Simple Rules for Making Alliances Work, by Jonathan Hughes and Jeff Weiss, Harvard Business Review, ‘Onpoint’ - Fall 2012

These special 'OnPoint' editions of the Harvard Business Review are obviously a way of recycling previous articles and generating revenue, but they are usually good value.  You get the best selection of articles from recent times and this edition has a number that are worth reading.  I chose this article because I think is the best and the review will therefore, by my standards, be highly positive.

It is about alliances and joint ventures between companies, which are becoming an increasing feature of corporate life these days.  Indeed at MTP this is featuring increasingly on the learning agendas of our clients, for instance we were recently asked to include this topic in a programme for Finance Business Partners of a major international client in the energy sector.  It is interesting that the messages in this article are very much in line with the best practice that our client asked us to emphasise, based on their long experience of managing joint ventures.

The messages of the article are simple and to some extent counter intuitive.  Alliances and JVs are an increasing feature of corporate life - increasing by 25% overall - yet the authors’ research shows that 60% to 70% don’t work.  This is because the conventionally regarded best practice does not seem to work; most companies would work to these guidelines:

·        -  Define the right business arrangement

·        -  Create metrics of end performance

·         - Eliminate differences

·        - Establish formal systems

·        - Manage external relationships

The counter-intuitive message is that these guidelines are not key success factors in practice and, in many cases, they are the cause of failure.  Instead attention should be paid to the polar opposites of these guidelines, which can be summarised as:

·         - Developing the relationships

·        - Creating metrics of means rather than ends

·        -  Embracing differences

·        - Enabling collaboration

·        - Managing internal stakeholders

What makes the argument even more powerful is the research backing, quoting quantitative data and examples of major companies who have seen the light and are willing to admit their past mistakes, including Aventis and Schering Plough.  It was also impressive that the authors (presumably) persuaded HP and Microsoft to bare their souls and admit how their alliance initially failed to work because of different perceptions of each other’s strengths and weaknesses, for example:

·        -  HP perceived itself as taking a long term mature approach; Microsoft saw this as slow and bureaucratic

·        - Microsoft perceived itself as entrepreneurial and fast moving; HP saw this as excessively competitive and confrontational

Only when they started to discuss the relationship, the differences and the need for collaboration was the alliance put on the right track.  The message was - let’s use our differences to create value rather than allowing them to destroy the alliance.

The arguments seem to be sound and very much in line with the messages we would deliver on our courses, with one exception.  Perhaps it’s my financial background but I could not quite go along with the second message - to measure means rather than ends.  The argument here is that there can be too much focus on revenue, costs and profit at the early stages, when the emphasis should be on how the relationship is working and how far agreed milestones have been achieved.  My criticism of that approach is that, like it or not, alliances will eventually stand or fall on financial performance and it should be possible to agree financial milestones, as well as for the softer targets.  It should not be seen as ‘either/or’.

But overall, an impressive piece of research and an excellent read, challenging conventional thinking as all good business articles should do.  There should be more of this kind.