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Managing Alliance Relationships: Key Challenges in the Early Stages of Collaboration Group8 Kampanart P. 4880569 David Gray 4980277 Nattida S. 4980359 Sara Choi 4980425
Introduction • A study of Canadian high technology executives found that 87% of CEOs surveyed believed that alliances would be important to their future strategies and 94% believed that it will become more important to their companies’ strategies. • Despite the growing popularity of alliance, collaborative success remains elusive for many companies and even those ventures that eventually succeed must frequently overcome serious problems in their early years. • The real challenge of strategic alliance management is to transform collaborative agreements into productive and effective relationships, particularly in the initial stages of the venture.
Managing Relations in the Early Implementation stages of Alliances How early stages are managed determines alliance success • The decisions made and particularly the nature of the interactions that take place during the initial stages of the endeavor will likely play a determining role in its future development and success. • A lack of attention to issues such as trust, chemistry and culture is to blame for the disbanding of most alliances. • Relational issues seem to be forgotten when it comes to launching agreements between partners. These issues, however, are key to achieving mutually rewarding successful alliances.
Managing Relations in the Early Implementation stages of Alliances Early stages are fraught with uncertainty and ambiguity • Learning to work together is hard. Nevertheless, the initial stage of an alliance is a critical shakeout period where the foundation is laid for a good working relationship. But initial context of an alliance seldom encourages cooperation. • The managers and staff will most likely find themselves in unfamiliar territory in which they have no clear frame of reference which further complicated by cultural difference, communication barriers and lingering suspicions about partner motives. When these early uncertainties, conflicts, tensions are not handled carefully and they can cause mistrust, undermining the foundation of the venture. • Therefore, view the early stages of cooperation as a period of mutual discovery, sense making and trust building with good communication between the partners and the positive experiences of cooperation may ultimately lead to a sense of shared identity and personal friendship within an alliance.
Managing Relations in the Early Implementation stages of Alliances Managers emphasize technical/legal over people issues • Unfortunately, many managers consider people issues soft and unimportant compared to operational and technical issues. They seem to emphasize the venture’s contractual elements while ignoring or seriously underestimating the daily management and relationship aspects that actually define the process of cooperation and more worried about controlling the relationship than nurturing it. • When it comes to implementing a new venture, dilemma lies where market pressures requires rapid action by the partners, whereas relationship building is a time-consuming activity. • However, fast star-up of an alliance can be extremely risky for partners unless they have substantial experience in managing them or have worked together in previous relationship.
Research Methodology The information that this paper is based on was derived from a survey sent to 140 companies. It covered small entrepreneurial companies to large multinationals across the Canadian information technology industry. Respondents were questioned with respect to problems encountered in the first three years of operation, and their level of satisfaction with the results achieved during this period.
Results and Discussion Responses centered around four key themes. These were: People/relationship issues involving problems related to communications, culture and roles; • Operations issues involving problems related to the technical details of implementation, e.g. technology transfer, scheduling etc; • Strategic agenda issues or problems concerning the goals and objectives of the venture • Results or problems related to the performance of the venture of the relationship issue, communications was the main problem causer, followed by culture and lastly roles and responsibilities. These are considered 'soft' problems as they deal with people.
Results and Discussion Communication problems: Communications issues accounted for over 50% of relationship related problems, and over 25% of the total problems given. Managers noted that misunderstandings in the first year of their alliance led to problems of establishing and maintaining communications. Causes of these problems were attributed to: • Physical distance • Personality problems • Language differences • Large structural or organizational differences
Results and Discussion Communication problems: Communications problems can lead to mistrust and suspicion, and can undermine the legitimacy and effectiveness of the alliance. Good communication can be attributed to: • The quality of communication • The frequency of communication Transparency and reduced uncertainty encourages sustained cooperation. The lack of communication may be perceived as a sign that it is is not an important business partner. This undermines its commitment and interest.
Results and Discussion Cultural differences The most prevalent cultural problems emerged from differences in national culture. It is estimated that 21% of prematurely aborted alliances are caused by cultural factors. Cultural differences are related to other alliance problems. There is a higher likelihood that there will be communication problems between two culturally different partners. Cultural differences will usually be prevalent in the early stages of an alliance when partners are not used to working with each other. Partners may intentionally or unintentionally pressure other members to accept their culture, which may cause conflict. Cultural differences are most prevalent in: • Alliances whose members are highly interdependent and interactive • International alliances
Results and Discussion Cultural differences Cultural differences may stem from the corporate culture of the firm, where an established company may encourage rigidity, whereas an entrepreneurial company may encourage creativity. The bottom line of culture differences are differences in: • Your approach to doing business • Your speed of doing business • Your attitude towards business Cultural problems can lead to the following costs: • Time costs where synergy is difficult to attain • Effort costs where emotional energy is necessary to get through interactions • Attention costs where senior management are inundated with solving 'soft' problems
Results and Discussion Roles and responsibility problems These problems arise from confusion over respective roles and responsibilities. These stem: • A lack of definition • A poor understanding of who is responsible for what function or activity It is suggested that the solution to this type of problems is 'to understand how the strategy is going to get implemented in their organization and in yours. And once that is done, who is going to be responsible for it in each organization.' Planning ahead is the foundation of management, and this is relevant in alliance design because implementation partners need to have a clear idea about what tasks need to be performed, and what decisions need to be made and by whom. It must also be understood that role and responsibility is an issue that will evolve over the life of the alliance.
Results and Discussion Operational problems Combining skills and technologies is difficult in practice, especially when there are complex cultural or social issues involved. To fix these problems partners may need to: Revise their plans • Increase their resource commitments • Redesign the activity Operational problems usually appear from: • Poor partner due diligence • Deficient planning • Faulty assumptions
Results and Discussion Other first year problems Strategy and results were given as minor problems. Such problems were related to: • Alliance objective alignment • Direction and focus of the alliance • Setting priorities • Setting goals • Anticipated performance • Anticipated achievements
Implications for Managers Partner Selection This typically depends on time and competitive pressures. As a result, companies tend to focus on hard criteria such as, market position, technical skills, and financial capability. But soft criteria and data related to the potential compatibility of the partner are typically ignored or undervalued. So, it's important to have detailed knowledge of the potential partner's management culture and its previous alliance experience.
Implications for Managers Negotiation It should reflect the ultimate desire of the parties and be viewed first as a process of building the linkages between the partner companies. Managers should attempt to create a situation where both parties perceive the benefits to be high and the risks to be equally-shared as primary objective to ensure that both partners achieve a win-win deal. This process is a good place to test compatibility and personal chemistry.
Implications for Managers People Selection Relationship considerations should also play a central role in the selection of people to manage and participate in the alliance. The alliance manager should: • Set the right tone for the relationship • Create the foundation for trust building • Have the ability to manage the technical aspects • Possess strong interpersonal skills to compensate for cultural and organizational differences • Have combinative skills to manage diverse perspectives and a wide array of capabilities Staff should be chosen both for the required skills as well as the ability to work in a cooperative environment. Companies should also limit the turnover of alliance managers which can support continuity and help maintain interpersonal and inter-firm trust.
Implications for Managers Learning and relationship building The partners should use the initial stages of an alliance to learn about each other, to develop effective communications and to create a positive atmosphere. The first steps in working together should be small ones no matter how ambitious the ultimate goals of the alliance. These baby steps are used for early confidence and trust building and for sharpening the skills, understanding and task definition among the partners. Companies should start with a joint effort directed at learning about the competitive technological and market environment. The alliance managers should begin with incremental steps and employ the principle of “repeated reinforcement of positive experiences” to build the relationship and a sense of team cohesiveness.
Implications for Managers Communication building Communications established at the beginning as early problems can reduce rather than increase inter-partner communication and add to the costs of cooperation and also help to resolve early stage behavioral differences quickly and intimately. They can entail e-mail connections and other electronic linkages. However, they are not substitute for face-to-face interaction. Face-to-face communications play a critical role in successful alliances as an important means of developing strategic and operational convergence and also building trust. It is an important prerequisite for the effective use of electronic communications media.
Implications for Managers Reconciliation of cultural differences It can be approached in a number of different ways depending on the extent of interaction between the partners and the extent of the differences involved. Cultural liaisons or cultural translators can often play a very important role in overcoming both organizational and national cultural differences and in minimizing conflicts and misunderstandings that can arise
Implications for Managers Ongoing relationship management In the early stages, managers should consider focusing on measures that capture the quality of collaboration which is typically very subjective or qualitative assessments. As the venture matures, the performance indicators can shift toward the output side and more quantitative measures. It is clear that many companies evaluate immature ventures too formally, placing too much emphasis on financial criteria. The result may be the premature termination of the venture or a reduced level of commitment before the alliance has had the time to realize its potential.
Implications for Managers Constructive interaction Companies should continually be on the lookout for opportunities to enhance trust and to nurture the partnership by recognizing each other's interest and run the alliance in a way that serves the interest of both. An argument said that a winning strategy is to always be constructive. In this context, partners proactively bring issues that effect the other partner's interest to its attention when they spots them (issue spotting). This view reduces surprises and helps to build confidence that each party is looking out for the other's interest.
Implications for Researchers • To determine under what conditions are more or less significant to the success of an alliance. • To identify, compare & contrast different approaches to successful relationship management • To separate the effects of the variables and of researchers’ interactions. • To study how the definition of issues changes over time.
Conclusion • Underestimating the importance of alliance or failing to consciously manage relationship issues has caused the failure of many ventures. • To develop a capability to deal with the relationship issues will clearly be in a position to outperform their competition.