Managing relations in the early implementation stages of alliances

Old models of alliances where only one party gains from the alliance is proving problematic even for the best resourced firms New models take into consideration human skills and interpersonal skills management These new models also emphasize on cooperative strategies, are more relationship based, are highly flexible and are capable of responding to rapid changes in the market.

Mis-managed relationships and collaboration clashes cause most of the alliance to fail Studies show 50-60% of alliance failure in recent years Even the most successful of firms and alliances, the initial years of the alliance are full of problems that firms must overcome in order to avoid failure of the alliance

“How early stages are managed will determine alliance success” How collaboration is started and its early process are important. Decision making and interactions at initial stages play an important role in ffuture development and success.

Relationships & Successful Alliance Company needs to have an ability to effectively manage relationship issues. Relationship issues are key in achieving successful alliance. – However, relationship issues are often forgotten when establishing an alliance – 70% of premature alliance termination were caused by relationship problems.

At “initial stages”… It is a challenging experience for most companies Initial context of an alliance rarely focus on encouraging in cooperation If early uncertainties, conflicts, and tensions are not handle carefully  mistrust  create “us VS them” mindset

TRUST  Success! Creating “trust-based relationship” at early stages is vital factors. Trust plays a key role collaborative relationships. Often, alliances failed due to lack of trust.

TRUST  Success! What is Trust? Trust means… “having sufficient confidence in a partner to commit valuable know-how and other resources to the venture despite the risk of the partner taking advantage of this commitment” (Faulkner, 1995) “mutual confidence that no party to an exchange will exploit other’s vulnerability” (Sabel, 1993)

TRUST  Success! How to build trust? Building trust may takes a long time. Be trustworthy AND being known to be trustworthy Trust is difficult to create and preserve – Especially in international alliances Culture differences – should be handle with care, if once got damaged  difficult to reestablish

TRUST  Success! If there is TRUST in the alliance …  Coordination costs  Opportunistic behavior  Conflicts Help to adapt with changing environments

TRUST  Success! If there is NO TRUST in the alliance … suspicion can occurred Partners will feel uncomfortable in.. – Sharing information – Making the investments and commitments

Managers emphasize technical / legal over people issues Evidences reveal that many managers consider people issues unimportant. Partners working cooperatively through uncertainties, conflicts, and changing priorities is the important factor in achieving the value creation objective of the alliance, but managers often OVERLOOK.

Managers emphasize technical / legal over people issues Corporate executives focus more on “deal making”. – Focus on forming alliances rather than preserving them – Pay huge attention on venture’s contractual elements, ignoring relationship aspects – Often spend more time on selecting potential partners in financial terms

Managers emphasize technical / legal over people issues In making alliances, most executives does not know how to move from deal and structural aspects to actual management. Executives often launch with high expectations, but no REAL plan to achieve them!

Senior management involvement in alliances declines over time In developing an alliance … 46%  conceptual phase 23%  business plan development 9%  implementation

Implementation Implementation problems can be traced directly to the partnership selection process. – In many companies technical and financial abilities  structured approach relationship aspects  superficial – Many companies used their M&A due-diligence processes in the evaluation of the partners. Emphasized quantitative criteria De-emphasized relationship aspects

Tips in Building Relationships Time-consuming activity Fast start-up alliance can be risky Unless … have extensive experience have worked together with this partner in previous relationships.

Research Methodology Objectives Sample Data Collection Data Analysis

Result and Discussion People/relationship – issues involving problems related to communications, culture and role Operations – issues involving problems related to the technical details of implementation Strategic agenda – issues or problems concerning the goals and objectives of the venture Results – or problems related to the performance of the venture

First Year Problem Issue% of total response People/relationships Operations Strategic agenda Results

Relationship Issues Relationship issues% of total responses Communications Culture Roles and responsibilities

Communication Problems Occurred because of the partners cannot get face-to-face meetings Also, caused by personality conflicts among the individuals Language differences in international alliance

Cultural Differences Differences in languages, symbolism and meaning Difficult to get a common understanding so that it’s hard to develop trust Miscommunications can lead to breakdown of an alliance But also can create an opportunity to use the competence and knowledge in each partner culture

Operational Problems Appear from poor partner due diligence, deficient planning or faulty assumption This can increase into differences over long-term strategy

Other First Year Problems At this stage, no significant strategic tensions were apparent in these relationships. Few problems with respect to the anticipated performance or achievement in year one.

Partner Selection Potential partners should be assessed with implementation in mind. Companies need to assess partner compatibility in a deliberate and comprehensive way, evaluating by commitment and trustworthiness. Successful alliance builders should have detailed knowledge of the potential partner’s management culture

Negotiation The foundation for effective collaboration Reflect the ultimate desire of the parties to establish a positive atmosphere for the business enterprise. A process of building the linkages between partner companies Managers should strive to create a situation where both parties perceive the benefits to be high and the risks to be shared equally. The primary objective of both parties is to ensure that they achieve a win-win situation.

People Selection The alliance manager has a key role to play in creating the foundation of building trust. Good alliance manager Staff should be chosen both for the skills that they can contribute to the business enterprise as well as their ability to work in a cooperative environment.

Learning and relationship building Helps to develop effective communications create a positive atmosphere Start with a joint effort directed at learning about the competitive technological and market environment. Develop mutual trust and shared understanding Helps partners establish a common goal.

Communication building Important to build a shared understanding of the joint venture’s goal and objectives  create trust Good communication is a key. Many ways for establishing effective communication in alliance. Face-to-face communications played a significant role in successful alliances.

Reconciliation of Cultural Differences Managing cultural differences in alliances, involve partners participating in each others executive development program exchange visits and cross-cultural workshops Cultural liaisons or cultural translators often play a very important role in overcoming both organizational and national cultural differences by minimizing conflicts and misunderstanding that can arise. Companies may give an assignment of staff from partner companies to each other to help to translate cultural norms and issues

Ongoing Relationship Management Focus on measure that capture the quality of collaboration Subjective assessments which is focused on the process of cooperation and the quality and nature of partner interaction

Constructive Interaction Companies should continually be on the lookout for opportunities to enhance trust and to take care of the partnership. Partners should recognize each other’s interest and run the alliance in a way that serves the interest of both.