliance discussions largely on short-run, financial or economic-focused alliance issues, promoting instead a broader, longer-range view of interrelated corporate and alliance objectives and strategies. This shift also facilitates a focus on enhancing businesses’ strategic health and overall competitive positions, and allows analysis and decision-making to be based on a more complete set of variables and alternatives. A thorough analysis of potential industry groups and segments, rather than just of potential partner firms, is a critical step that results in stronger links between corporate and alliance strategies. These explicit, quantitative links help sharpen a firm’s strategic thinking and ensure that a particular alliance strategy has the best chance of fulfilling its strategic intentions. Systematic and analytical partner selection processes and tools are also excellent management development mechanisms, as each can be used to enhance strategic thinking.
Particularly if an alliance strategy is initiated by upper management, it can gather a momentum that can be difficult to slow down or stop. It often is expedient for managers to get caught up in making alliance deals happen, focusing too heavily on information about historical, current and near-term payoffs and risks. Once an alliance strategy emerges - particularly if it is initiated by upper management, as is often the case - it can gather a momentum that can be difficult to slow down or stop. Our recommended selection process and tool can help navigate the complexities of alliance conceptualization, development, negotiation and execution. Not only is partner selection critical for successful alliances, but successful alliances also requires that time be available to perform a comprehensive and accurate analysis including likely corporate- and alliance-strategy payoffs and risks, as well as trying to predict changes that may occur in the future. Table 4. Perspectives for Managers
Commit to a systematic alliance partner selection process - the process can have powerful strategic benefits; Analyze potential partners within industry groups and segments, not just potential partner firms; Use alliance strategy development and analysis as an opportunity for learning and executive skill development; Make explicit the links between corporate and alliance strategic objectives prior to initiating detailed analysis and concluding the deal; Test underlying market and alliance assumptions in a systematic way; Broaden partner selection criteria beyond immediate deal criteria; Shift from an historical and short-term focus to include a dynamic analytical element e recognizing that market dynamics, a firm’s CSFs and alliances change over time; Build collaborative know-how on alliance industry and firm partner selection processes and analytical toolsdsuccessful alliances start with successful partner selection.
186
Building Successful Strategic Alliances
Being based at only one point in time, static alliance analysis may provide flawed advice. The multi-level dynamic analytical congruence tool presented in this article provides robust guidance to help managers deal with complex dynamic decisions, and to identify and verify their assumptions about alliances and potential partners explicitly. When used at the firm level, the tool provides valuable flexibility to identify the focal firm’s most significant CSFs, and to include both dynamic taskcongruence and partner-congruence factors. The relative importance and ratings of the critical success factors identified for focal firms and their potential partner industry groups and/or firms will shift over time - some CSFs may disappear from the future list altogether, and new factors will need to be included in the partner analysis. Evaluating potential industry groups, segments and specific firms as potential alliance partners involves using dynamic considerations to evaluate both the present and future appropriateness of each target. A dynamic analysis is critical to account for and ideally - to anticipate future changes. Future opportunities for alliance academic researchers Alliance partner selection processes and analytical tools are important areas for further academic research, and many opportunities exist for alliance researchers to extend and enrich our strategic management-based process and partner selection tool (see Table 5). One important lesson consistently found by strategy literature, and confirmed by users of our approach, is that process matters. Heracleous and Jacobs suggest that the process of crafting strategy can be powerful in actively engaging participants, crafting their strategic territory, identifying managers’ perceptions and assumptions, and developing a strategic map; our approach extends this process to include alliance strategies.35 Research could explore the various elements of the partner selection process, as well as the relative emphasis of its deductive approach in contrast with their view of crafting strategy as an integrative, inductive process. Strategy is often conceptualized as creating a mental framework. While the need to develop the strategic-thinking skills of those involved in strategy process and alliance development processes has been recognized,36 our approach could be readily adapted to support a quasi experimental design to assess how managers’ alliance partner selection strategy mind-sets are changed by using similar tools. As part of such experiments, researchers could examine how managers’ thinking and analysis shifts when the partner selection tool requires them to consider broader macro and industry considerations before moving down to the firm level of analysis.
Carefully controlled planning processes are often discarded in turbulent times, and avoided altogether by entrepreneurs in favor of more ‘inspired’ approaches. A second area of future research involves the continuing inquiry into linear, planned approaches to partner selection versus emergent ones. The partner selection tool suggests a rational, structured and analytical approach to potential (or actual) partner industry, group or specific firm analysis that results in an action plan. Embedded in this approach are strategy concepts of environmental scanning and sense-making, and scenario development. However, researchers have found that such carefully controlled planning processes are discarded by many organizations in turbulent times, and avoided altogether by entrepreneurs in favor of more ‘inspired’ approaches.37 The existence of such contrasted approaches to making strategy raises several research opportunities with respect to our process. First, there is the opportunity to examine modifications that could allow for inclusion of emergent strategy aspects, including fostering debate across hierarchies, educating various audiences, enhancing the inclusion of peripheral strategy considerations, and promoting flexibility.38 Second, given the apparent inclination of some managers to adopt less-structured strategy processes in uncertain environments, it could be interesting to test the extent to which tools of varying Long Range Planning, vol 42
2009
187
Table 5. Future Opportunities for Alliance Researchers
Expand this exploratory alliance partner selection analytical tool to other service and product businesses; Exploring in more detail the impacts of the partner selection tool in analyzing alliances engaged in more in a learning transfer mechanism as opposed to access to resources, customers, suppliers, etc.; Test the potential for shifting managers’ mind sets and the ability to engage various actors throughout the organization; Research the value of the partner selection process and the roles of deductive and inductive approaches; Examine how the tool can be effectively implemented in different organizations, taking into account existing structures, routines and various actors’ roles; Explore potential adaptations of this exploratory alliance partner-selection analytical tool for diverse types of alliances, including equity-alliances and non equity alliances; Conduct experiments to test the proposed strategic alliance partner industry group, industry segment and firm selection process vs. a firm-only partner selection process; Explore longitudinal applications of the proposed partner selection strategic process and dynamic congruent analytical tool; Examine the political, social and cultural aspects of using the alliance partner selection process and the partner selection analytical tool. Examine implications when organizations are faced with one or more turbulent environments; Identify what process or tool modifications, if any, are needed for nonprofit organizations and smaller, entrepreneurial firms seeking to build successful alliances.
degrees of structure, linearity and complexity remain useful in more volatile situations. Third, important dimensions and insights would be added by additional research that blends this article’s analytical methodologies with the myriad external/environmental issues such as the political, social and cultural aspects that are part of any strategy development, selection process and implementation. King found that ‘venture capitalists are ‘bifurcated strategists’, using carefully controlled planning for their portfolio companies [but] more emergent strategies on their own behalf’ due, in large part, to the turbulence of their own operating environments. Research on possible adaptations of the partner selection process and tool when the focal firm is faced with one or multiple turbulent or fastchanging environments would add to our understanding. Fourth, further research that incorporates the inclusion of external analysis and strategy exploitation and exploration approaches to partner selection would be useful. Fifth, research could be conducted on how the emergent opportunismbased strategies that are part of an overall consistent stream of alliance strategy behavior (as noted by King), are impacted by and/or can be imbedded in the partner selection tool. Sixth, the further development of exploitation and exploration alliance strategy approaches would allow the inclusion of peripheral strategy considerations, and promote flexibility - all important considerations (as Giraudeau notes) in a more inclusive approach to alliance strategy development and execution. A third area of research interest involves improving our understanding of how an organization actually uses approaches such as ours within its ‘practice of strategy.’ An ‘effective practitioner needs to understand both the local routines and the different roles involved in strategymaking’.39 How can the partner selection process and tool be most effectively implemented in different organizations, taking into account its existing structures, routines and the roles of its various actors? How can the most appropriate mix of insights, thinking, explicit and tacit knowledge, strategic and local experiences all be brought together in using the strategic alliance partner selection process and tool? Further research could lead to an improved understanding of how organizations actually work on alliance formulation, including partner selection and strategy implementation. Fourth, further research focusing on longitudinal applications of the partner selection process and analytical tool could explore the evolving effectiveness of linkages between corporate and alliance objectives and strategies. Longitudinal analysis could also include a more detailed exploration of the partner selection process and tool’s effects in analyzing different types of 188
Building Successful Strategic Alliances
alliances - those formed to increase access to resources, customers, suppliers, etc. and those intended to facilitate the transfer of knowledge and learning - as well as how the CSFs associated with these contrasting motivations coexist and how their comparative weightings shift over time in a single alliance. A fifth opportunity for further research is in extending our approach and tool to other contexts. For example, research has found that learning alliances are likely to require different CSFs than resource-seeking alliances, and modifications or additions to our process and tool may be needed to accommodate the different CSFs important to various alliance forms. Thus it is important in learning alliances that the knowledge gap between parties be not so great as to limit knowledge transfer, and the ‘knowledge gap’ concept suggests the need to examine the knowledge levels of both focal firm and its potential partner: how might our tool accommodate such measures? Similarly, our approach and tool was applied to a service industry: service sector alliances are growing rapidly and would benefit from additional research across all phases of alliance strategy, partner selection, deal making, and alliance implementation and management. Extending our selection process and tool to multiple types of service and product businesses, and to different types of alliances, would provide additional insights on building successful alliances through using systematic and rigorous partner selection methodologies. Future research could also explore adapting the tool to different types of alliances, including equity-alliances and non-equity alliances, and those with or between nonprofit organizations. Finally, it would be useful to explore how the alliance partner selection process and/or analytical tool might need to be adapted for use in smaller, entrepreneurial firms. Such firms often turn to alliances as a mechanism to accomplish their goals of rapid growth, learning, and access to resources. Additional research that more fully considers the dynamic (as opposed to static) impacts on partner selection and on the entrepreneurial firm, the impact of an entrepreneurial firm’s use of the tool on how the prospective partner perceives the entrepreneurial firm, and the potential value of the partnership for both parties would be beneficial.
Conclusion Strategic alliances are an increasingly important core element in many firms’ strategies to create and sustain their competitive advantages in dynamic market environments. Alliance partner selection is an important topic in service-sector firms, as well as in other types of organizations, and merits further research and management consideration. Thoughtful partner selection is a key factor in building more successful strategic alliances. This article’s strategic management-based alliance partner selection process and related analytical tool provide a foundation from which firms can begin to evaluate alliances in a more systematic, dynamic and strategic manner, at multiple analysis levels.
Acknowledgements We would like to thank the Editor in Chief Professor Charles Baden-Fuller for his constructive comments and suggestions that were very helpful in improving the focus, substance and clarity of the paper. In addition, we would like to express our appreciation to the three anonymous reviewers for their suggestions and helpful comments.
Appendix Executive MBA test of partner selection process and analytical tools More than 150 Executive MBA students in seven classes participated in testing the partner selection process and analytical tool. The students (average age 39) had an average of 13 years experience in manufacturing, service or technology fields, and across a wide range of industries, notfor-profits and businesses. They were divided into teams of four or five, each of which was asked Long Range Planning, vol 42
2009
189
Table 6. Results Before and After Using Proposed Partner Selection Process and Tool
Initial Partner Selection Process and Analysis
Second Analysis using proposed Partner Selection Process and Tool
Focused on a narrow scope of analysis
Expanded the scope of analysis to include more variables and considerations Considered industry issues prior to analyzing potential partners Included industry and country considerations and their impacts over time in their expanded analysis Considered future as well as current CSFs and the issues driving CSF changes over time Used the analytical tool to weight the importance of each CSF Used CSF weighting and partner rating process to expose underlying assumptions Result e Chose a different partner or developed a significantly different rationale for choosing same partner
Went directly to the firm level of analysis in evaluating the two potential partners Omitted key industry and external country issues in their analysis Focused on current CSFs Did not consider potential changes in CSFs over time Only at the margin did the teams evaluate the relative importance of their CSFs Did not expose underlying assumptions Result e Chose an alliance partner on the basis of incomplete analysis and weak rationales
to develop an initial international market-entry alliance strategy for a U.S. firm in an assigned industry. The teams were required to research the industry and evaluate two potential alliance partners currently operating in the foreign country, with the objective of identifying the most appropriate alliance partner for the focal U.S. firm. The teams worked to develop their alliance partner selection rationale and approach, and then made an initial partner selection. This article’s partner selection process and tool was then introduced, and the teams were asked to reanalyze the two potential alliance partners. By using this article’s partner selection process and tool, all the Executive MBA teams expanded the range of their considerations, enhanced the quality of their analysis, weighted and rated their CSFs, and added dynamic considerations incorporating likely changes over time. As a result, virtually all teams either chose a different partner than in the first round, or chose the same partner, but based on a very different rationale. (A generalized comparison of the results of their initial and tool-based approaches is provided in Table 6).
References 1. For alliances as central strategic/competitive components, see V. Newman and K. Chaharbaghi, Strategic alliances in fast-moving markets Long Range Planning 29(6), 850e856, (1996) and J. Gil and R. J. Butler, Managing instability of cross-cultural alliances Long Range Planning 36(6), 543e563(2003); for the shift to networkevs.-network competition, see P. Hwang and W. P. Burgers, The many faces of multi-firm alliances: lessons for managers California Management Review Spring, 101e117, (1997) and M. A. Hitt, B. W. Keats, and S. M. DeMarie, Navigating in the new competitive landscape: Building strategic flexibility and competitive advantage in the 21st century Academy of Management Executive 12(4), 22e43(1998); J. R. Harbison, P. Pekar Jr., A. Viscio and D. Moloney, The Alliance Enterprise: Breakout Strategy for the New Millennium, Booz-Allen & Hamilton, Inc (2000); G. Lorenzoni and C. Baden-Fuller, Creating a strategic center to manage a web of partners California Management Review Spring, 146e163 (1995); for the effects of strategic innovations, see C. Baden-Fuller and J. Stopford, Rejuvenating the Mature Business, Routledge, London (1992); J. A. Barker, Paradigms: The Business of Discovering the Future, HarperCollins Publishers, Inc., New York (1992); for the collaborative paradigm, see K. Pavlovich, All that jazz Long Range Planning 36(5), 441e458 (2003). 2. A. C. Inkpen and J. Ross, Why do some strategic alliances persist beyond their useful life? California Management Review Fall, 132e148 (2001); A. Arino, J de la Torre and P. S. Ring, Relational quality: managing trust in corporate alliances California Management Review Fall, 109e131 (2001). 190
Building Successful Strategic Alliances
3. K. D. Brouthers, L. E. Brouthers and T. J. Wilkinson, Strategic alliances: choose your partners Long Range Planning 28(3), 18e25 (1995). 4. P. E. Bierly and S. Gallagher, Explaining alliance partner selection: fit, trust and strategic expediency Long Range Planning 40(2), 134e153 (2007). 5. J. Draulans, A.-P. deMan and H. W. Volberda, Building alliance capability: managing techniques for superior performance Long Range Planning 36(2), 151e166 (2003); B. L. Simonin, The importance of collaborative know-how: an empirical test of the learning organization Academy of Management Journal 40(5), 1150e1174 (1997); W. H. Hoffman, How to manage a portfolio of alliances Long Range Planning 38(2), 121e143 (2005); K. D. Brouthers, L. E. Brouthers and T. J. Wilkinson (1995) op. cit. at Ref. 3; R. Kumar and K. O. Nti, Differential learning and interaction in alliance dynamics: a process and outcome discrepancy model Organization Science 9(MayeJune), 356e367 (1998). 6. J. M. Geringer, Strategic determinants of partner selection criteria in international joint ventures Journal of International Business Studies 22, 41e62 (1991); N. Pangarkar, Determinants of alliance duration in uncertain environments: the case of the biotechnology sector, Long Range Planning 36(3), 269e284 (2003); R. D. Ireland, M. A. Hitt and D. Vaidyanath, Alliance management as a source of competitive advantage Journal of Management 28(3), 413e446 (2002); G. Lorenzoni and C. Baden-Fuller (1995) op. cit. at Ref. 1; D. Lei and J. W. Slocum Jr., Global strategy, competence-building and strategic alliances California Management Review Fall, 81e97 (1992); L. Sleuwaegen, K. Shep, G. den Hartog and H. Commandeur, Value creation and the alliance experiences of Dutch companies Long Range Planning 36(6), 533e542 (2003); W. H. Hoffmann (2005) op. cit. at Ref. 5; B. Gomes-Casseres, Managing International Alliances: Conceptual Framework, Harvard Business School Note (May 14, 1993); J. R. Harbison and P. Pekar, Smart Alliances: a Practical Guide to Repeatable Success, Jossey-Bass, San Francisco (1998). 7. J. H. Dyer, P. Kale and H. Singh, How to make strategic alliances work, MIT Sloan Management Review Summer 42(4), 37e43 (2001); J. Draulans et al. (2003) op. cit. at Ref. 1. 8. Y. Doz and G. Hamel, Alliance Advantage, Harvard Business School Press (1998); J. Child and D. Faulkner, Strategies of Co-operation, Managing Alliances, Networks, and Joint Ventures, Oxford University Press (1998); S. H. Park and D. Zhou, Firm heterogeneity and competitive dynamics in alliance formation Academy of Management Review 30, 531e554 (2005). 9. F. C. Pan, Selecting consumer oriented alliance partner to assure customer satisfaction in international markets The Journal of American Academy of Business 4, 278e284 (March 2004). 10. D. B. Yoffie and E. J. Vayle, Swissair’s Alliances (A) Harvard Business School case, (1995) 9-794-152. 11. Ireland et al. (2002) op. cit. at Ref. 6; J. Pansiri, How company and managerial characteristics influence strategic alliance adoption in the travel sector International Journal of Tourism Research 9, 243e255 (2007); N. Evans, Alliances in the international travel industry: sustainable strategic options? International Journal of Hospitality & Tourism Administration 2(1), 1e26 (2001). 12. Brown’s and Gilliland views are noted in, respectively D. Tsuruoka, Expedia packing new deal with Hyatt Investor’s Business Daily May 1, A6 (2006) and D. Tsuruoka, Airline travel said to be far from grounded by rising fuel prices, Investor’s Business Daily May 17, A6 (2006). 13. Sabre Holdings, Inc., Sabre Holdings Annual Report and 10 K Statement, (2004). 14. D. Lie and J. W. Slocum Jr., Global strategy, competence-building and strategic alliances California Management Review Fall, 81e97 (1992). 15. D. C. Hambrick and J. W. Fredrickson, Are you sure you have a strategy? Academy of Management Executive 15(4), 48e59 (2001). 16. E. Todeva and D. Knoke, Strategic alliances and models of collaboration Management Decision 43(1), 123e148 (2005). 17. C. S. Dev, S. Klein and R. A. Fisher, A market-based approach for partner selection in marketing alliances Journal of Travel Research summer 35(1), 11e17 (1996). 18. A. C. Inkpen, Creating knowledge through collaboration California Management Review Fall, 123e140 (1996). 19. G. H. Stonehouse, J. D. Pemberton and C. E. Barber, The role of knowledge facilitators and inhibitors: lessons from airline reservations systems Long Range Planning 34(2), 115e138 (2001). 20. T. K. Das and B.-S. Teng, Instabilities of strategic alliances: an internal tensions perspective Organizational Science 11(1), 77e101 (January-February 2000). 21. It is often instructive to develop different sets of CSFs for each major industry-type and industry-group as well. However, to reinforce the linkage back to the firm’s corporate and business objectives and strategies, it is important to have one set of CSFs related to the focal firm’s specific challenges against which to assess Long Range Planning, vol 42
2009
191
22. 23.
24.
25.
26.
27. 28. 29. 30.
31.
32.
33. 34. 35. 36. 37. 38. 39.
alternative partnering activities across all industry types, industry groups and sub-groups and potential partner firms. P. S. Ring and A. H. Van de Ven, Developmental processes of cooperative interorganizational relationships Academy of Management Review 19(1), 90e118 (1994). C. Alderman, J. Block, L. Lenderman and T. Sheppard, A comprehensive strategic analysis of the online travel industry, Unpublished manuscript, Air Force Internship Program, Administrative Sciences Department, George Washington University (2000). Consumers’ concerns are discussed in D. Willmott, The online travel bug PC Magazine May 17, (2000); and the resultant limitations on online activities in J. Poirer, Privacy fears deter e-travel bookings, Reuters February 9 (2000). Following Teng’s approach we use Brandenburger and Nalebuff’s value net analysis approach - see A. M. Brandenburger and B. J. Nalebuff, Co-opetition, Doubleday, New York (1996); B-S. Teng, Collaborative advantage of strategic alliances: value creation in the value net, Journal of General Management 29(2): 1e22 (2003). The axes are rotated consistent with J. L. Cummings and J. P. Doh, Identifying who matters: mapping key players in multiple environments California Management Review 42(2), 83e104 (2000). This discussion is an adaptation of Brandenburger and Nalebuff (1996) as found in J. L. Cummings, Understanding Business Strategy, A Comprehensive Approach to Strategic Analysis, unpublished manuscript (2002). A. J. Slywotzky and D. J. Morrison, The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow’s Profits, Random House, New York (1997). see www.iac.com, Press Release, July 19 (2005) and T. J. McInerney, IAC/InterActive Corp. Bank of America Conference Presentation, March 30 (1995). I. Hipkin and P. Naude´, Developing effective alliance partnerships: lessons from a case study Long Range Planning 39(1), (2006). S. P. Douglas and C. S. Craig, Evolution of global marketing strategy: scale, scope, and synergy Columbia Journal of World Business Fall, 47e59 (1989); G. Lorenzoni and A. Lipparini, The leveraging of interfirm relationships as a distinctive organizational capability: a longitudinal study Strategic Management Journal 20, 317e338 (1999). P. S. Aulakh, M. Kotabe and A. Sahay, Trust and performance in cross-border marketing partnerships: a behavioral approach, in P. W. Beamish and J. P. Killing (eds.), Cooperative Strategies: North American Perspectives 167, New Lexington Press, San Francisco (1997). C. A. O’Reilly and J. A. Chatman, Culture as social control: corporations, cults, and commitment Research in Organizational Behavior 18, 157e200 (1996); M. B. Sarkar, R. Echambadi, S. T. Cavusgil and P. S. Aulakh, The influence of complementarity, compatibility, and relationship capital on alliance performance Academy of Marketing Science Journal 29(4), 358e374 (2001). R. Gulati, N. Nohria and A. Zaheer, Strategic networks Strategic Management Journal 21, 203e215 (2000). J. C. Anderson and J. A. Narus, Partnering as a focused market strategy California Management Review Spring, 95e113 (1991). L. Heracleous and C. D. Jacobs, Crafting strategy: the role of embodied Metaphors Long Range Planning 41(3), 309e325 (2008). J. Vila and J. I. Canales, Can strategic planning make strategy more relevant and build commitment over time? The case of RACC Long Range Planning 41(3), 273e290 (2008). B. L. King, Strategizing at leading venture capital firms: of planning, opportunism and deliberate emergence Long Range Planning 41(3), 345e366 (2008). M. Giraudeau, The drafts of strategy: opening up plans and their uses Long Range Planning 41, 291e308 (2008). R. Whittington, Strategy as practice Long Range Planning 29(5), 731e735 (1996).
Biographies Stevan R. Holmberg is a Professor, Management Department Chair and former Acting Dean at the Kogod School of Business. His research interests focus on strategic alliances, strategic management, and U.S. and E.U. franchise business failure. He has published in the Journal of Business Venturing and other entrepreneurship and management journals, and presented papers in the U.S., the U.K., the Netherlands and Sweden. Kogod School of Business, 192
Building Successful Strategic Alliances
American University, 4400 Massachusetts Ave., NW Washington, DC 20016 USA Phone 202-885-1921 E-Mail:
[email protected] Jeffrey L. Cummings is an Associate Professor at the Sellinger School of Business and Management, where he teaches executive business strategy and international business. His research and consulting focus on strategicanalysis frameworks and knowledge transfer mechanisms. His work has been applied at the World Bank and U.S. Navy and has appeared in Academy of Management Executive, California Management Review and Journal of Engineering and Technology Management. Sellinger School of Business and Management, Loyola College, 4501 North Charles Street, Baltimore, MD 21210, USA. Phone 410-617-2453 E-Mail:
[email protected]
Long Range Planning, vol 42
2009
193
